As we head into 2023, the Futures Market is in a state of flux. Corporate earnings were higher than what Wall Street had predicted causing the Dow Jones at the time of writing, February 2023, to shift upwards by over 200 points only for it to go in the opposite direction a day later.
In many ways, this has been the story for the last few years as much of the world emerged from lockdown. That is to say, that expectations and predictions were often wrong. To be fair, not everyone could see a war in Europe coming down the track and China’s supply chain issues as a result of their unachievable zero Covid policies.
In short, the market is volatile and unpredictable. So if you’re a Futures Market trader, what factors should be on your radar? And what types of Futures should you look to invest in?
Please note none of this is financial advice.
Inflation
After decades of inflation being under 1% in much of the western world, 2021 saw the figure beginning to rise.
There are a number of reasons why inflation started to creep upward. China’s shutdown meant that the value of goods increased as scarcity increased and this was reflected in the Consumer Price Index(CPI).
Retail and industry goods were affected at the same time, and this drove up the cost of living. The Fed responded by increasing inflation month on month causing the cost of living to increase considerably and effectively compounding the problem.
It is the inflation increases that have seen weariness in the markets with investors at both an institutional and retail level watching for any announcement from the Fed that inflation is coming down.
In case you don’t know, the US dollar is the world’s reserve currency. That is to say that it underpins the entire monetary system. As such, it isn’t just American traders that have an ear for future Fed announcements, but traders from around the world.
As well as China, the increasing commitment to green energy from countries around the world is driving up inflation mostly in the form of increasing energy costs for the average citizen impacting markets in ways not seen before.
Jobs
Employment across the western world is like the market itself in that it is unpredictable. This makes choosing which contracts to enter into more difficult. Depending on trends interest rates will change which impacts inflation.
Broadly, the fewer unemployed and interest rates are likely to increase.
Should trends show that employment is growing this is generally a sign that the economy is growing and that demand for raw materials will increase.
Right now, there is an imbalance in the American labor market. Job openings currently exceed labor supply by five million and again, this impacts the economy and the futures market. That said, the Fed’s inflation driving measures and knock on pressures to the average U.S. citizen is expected to redress this imbalance somewhat although a full on recession by the end of 2024 is expected to hit as a result.
Factor in an ageing workforce, an increase in workplace sickness, and excess retirement and it is easy to see why the imbalance exists.
World Events
The global picture of events greatly influences what types of Futures to invest in. The current unpredictable volatile market is driven by an unpredictable volatile world. Institutions and government instruments that we once depended on feel like they are on shifting ground.
This impacts hedging and other Futures market tactics and instruments as the uncertainty grows.
On a global scale war tensions are running high in Europe and food shortages seem to be inevitable. The rise of automation and AI will inevitably lead to job losses. Again this influences what types of Futures to invest in considerably.
Net Zero
The commitment to go green from almost every country on the planet is a severe driver of economic crisis across the western world. It also has impacted raw materials considerably as some that many felt were going to be in demand to build batteries and so forth such as cobalt, have slumped while others have soared.
Right now the impact of going green is yet to be fully understood. Renewable energy is not at the point where it can sustain a sizeable population with electricity, while the impact of traffic curving measure will damage economies both locally and globally.
What Types of Futures Are Good in 2023
Trading in Futures requires good financial skill and given the volatility only a brave man or woman will try and predict the markets at the moment. Pre-pandemic stability is a long way off and was it really that stable back in 2019?
When it comes to what types of Futures to trade it is best to talk to professionals in the arena. Bear in mind that green energy is massive right now and will expand exponentially going forward as more countries strive to adhere to climate change global policies.
