The Nasdaq 100 Bounces Back as the Japanese Yen Surges

Also 30-year T-bond, copper, natural gas and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): +0.71%
2. 30-year T-bond futures (/ZB): -0.41%
3. Copper futures (/HG): +1.39%
4. Natural gas futures (/NG): -0.51%
5. Japanese yen futures (/6J): +1.69%

Markets were upended last night when the Bank of Japan hinted that an end to its ultra-accommodative monetary policy may soon be around the corner. The Japanese yen (/6JZ3) is the top performer among any future covered in this report, an atypical development that underscores how momentous a decision this would be. However, markets may calm down over the course of the U.S. trading session as investors patiently await the release of the November U.S. jobs report tomorrow morning at 8:30 a.m. EST/7:30 a.m. CST.

Good news is good news for the U.S. equity markets this morning, with a better-than-expected round of weekly jobless claims data helping assuage burgeoning fears of a slowdown in the U.S. economy. Despite the uptick in U.S. Treasury yields at the long-end of the curve, the rates-sensitive Nasdaq 100 (/NQZ3) is leading the way higher amid a strong start to the trading session in Google’s parent Alphabet (GOOGL) and AMD (AMD). Meanwhile, the Russell 2000 (/RTYZ3), which came crashing back down to earth during yesterday’s session, is barely treading water.

U.S. Treasury bonds are mixed after stretching to fresh monthly highs (and the highest levels since early September) in yesterday’s session. The long-end is proving most sensitive (as usual recently), with 30s (/ZBZ3) and ultras (/UBZ3) leading the way lower this morning. Unrelated to any U.S. data developments, the moves appear to be in response to the move in the Japanese yen (/6JZ3) and Japanese government bonds (JGBs); the Bank of Japan appears to be testing the waters for an exit from its ultra-accommodative monetary policy, which could upend global bond markets.

After declining to a two-week low yesterday, copper prices (/HGH4) moved about 1.5% higher this morning. Overnight, traders digested data from China, which showed weak domestic consumption on soft import data but slightly better-than-expected exports. Besides a softer dollar, there isn’t much else driving the move, so bulls might be ready to sell at the first sign of trouble.

Natural gas (/NGF4) is down again but some early morning buying trimmed some losses to put prices around 2.559 before the opening bell. Today, the Energy Information Administration (EIA) will report weekly storage data for the United States, with traders expecting to see a draw of 105 billion cubic feet (bcf) for the week ending Dec. 1. An unusually warm start to the winter in the United States and Europe has left stockpiles near seasonally adjusted highs compared to the last few years. However, selling pressure may exhaust soon, which could lead to a relief rally, although the fundamental backdrop remains bearish.

The Japanese yen (/6JZ3) surged overnight alongside Japanese bond yields after Bank of Japan (BoJ) Deputy Governor Ryozo Himino speculated about the consequences of ending the bank’s ultra-loose monetary policy setting. That leads the market to suspect the BoJ is seriously considering the end of negative rates, which could come as soon as the middle of next year. Given the fact that the yen is still massively down on the year, there may be more upside for the currency to run before sellers become exhausted.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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