Intermarket Analysis Throught Macro and Technical Methods
Here you’ll find: Which variable is driving the market?
A technical oscillator reimagined as a macro oscillator.
An analysis of the same variable as inferred from the futures market.
Why rates are likely to fall, based on labor market trends.
The Fed’s reaction—and its most valuable asset: credibility.
The dollar’s depreciation—how, how much, and when it began. Winners and losers.
The launch of a new service called Weekly Freakys—what it is, how to use it, and the leap into algo trading.
Portfolio management takeaways.
And as always, we close with technical analysis in search of a complete setup.
#60 Understanding rate-Driving Markets dynamics
Understanding which variable is driving markets—through multiple lenses and approaches.
The constant chain of cause and effect in today’s markets spans so many dimensions that we’re forced to focus on one variable at a time over a given period. Once that analysis is done, we move to the intermarket to assess the ripple effects. The challenge is that causality is never linear. By now, we know that interest rates are the foundation of everything in economics—and ultimately, in markets. The issue, of course, is that we’re dealing with a 30-year yield curve, meaning we’re not analyzing one rate, but an entire spectrum of them.
What’s Driving Markets Right Now?
Which variable holds more weight today? What’s guiding market behavior?
In our previous article, we showed how the current structure of the 2- and 10-year yields was weakening the dollar.
Driving Markets: The Link Between the 2-Year Yield, the Fed Funds Rate, and Recessions
Historically, the 2-year yield acts as a leading indicator for both the Fed’s policy rate and upcoming recessions. It often anticipates turns in monetary policy and shifts in economic momentum—making it essential for understanding rate-driving market dynamics.
The 2-Year Yield: A Near-Perfect Macro Oscillator, driven markets today
We’ve already seen how the Fed’s control over interest rates weakens as the time horizon extends. Yet its grip on the 2-year yield seems solid—until it isn’t. When that disconnect emerges, the Fed eventually steps in to realign the market.
Driving Markets through a Technical Oscillator
In red, the 2-year yield. In blue, the Fed’s spot rate.
If you’re familiar with technical oscillators like the MACD, RSI, or Stochastics, this chart will feel familiar. But instead of price action, what we’re seeing here is something deeper: a macro oscillator that compares the market’s 2-year expectations to current Fed policy.
Driving Markets and history
Zoom in, and you’ll notice a pattern—before each of the last four recessions, the 2-year yield crossed below the Fed rate. A clear technical sell signal, but in macro form.
As we broke down in the last article, the drop in the nominal 2-year yield is being driven by falling real rates, lower inflation expectations, and a declining term premium. The message is loud and clear: the market sees a short-term slowdown. And historically, when the market sees that, a recession follows—4 out of the last 5 times.
Footnote (as discussed in earlier articles):
The black arrows in the correlation coefficient highlight the emergence of new dominant macro hypotheses. These are moments when the market adopts a view that diverges from the Fed’s. That’s when the Fed steps in to regain control of the 2-year rate.
It hasn’t happened yet—but it will. And soon.
Driving Markets: Let’s look at why, starting with a snapshot of the labor market from the day the yield curve inverted.
What is Indeed?
Indeed is one of the world’s leading job search platforms. It aggregates listings from thousands of sources—company websites, job boards, and staffing agencies—and also allows direct job postings.
Official site: indeed.com
The yield curve inversion date marks the exact moment when job postings begin to decline.Naturally, the market adjusts—resignations begin to drop.
Driven Markets: Initial and Continuing
Notice that after the yield curve inverts, jobless claims stop being resolved at the pace new ones are filed. This, of course, adds to the fiscal deficit under social assistance—or welfare—spending.
Driven Markets: A.D.P reports
Why ADP Matters in Labor Market Analysis
ADP (Automatic Data Processing) is one of the largest global providers of payroll and human capital management services. But in markets, it’s known for something more specific:
The ADP National Employment Report—a monthly snapshot of private (non-farm) job creation in the U.S., released before the official BLS payroll data.
Key Highlights:
Based on actual payroll data from millions of U.S. workers
Acts as a leading indicator of labor market trends
Published two days before the official nonfarm payrolls
Breaks down jobs by sector and company size
Official site: adpemploymentreport.com
The Fed’s Dual Mandate: Jobs and 2% Inflation
The market is pricing in lower inflation and a cooling labor market—so the 2-year yield is dropping, signaling recession risk. But there’s a problem: the Fed’s inflation target still hasn’t been met. And here lies the dilemma we’ve seen for decades.
The Fed won’t lower rates because of political pressure or Trump’s tweets. It’ll be forced to cut when companies start collapsing—small banks, homebuilders, consumer staples—the most vulnerable sectors. Public pressure will do the rest.
Driving Markets: Winners and Losers
Over time, the dollar’s purchasing power keeps eroding. Why? Because this cycle repeats itself. Inflation runs slightly above target, but something bigger breaks—and that breakdown threatens to do more harm than the inflation itself.
It’s a slow, almost invisible transfer of damage—mild but widespread—applied over time to millions of people. So diluted, so drawn out, that the silent majority remains unrepresented.
We call it “too big to fail.” But really, it’s “too small to complain.”
The accumulation of these episodes leads to a massive loss of the dollar’s purchasing power over time. Nothing illustrates this better than the long-term relationship between the dollar and spot gold.
Intermarket dives into the analysis: Futures Markets opinions
Driven Markets: Probabilities coming from futures markets
The market has already priced in no change in rates—assigning only a 2.6% probability to any adjustment in the next meeting
The Market and This Year’s Rate Path: What about September?
Probabilities shift for the September 17 meeting. The market is now pricing in a 58.2% chance of a rate cut in September, and just 1.5% for October 29.
Looking three meetings ahead, this is the market’s current view on the likelihood of rate cuts.
The outlook shifts again when we include the December meeting. What we have now is the likely path for interest rates, as seen through the lens of the futures market. These probabilities, of course, are dynamic—just like all market equilibriums.
The Fed and the Governors’ Outlook: The Dot Plot
Take a look at the views of each FOMC participant for 2025(first group of dots): most fall between 4.25% and 3.75%. The red dot represents the year-end rate the market expects—reflected in the futures market.
There’s no perfect alignment yet. In fact, we’re starting to see diverging positions. If left unresolved, these gaps could break correlations—something we’ve already discussed as a clear signal of a shifting macro narrative.
Driving Markets: A scenario the Fed can’t afford.
The third variable at play this time is long-term inflation expectations. The Fed cannot afford for them to become unanchored, as things like mortgage credit or any long-term loans would become more expensive, further impacting other sectors of the economy.
Furthermore, the Fed’s credibility is at stake—and for a central bank, its most valuable asset is precisely that: credibility.
Jumping from macro analysis to intermarket—and finally, to the technical setup.
Setups: Trading in This Context
At the portfolio level, a reduction in duration is clearly the way to go. At least a hedge against this situation. A vehicle option SHY
Driven markets: We’re adding new products to our offering.
We call them the “weekly freaks”.How do they work and what value do they add?
We analyze all asset classes on a weekly basis across five main dimensions:
Returns
Volume
Volatility
Inflows and outflows
The same metrics applied to futures and options contracts
For example: Returns
CPER Interpretation
Weekly Return: 0.19%
A mildly positive week.52-Week Average Weekly Return: 0.69%
On average, CPER has returned more per week over the past year, so this week was below its usual pace.Z-Score (1w): -0.13
The weekly return was slightly below the historical average,but not meaningfully so.Z-scores close to 0 imply that the return is not unusual relative to the standard deviations from the mean. What we’re really looking for are Z-scores greater than 2 or less than -2—those are the freakys.Z-Scores (4w: 2.13, 8w: 2.07, 12w: 2.16)
These are very elevated. A Z-score tells you how far a value is from its historical average, measured in standard deviations.A Z-score of 2 means the value is 2 standard deviations above the mean—a statistically rare and strong move.
In this case, CPER has been significantly outperforming its usual behavior over the past 1–3 months, signaling strong momentum.Sharpe Ratio: 0.18
The Sharpe ratio measures risk-adjusted return.A value near zero means that CPER hasn’t been compensating investors much for the risk taken.
Despite the strong performance, it hasn’t been efficient from a risk perspective.
Coefficient of Variation (CV): 5.41
CV measures the volatility relative to the average return.The higher the CV, the more unstable or erratic the asset’s performance.
A CV of 5.41 is fairly high, indicating significant variability.
Bottom Line:
CPER has shown strong recent momentum, with several weeks of outsized gains. However, the low Sharpe ratio and high CV suggest that this strength comes with elevated risk and poor efficiency. It may be overextended and vulnerable to a pullback, seeing that this strength has faded over the past week.
Of course, this is just the return analysis. Once we add volume, volatility, inflows and outflows, along with the futures market, the view of the situation becomes complete.
Naturally, these numbers will also feed into systems designed for day trading, swing trading, and longer-term holding strategies.
The famous algos—tailored to trending or sideways assets and built on the five pillars of analysis. I know it sounds complex, but it’s not. We’ll learn it together as the reports unfold.
The most important feature of the Weekly Freakys is that they cover every category, with thousands of assets in each. It’s essentially a screener that tests all the asset’s weekly parameters.
CPER a Technical Interpretation
Notice that over the past month, two months, and three months, it’s become heavily extended. It has broken out of its value zone and entered a clear trend. The fact that this week’s return adds to an already stretched move creates a situation where entering now is highly risky. A pullback is likely on the way.
Looking at accumulated volume, it’s at a peak—raising the likelihood of profit-taking.
Let’s move to the daily time frame
Market Driving: A jump to Inter Market Analysis
Of course, this asset situation is typically traded with a buy-the-dip approach. Pinpointing the entry is tricky—Fibonacci levels help, but it’s the price momentum that will give us the real trigger.
Well, that’s all for today. For the 10,000th time, this is what we’re seeing and sharing for marketing purposes. THESE ARE NOT TRADING RECOMMENDATIONS.
You can find us at intermarketflow.com and on X @intermarketflow.
See you soon,
Martin