Russell 2000 Drops Ahead of PCE; Bitcoin Tops $60K

Also 10-year T-note, gold, natural gas and Australian dollar futures

1. Russell 2000 e-mini futures (/RTY): -0.71%
2. 10-year T-note futures (/ZN): +0.10%
3. Gold futures (/GC): +0.08%
4. Natural gas futures (/NG): +3.60%
5. Australian dollar futures (/6A): -0.73%

U.S. equity market futures are pointed lower on Wednesday as anxiety appears to be setting in ahead of the release of the Federal Reserve’s preferred inflation gauge tomorrow.

Fed rate cut odds for June are at their lowest implied probability in mid-November 2023, with only three full cuts discounted for this year. Bonds may already have discounted these fears, given the decline in recent weeks and resiliency over the past few sessions.

Elsewhere, natural gas prices continue to charge higher, as do Bitcoin prices, which topped $60,000 for the first time since November 2021.

Russell 2000 drops

Russell 2000 futures (/RTYH4) fell about 0.6% Wednesday morning, trimming gains from earlier in the week as market sentiment waned ahead of tomorrow’s inflation report. Today, several Federal Reserve members, including Atlanta Fed President Raphael Bostic and Boston Fed President Susan Collins are due.

Corporate earnings have revealed more job cuts, with Beyond Meat Inc. (BYND) and Bumble Inc. (BMBL) announcing “right sizing” plans this week.

Treasuries mixed

The appetite for Treasuries received a mixed outlook this week, with yesterday’s seven-year auction seeing weak demand following a much stronger showing for five-year notes.

With the offerings out of the way, bond traders have their focus on tomorrow’s PCE report, which is the Fed’s preferred inflation gauge. That, and a raft of Fed speakers due to take the stage today, could provide a new anchor point for the direction of Treasuries. 10-year T-note futures (/ZNH4) are trading slightly higher this morning but remain below the top of its weekly range.

Gold moves sideways

Gold prices (/GCJ4) are holding to a tight range this week, with prices nearly unchanged this morning.

Metals traders have been indecisive amid a recalibration in Fed rate cut bets that have shifted over the past month to prefer a June cut instead of a March cut. However, if tomorrow’s data indicated a softer environment for inflation, we may see gold prices rise further from the $2,000 level, although it might not be until later this year when rate cuts become a reality that gold prices make significant headway.

Natural gas prices soar

Natural gas prices (/NGH4) rose about 6.5% this morning as a brief cold snap moved across the United States Midwest and into the East Coast.

Traders have beaten down the commodity over the past few months, but the selling pressure hasn’t been enough to beat the 1.5 level, with the commodity making several jumps from around the level, indicating that shorts are taking their profits around the level. European gas inventories are 63.48% full, which is above normal for this time of the year, and tomorrow the U.S. will see updated inventory figures.

Aussie dollar falls

Australian dollar futures fell overnight with weakness extending into this morning after Australian inflation data trimmed hawkish bets for the Reserve Bank of Australia (RBA).

On a fiscal front, a sharp drop in natural gas prices worldwide is encouraging energy importers to switch from coal to natural gas. While Australia exports natural gas, it ships much more coal, and the calculus could hurt the country’s balance sheet beyond the short term.

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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