Nasdaq Futures Gain as JPY Carry Trades Continue to Unwind

Also, 10-year T-note, gold, crude oil and Japanese yen futures

1. S&P 500 E-mini futures (/ES): +1.14% 

2. 10-year T-note futures (/ZN): -0.23% 

3. Gold futures (/GC): +0.38% 

4. Crude oil futures (/CL): +2.21% 

5. Japanese yen futures (/6J): +1.38% 

Traders are continuing to shake off the Japan-induced deterioration in risk appetite at the start of the week, with each of the four U.S. equity indexes trading higher for a third straight session during U.S. hours. Diminished fears of financial contagion are reducing odds of extreme easing measures by the Federal Reserve, weighing on bonds. Elsewhere, energy is showing signs of life as tension between Israel and Iran is not subsiding. And with the Bank of Japan (BOJ) apology last night, the Japanese yen—arguably one of the sources of pain in the market since mid-July—is the worst performer on the day.  

Nasdaq futures (/NQU4) rose this morning after officials in Japan reassured markets that it would be more mindful of market stability when making monetary policy adjustments. Investors saw that as confirmation we likely won’t see another rate hike from the Bank of Japan over the next few meetings. That will help ease the unwind of carry trades after a volatile few days of trading. Airbnb (ABNB) dropped over 13% in pre-market trading after the company warned that demand will slow.  

Treasury yields fell across the curve, with the BOJ’s reassurance cooling demand for U.S. debt. The 10-year T-note futures contract (/ZNU4) fell 0.25% this morning. The Treasury is set to auction off 10-year notes today in the first auction of the year when the yield is below 4%. Meanwhile, the curve between the 10-year yield and two-year yield is nearly uninverted.

Gold prices (/GCZ4) are on track to break the recent streak of losses as market volatility cools and geopolitical risks lend support to the metal. Traders are putting Fed interest rate cut bets back into focus for the metal as concerns around the yen moderate. Still, the metal remains near the mid-point of a range carved out from May to July, putting its technical setup in a neutral position.  

Crude oil prices (/CLU4) rose nearly 2% this morning as traders shook off the recent market volatility. Prices managed not to close below the early June swing low, offering an olive branch to energy bulls. With weak hands out of the trade following the decline, we may see a rebound in sentiment. Today’s focus is on the Energy Information Administration's weekly inventory data due out this morning. A private report showed crude stocks rose last week but not as much as analysts expected.  

The Japanese yen (/6JU4) continues to fade gains from the start of the week, in part thanks to a mea culpa from the BOJ. The BOJ Deputy Gov. Shinichi Uchida gave a speech last night in which he acknowledged further policy normalization would not be undertaken so long as market volatility persists. Was this a green light to reinstitute the JPY-funded carry trade? Markets are certainly acting like it. 

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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