Automated trading strategies are set to dominate the market this week, regardless of the outcome of important events such as the Federal Reserve interest rate decision and the upcoming U.S. Treasury auction.
Daniel Ghali, senior commodity strategist at TD Securities in Toronto, explained that automated trading strategies are likely to buy stock indexes, bonds, and gold in almost all circumstances. Professional investment managers are re-leveraging during periods of relative calm in financial markets, as evidenced by the CBOE VIX and the ICE BofAML MOVE index.
Ghali stated that Commodity Trading Advisors (CTAs) are expected to buy everything, with the only exception being in the case of extreme surprises hitting the U.S. Treasury market. CTAs are prepared to buy stock index futures, U.S. Treasuries, and gold, even in the event of price declines.
Ghali pointed out that the CTAs are ready to buy gold in any scenario, even during rate cut cycles when macro traders historically have been underweight the precious metal.
As traders wait for the Federal Reserve’s interest rate decision, and news about the size of the upcoming U.S. Treasury auction, CTAs are preparing to dominate the market with their automated trading strategies.
The Federal Reserve is expected to maintain interest rates for now, while the Treasury Department is set to announce the size of its upcoming auction. Friday’s nonfarm payrolls report is also anticipated to show a decrease in job creation in January compared to December.
Overall, the dominance of automated trading strategies in the market suggests that regardless of the outcome of key events, including the interest rate decision and the Treasury auction, CTAs will continue to drive market trends.