Nasdaq 100 Futures Rally as the Fed Signals the End of Rate Hikes

Also, 10-year T-note, gold, crude oil, and British pound futures

This Morning’s Five Futures in Focus:

1. Nasdaq 100 E-mini Futures (/NQ): +0.32%
2. 10-Year T-Note Futures (/ZN): +0.29%
3. Gold Futures (/GC): +0.52%
4. Crude Oil Futures (/CL): -0.75%
5. British Pound Futures (/6B): -0.22%

Markets continue to stay focused on the latest developments in the Israeli-Hamas conflict as a U.S. carrier strike group arrives in the Eastern Mediterranean. Coupled with a slew of Federal Reserve officials signaling the end of the rate hike cycle is here—no more hikes in 2023, meaning the final hike was in July—U.S. bonds continue to rally off their recent cycle lows. The Federal Open Market Committee, or FOMC, r today at 2 p.m. EDT, and the U.S. inflation report is due tomorrow at 8:30 a.m. EDT.

A minor sell-off in the second half of the trading day yesterday has been rebuffed thus far today. At the time this note was written, each of the four major U.S. equity index futures are trading modestly higher, barely below their weekly highs. The bond market remains the boss, however, as the rolling one-month correlation between 30s (/ZBZ3) and each of the S&P 500 (/ESZ3), the Russell 2000 (/RTYZ3) and the Dow Jones 30 (/YMZ3) remains north of 0.85.

A parade of Federal Reserve officials in recent days has laid the groundwork for making no additional rate hikes in 2023. In what has now been a familiar refrain, the long-end of the curve (30s (/ZBZ3) and ultras (/UBZ3)) continue to lead the way. However, the September FOMC meeting minutes may throw a wrinkle into the bullish price action because at the time of the meeting, U.S. Treasury yields hadn’t made their jump to new cycle highs. Hawkish commentary is expected.

A further retrenchment in U.S. Treasury yields and the U.S. dollar is proving to be the antidot precieous metals have needed to halt their startling declines at the end of September and beginning of October. Gold (/GCZ3) is up more than 3% from last week’s lows, while silver (/SIZ3) is up more than 5% over that same time period. The September U.S. inflation report tomorrow is the next major catalyst for the metals.

Crude oil (/CLZ3) is taking a step backward in the middle of the week as concerns over a significant geopolitical spillover from the Mideast conflict appear to have been diminished. Iranian leaders have steadfastly denied direct involvement in the planning of this past weekend’s atrocities, effectively ringfencing the near-term trajectory of fighting to Israel and Gaza. Volatility remains exceptionally higher, with the IVR in /CLV3 holding near 50.

The ongoing pullback in U.S. Treasury yields continues to undermine the U.S. dollar, but so does the rebound in broader risk appetite. The greenback has benefited in recent weeks as the preferred safe haven of sorts during the swing lower in global equities, thanks to its relative yield advantage. The British pound (/6BZ3) has emerged as a winner today following a 10-year Gilt auction that fetched 4.444% vs. 4.402% previously.

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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