AI Tailwinds Lift Nasdaq, But Inflation Data Clouds the Rally

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

1. Nasdaq 100 E-mini futures (/NQ): +0.58% 
2. 10-year T-note futures (/ZN): -0.32% 
3. Gold futures (/GC): -0.01% 
4. Crude oil futures (/CL): -0.14% 
5. British pound futures (/6B): -0.25% 

The removal of AI chip export restrictions on China last night proved to be a positive catalyst for semiconductor stocks like Advanced Micro Devices (AMD) and Nvidia (NVDA), helping push the Nasdaq 100 to fresh all-time highs overnight. But the release of the June US inflation report has soured the mood in markets today, as signs of tariff-induced inflation begin to appear. 

The June US consumer price index (CPI) came in line at the headline at 0.3% month-over-month (m/m) and 2.7% year-over-year (y/y), which is the good news. And it’s likewise good news that core inflation came in a touch softer, at 0.2% m/m vs. 0.3% m/m expected, while the year-over-year reading came in at 2.9%, below the forecast of 3%. That’s where the good news ends: core goods inflation was 0.7% m/m, the fastest rate in over two years. Similarly, food import prices are rising quickly as well: Coffee, for example, increased by 2.2% m/m.  

The initial enthusiasm around the softer headline figures has been subsumed by the slow realization that the topline figures in the June US inflation report are masking a less positive story. The only asset that seems to be enjoying the data: The US dollar. 

Nasdaq futures (/NQU5) rose 0.73% ahead of the New York open. Market sentiment improved following the release of this morning’s inflation data and news that Nvidia would soon start to ship previously restricted chips to China. The company said it would start deliveries of H20 chips soon. China has been building up its data center infrastructure and the newly unleashed market will likely add a considerable tailwind to Nvidia’s sales. Citigroup (C) gained over 2% in pre-market trading after beating results. JPMorgan (JPM) was slightly higher after reporting its own earnings, but Wells Fargo (WFC) fell nearly 3%. Goldman Sachs (GS) and Bank of America (BAC) will report tomorrow morning, followed by Netflix (NFLX) on Thursday. 

Treasuries were trading at small losses before the inflation report crossed the wires. 10-year T-note futures (/ZNU5) got a boost, rising about 0.04%, to trade slightly positive ahead of the New York open, with the inflation numbers adding some fuel to rate cut bets for the Federal Reserve. The threat of tariffs adding to price pressures remains absent from the economy, which is a good sign for dovish expectations on monetary policy. Rate traders have two cuts priced in by the end of the year.  

Gold prices (/GCQ5) bounced slightly after the inflation data this morning, but traders quickly trimmed those gains and returned gold to its downward trend. The report was good news for equities, which sapped the safe-haven appeal of gold. Prices are trading near the middle of their June range after failing to clear the 61.8% Fibonacci retracement level during yesterday's session. If sentiment in equity markets remains rosy, a return to the 3,300 level may be on the cards for bullion.  

Crude oil futures (/CLQ5) moderated following yesterday’s 2% loss. Supply concerns eased after Trump gave Russia a 50-day deadline to end hostilities toward Ukraine before enacting more severe sanctions on the major oil producer. A drop in the crude oil prompt spread reflected the market’s view on the supply concerns, with the spread dropping about 13 cents to trade just above $1 of backwardation, which is the lowest since early June. Traders are watching today’s report from the American Petroleum Institute (API).  

British pound futures (/6BU5) continued to slide this morning with prices now nearing the June swing low. The pound was one of the best performers in June but fiscal concerns in the United Kingdom have come to a head and halted the rally, with traders now selling the currency against the dollar. Notably, the pound has also lost a lot of ground against the Euro. Strength in the dollar after this morning’s inflation report also put more pressure on the pound. Some support could come into the picture if prices challenge the June lows, but for now, the pound is looking at a bearish backdrop because of concern about spending in the UK.  

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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