Nasdaq 100 Held Back as Rotation Trades Continue

Also, 30-year T-bond, silver, crude oil and euro futures

1. Nasdaq 100 E-mini futures (/NQ): -0.08% 

2. 30-year T-bond futures (/ZB): +0.5% 

3. Gold futures (/GC): +0.97% 

4. Crude oil futures (/CL): -1.21% 

5. Euro futures (/6E): -0.24% 

U.S. equity markets are mostly higher on today as earnings continue to meet or beat expectations. Bond yields are mostly lower across the curve, particularly at the long-end, in the wake of the June U.S. retail sales report this morning. Precious metals are continuing to churn, although gold prices are edging closer to all-time highs. Elsewhere, energy prices are mostly weaker with oil potentially carving out a head and shoulders top. The U.S. dollar is stronger on the day, led by weakness in the commodity currencies.

While three of the four U.S. equity index futures are pointing higher today, the lone standout is the Nasdaq 100 (/NQU4). The tech-heavy Nasdaq has seen outflows in recent days as traders have shifted into the battered down small caps and blue chips.

Rotation itself isn’t a problem. This continues a recent run where /NQU4 has underperformed the Russell 2000 (/RTYU4) by a significant margin. In fact, last week /RTYU4 outperformed /NQU4 by over 5%. In the past decade, the previous three times that happened were: the week the Pfizer (PFE) vaccine was announced in November 2020; the week the Federal Reserve announced easing in April 2020; and the week of the presidential election in November 2016. Those didn’t happen near tops in broader equity markets.

Fed commentary is in its waning days ahead of the communication blackout window, but that still means a few catalysts remain between now and the end of the week. Better-than-expected retail sales has led to a twist in the yield curve, with the long-end rallying and the short-end falling. 30s (/ZBU4) will be in focus over the next two days as the Treasury Department readies a 20-year bond auction for tomorrow. 

Gold prices (/GCQ4) are edging ever-closer to all-time highs but remain within a range that’s been carved out since early-April. Silver prices (/SIU4) are in a similar position, having recently broken a multi-week downtrend but have yet to clear out the yearly highs carved out last quarter. The trend of lower U.S. yields and a weaker U.S. dollar continues to cultivate fertile ground for precious metals.

Natural gas prices (/NGQ4) may be finding some relief, but the broader energy market is lower on today. Crude oil prices (/CLQ4) are weaker after the June U.S. retail sales report showed demand at gas stations fell last month. A potential topping pattern may be coming into focus, not dissimilar to what happened in April and May: /CLQ4 would target a move down toward 76.4 in the event of a daily close below 80.

It’s a good day for the U.S. dollar as all major currencies are lower on the session. The dollar index ($DXY) is rebounding from support at multi-month lows, and a look at its largest component, the euro (/6EU4), shows that a sideways range has been in place since early-April. If the range in /6EU4 holds, it likely means the recent stretch of broader dollar weakness is coming to an end. Otherwise, if /6EU4 breaks above 1.1000, foreign exchange (FX) markets could be on the precipice of a prolonged run of dollar weakness.

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

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