Nasdaq 100 Dips as Yields Jump Following Release of Retail Sales Data

Also, five-year T-notes, silver, crude oil and British pound futures

1. Nasdaq 100 E-mini Futures (/NQ): -0.69%
2. 5-year T-Note Futures (/ZF): -0.34%
3. Silver Futures (/SI): +0.37%
4. Crude Oil Futures (/CL): +0.11%
5. British Pound Futures (/6B): -0.50%

While markets were in a geopolitical war hedge mode between Friday and Monday—laying on the hedges, then taking them off—news that President Joe Biden would travel to Israel tomorrow has markets returning to conditions seen in recent months. That is, instead of bonds and stocks trading in different directions, we now see that U.S. equity markets are being weighed on by the recent push higher in bond yields. A better-than-expected U.S. retail sales report for September is rekindling concerns the Federal Reserve might need to raise interest rates again this year (however marginally).

After a resurgent session yesterday—the S&P 500’s (/ESZ3) 15th consecutive gain on a Monday, a new record—all four major stock indexes were trading in the red ahead of the U.S. cash equity session today. The Nasdaq 100 (/NQZ3) and the Russell 2000 (/RTYZ3) are proving the most sensitive to the bump higher in yields despite what has thus far been a positive round of earnings releases, particularly from the big banks.

Now that a small window has opened for the Israel-Hamas war to deescalate with President Biden’s trip tomorrow, markets are moving away from their geopolitical war hedge stance (bonds up/stocks down, and vice versa) back to focus around higher for longer (bonds down/stocks down). The long-end of the curve remains the focal point, with 30s (/ZBZ3) and ultras (/UBZ3) once again proving to be the biggest movers.

Despite a rise in U.S. Treasury yields and a bounce higher by the U.S. dollar, precious metals are faring well, clawing back their minor losses from yesterday. Silver (/SIZ3) is leading the way higher, although gold prices (/GCZ3) aren’t far behind. Meanwhile, swirling concerns around the Chinese property section continue to weigh on copper prices (/HGZ3), which hit fresh 2023 lows earlier today.

Yesterday’s news that the U.S. might lift sanctions against Venezuelan oil production helped spark a move lower in energy markets, as did the unwinding of the hedges put into place at the end of last week. The prospect of increased supply coming back into the market could help rebalance the supply/demand deficit in crude oil (/CLZ3) in place thanks to OPEC+’s 3 million basis-point (bps) deficit through the end of the quarter. The American Petroleum Institute (API) will release its crude oil stock change report today for the week ended Oct. 13.

Weaker than expected wage growth in the United Kingdom for August and a softer than anticipated Canada inflation report for September have both the British pound (/6BZ3) and Canadian dollar (/6CZ3) reeling today. Coupled with the rise in U.S. Treasury yields on the heels of the September U.S. retail sales report, the tailwinds are at the U.S. dollar’s back as markets turn into the middle of the week.

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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