Nasdaq 100 Slips Lower as Oil Rally Weighs on Bonds

Also five-year T-note, silver, crude oil and Australian dollar futures

1. Nasdaq 100 E-mini futures (/NQ): -0.54% 

2. Five-year T-Note futures (/ZF): -0.15% 

3. Silver futures (/SI): +2.54% 

4. Crude oil futures (/CL): +1.51% 

5. Australian dollar futures (/6A): +0.32% 

The continued surge in commodity prices may be having a ripple effect through inflation expectations and into the bond market. A push to fresh yearly highs in crude oil and gold prices is difficult to ignore, with both U.S. Treasury 10- and 30-year yields now at fresh yearly highs as well. U.S. equity markets may be starting to take notice, with losses accumulating overnight. The U.S. dollar is stepping back today after hitting a fresh yearly high yesterday, too. 

Equity markets remain under pressure as traders weigh the ongoing bond selloff against a resilient U.S. economy. The chances for three Federal Reserve rate cuts slipped away, and now the timing of a June cut is less than certain, according to Fed funds futures. The tech-heavy Nasdaq (/NQM4) is down 0.77% this morning and other indexes, including the small-cap Russell, are also down. That highlights a broader selloff indicating more fear in the market than usual. Healthcare stocks are some of the biggest losers this morning after the government failed to raise rates for Medicare payments.  

Treasuries continue to sell off from yesterday when a stronger-than-expected manufacturing report for the U.S. put more pressure on Fed rate cut bets. The bond market pressure extended overseas, pushing yields higher in Europe as well. The five-year T-note futures (/ZFM4) fell 0.15% ahead of the New York open. There are no Treasury auctions today, but several Federal Reserve officials are set to speak today, which could see interest rate cut bets swing further. Tomorrow’s Institute of Supply Management (ISM) services index and a speech from Fed Chair Jerome Powell is in focus for bond traders. 

Precious metals are acting as a haven amid today’s equity and bond market behavior, with gold and silver prices both higher this morning. Silver futures (/SIK4) are up 2.54%, putting the metal up against its March swing high. A strong economic backdrop, underpinned by yesterday’s U.S. manufacturing report, is helping push the metal higher because of its dual use as an industrial metal.  

Geopolitical risks are making a tangible impact on energy markets after Ukraine launched another successful drone attack on a Russian oil refinery. Russia initially denied the drone attack succeeded but a Reuters analysis showed the facility’s main refining unit was damaged, potentially taking off as much capacity as 340,000 barrels per day (bpd). The attack comes after tensions in the Middle East escalated because Israel eliminated several high value Iranian military commanders. The American Petroleum Institute (API) will report crude inventory and products data today.

The Australian dollar (/6AM4) gained overnight and is 0.32% higher ahead of the NY opening bell despite rising Treasury yields and a risk-off tone across equity markets. Minutes from the Reserve Bank of Australia’s latest meeting showed evidence that the board will remain in a neutral stance for now, dashing rate hike bets and offering a path for its economy to stabilize following a period of stiff inflation. That comes amid a backdrop of improving relations with China, one of Australia’s largest trading partners. Last week, China lifted anti-dumping tariffs on Australian wine, offering relief to the country’s sprawling wine market.  

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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