Nasdaq 100 Retraces Gains Ahead of Inflation Data and FOMC

Also, 10-year T-note, silver, natural gas and British pound futures

1. Nasdaq 100 E-mini futures (/NQ): -0.32% 

2. 10-year T-note futures (/ZN): +0.16% 

3. Silver futures (/SI): -1.72% 

4. Natural gas futures (/NG): +5.02% 

5. British pound futures (/6B): +0.09% 

U.S. equity markets opened lower today as traders tread cautiously in anticipation of this week’s consumer price index (CPI) release and the Federal Reserve's rate decision. Overnight, European markets also ended in the red amid rumors that French President Emmanuel Macron might resign if he loses power in the upcoming election. Meanwhile, the CBOE’s volatility index futures (/GXN24) rose nearly 2%, signaling heightened uncertainty ahead of tomorrow’s key events.

Crude oil (/CLN4) dipped nearly 0.5% as the market awaits the American Petroleum Institute's (API) inventory data, with expectations pointing to a draw of around 2 million barrels for the week ending June 7.

Nasdaq futures (/NQM4) are slightly lower this morning as traders wait for tomorrow’s announcement from the Federal Reserve and an update to inflation figures. There is virtually no chance that the Fed will cut tomorrow but updated economic projections and the so-called “dot plot,” which signals individual members rate outlooks will provide the market with plenty of material to digest.  

Traders are stuck in a market that sees one or two rate cuts for the rest of the year. If tomorrow’s data points support the case for two rate cuts over one, we may see equity markets grind higher through the rest of the week. Business optimism improved in May, according to the NFIB’s index, rising to 90.5 from 89.7 in April. The recently listed Rubrik (RBRK) is set to report earnings after the bell, and we’ll also see results from Oracle (ORCL).  

10-year T-note contracts (/ZNU4) rose about 0.16% ahead of the Wall Street open, breaking a two-day losing streak. The Treasury will auction $39 billion worth of 10-year notes today. Despite the modest drop in U.S. yields this morning, the dollar was broadly stronger amid a more pronounced drop in yields in Europe. Tomorrow’s events will likely drive some volatility in bond trading.  

Silver prices are down against a strong dollar this morning, with the July contract dropping 1.72%. The metal has been trending lower since late May when prices rose to 32.75—an all-time high. Speculators on the long and short sides cut positions in silver, according to Friday’s commitments of traders report (COT). Inflation and rate projections from the Fed’s decision tomorrow and the CPI report will be key for the metal into the rest of the week.  

Natural gas prices (/NGN4) rose over 5% as weather forecasts show a potential heatwave across much of the United States, particularly the energy-hungry East Coast. A production shutdown at Chevron’s Wheatstone offshore facility in Australia has also injected some supply fears onto the global market. Meanwhile, talks to keep Russian gas flowing through Ukraine via the Ukraine gas transit route are underway but the deal is set to expire at the end of the year. While flows from Norway have increased substantially, the end of the deal leaves an uncertain situation around Europe’s energy.  

The British Pound (/6BM4) was little changed after a surprise increase in the United Kingdom’s jobless rate increased rate cut bets for later this year. Markets now see a 100% chance that the Bank of England (BoE) will cut rates in November and an almost 50% chance that another cut will come in December. Across the strait, Europe’s currency fell amid ongoing political uncertainties. The dollar will drive currency markets tomorrow once the Fed’s rate decision and U.S. inflation data crosses the wires.  

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

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