Nasdaq 100, 10-year T-Notes, Gold, Crude Oil and British Pound Futures

This Morning’s Five Futures in Focus

1. Nasdaq 100 e-mini futures (/NQ): -1.30%
2. 10-year T-note futures (/ZN): +0.03%
3. Gold futures (/GC): +0.02%
4. Crude oil futures (/CL): -0.34%
5. British pound futures (/6B): -0.42%

More overnight weakness in Asia and Europe greets U.S traders on Thursday. Aside from the usual concerns that Europe is racing toward stagflation and China’s property debt bubble woes linger, there are new signs of potentially increasing trade tensions between the world’s two largest economies. China’s decision to ban government officials from using Apple iPhones is proving to be a negative impulse for tech stocks globally because it justifies fears that deglobalization is gathering pace.

A clear shift to a more defensive posture took place in recent days, evidenced by the leadership in the Nasdaq 100 (/NQU3) to the downside. Once again, on a day when U.S. Treasury yields are mostly lower across the curve, the tech-heavy and rate-sensitive index is slumping—a concerning signal. /NQU3 now joins /RTYU3 (Russell 2000) in being down by over 2% this week.

Bonds are mixed, but three of the five U.S. Treasury bond futures are trading in positive territory on Thursday morning. Despite concerning development overseas, a spat of still-strong U.S. economic data in recent days—however minor—is fanning the flames of fears around additional Federal Reseerve rate hikes in the coming months: The spread between the /SR3U3 and /SR3Z3 contracts implies there is a 50/50 shot at another 25-basis point (bps) rate hike in November.

Gold (/GCV3) is slightly higher despite a stronger U.S. dollar, while silver (/SIV3) is selling off. This is pushing the gold/silver ratio near its recent August peak at 85.31, a point where silver’s price divergence from gold may cool. The ongoing dollar strength, driven today by a sinking euro following weak data out of Germany, will be likely to keep precious metal prices subdued over the short term, perhaps longer.

Crude oil (/CLV3) is trading $0.50 lower per barrel this morning after the commodity hit another fresh 2023 high yesterday. Traders are waiting for the Energy Information Administration’s weekly inventory report to confirm a larger-than-expected 5.5-million-barrel draw that was reported by the American Petroleum Institute (API) yesterday. The recent surprise drawdowns are likely due to production cuts by Saudi Arabia and Russia, with U.S. crude exports being used to soak up some of that removed supply. Other bullish tailwinds in the market are coming out of Saudi Arabia, where Riyadh raised its official selling price (OSP) to 3.60 a barrel, up 10 cents, for Asian customers.

The Japanese yen (/6JZ3) is continuing to hold ground in the wake of the Ministry of Finance’s warning on excessive speculation in the currency, though the broader shift to safe havens on Thursday may be doing more of the heavy lifting. Proliferating economic growth concerns, particularly out of Europe, have been plaguing the British pound (/6BZ3) and the euro (/6EZ3) in recent days, as the risk of stagflation—thereby handcuffing Bank of England and European Central Bank policymakers—continues to grow.

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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