Nasdaq 100 Reverses Losses After ‘Hot’ PPI Report

Also, five-year T-note, copper, natural gas, and Australian dollar futures

1. Nasdaq 100 E-mini futures (/NQ): -0.12% 

2. Five-year T-note futures (/ZF): +0.02% 

3. Copper futures (/HG): +1.66% 

4. Natural gas futures (/NG): -2.56% 

5. Australian dollar futures (/6A): +0.19% 

A deceptively ‘hot’ April U.S. producer price index (PPI) initially sent shockwaves through financial markets this morning, but cooler heads have prevailed as traders have had a chance to look under the hood of the report. Yes, month-over-month price pressures were hotter than anticipated, but that’s only because the March reading was revised into deflation territory; overall, the two-month advance between March and April is now lower than anticipated ahead of the release. Equity markets and bonds have reversed sharply off their lows, while the U.S. dollar has given up all of its gains—against every major currency except for the Japanese yen. 

Nasdaq futures (/NQM4) fell this morning following data that showed U.S. factory gate prices rose 0.5% from a month before in April, pushing back bets on a Federal Reserve cut in interest rates. Meanwhile, the meme trading frenzy continues, with AMC Entertainment Holdings (AMC) up 106% in pre-market trading. Home Depot (HD) reported earnings earlier and is down 1% after the report, which showed a miss on revenue led by lower demand for appliances and other higher-priced home items.  

Treasuries on the short end of the curve rose slightly following the PPI data despite it putting a small dent in Fed rate cut bets. The five-year T-note futures (/ZFM4) were up 0.02% ahead of the opening after initialing dropping on the data. The chance for a rate cut at the September Fed meeting remains the base case scenario according to Fed Funds futures but Wednesday’s consumer price index (CPI) offers major event risks to the bond market. 

Copper prices surged 1.7% this morning to hit a fresh two-year high. Optimism has grown rapidly for the metal over the past couple of months as the supply outlook backs a bullish trading thesis that sees the metal in a deficit over the next several years or more. Last week, the Commodity Futures Trading Commission (CFTC) reported that speculators continued to build their long positions, rising to 160,147 contracts long—the most since 2017. Along with CPI data that will likely sway Fed rate cut bets, tomorrow’s China rate decision could pose a directional risk to the metal.  

Natural gas prices (/NGM4) pulled back this morning, but the commodity remains on track to record its largest monthly percentage gain since October. Traders have bet that production cuts will lead to higher prices. And with summer heat approaching, those bets remain strong. However, speculators pulled back their bullish bets for a second consecutive week, according to the CFTC’s commitments of traders report (COT). Weather trends remain in focus until later this week when the Energy Information Administration (EIA) reports inventory numbers.  

Australian dollar futures (/6AM4) rose after the Australian government reported a budget surplus amid high commodity prices. For the fiscal year to June, Australia’s surplus is expected at $6.14 billion. The surplus should allow the federal government to make moves to help ease the burden of high prices on consumers, and it could even help the Reserve Bank of Australia (RBA) achieve its inflation target before 2025 when it expects a return to 2% to 3%.  

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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