Nasdaq 100 Steadies, Russell 2000 Extends Gains After CPI & PPI

Also, 10-year T-note, silver, crude oil and Japanese yen futures

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

2. 10-year T-note futures (/ZN): -0.07% 

3. Silver futures (/SI): -2.59% 

4. Crude oil futures (/CL): +0.84% 

5. British pound futures (/6B): +0.42% 

On the other side of the June U.S. inflation reports—both the consumer price index (CPI) and the producer price index (PPI)— the bigger winner remains the Russell 2000. Unlike yesterday, however, the S&P 500 and Nasdaq 100, are in positive territory. Elsewhere, U.S. bond yields are ticking higher in the wake of President Joe Biden’s NATO press conference as it appears less likely he will step aside as Democratic nominee. The U.S. dollar remains on its back foot, while reports from Japan last night indicated the Bank of Japan was asking banks for yen quotes, which historically has been the step before an intervention; yen strength yesterday morning may have been aided by Japanese policymakers. 

An aggressive short covering rally in small cap stocks may have been the sharp move higher in the Russell 2000 (/RTYU4) yesterday and today, while weakness in the S&P 500 (/ESU4) and Nasdaq 100 (/NQU4)—traders forced to sell down mega cap winners to cover losses in small cap losers. Volatility has ticked up marginally, although without key technical levels breaking, /ESU4 and /NQU4 may be entering another period of consolidation. 

Ever since the first presidential debate, bond yields have acted sensitively to Biden’s election odds: if he remains at the top of the ticket, down-ballot drag is likely, which increases the odds of a Republican trifecta. Gridlock is OK, but singular party control of Congress and the White House likely means increased deficits and debts. With two full rate cuts now discounted for 2024, it stands to reason that domestic politics may be a more potent catalyst in the short-term. 

The backup in U.S. yields may be spilling over to precious metals, which are unwinding the gains from yesterday. But for both gold (/GCQ4) and silver (/SIU4), breaching the June 7 high—when China announced it ceased adding gold to its reserves for the first time in 18-months—represents an important psychological milestone. With multi-month consolidations in place following aggressive rallies, familiar tenets remain: directional bears should remain cautious until /GCQ4 drops below 2300 and /SIU4 drops below 29. 

Energy prices are up across the board to close the week, with crude oil prices (/CLQ4) staging a meaningful rally off of its one-month moving average (daily 21-EMA) in recent sessions. Despite headlines suggesting a truce between Israel and Hamas is increasingly likely, /CLQ4 continues to ignore geopolitics; volatility remains non-existent. 

The British pound (/6BU4) has emerged at the top of the heap today as the top-performing major currency. In recent sessions, volatility was slowly contracting across the asset class in the wake of the British and French elections. But the quotes check yesterday by the Bank of Japan, one of the ways with which they intervene, reintroduced uncertainty into the space. That said, strong technical trends in non-USD FX coupled with still-elevated volatility means opportunities persist.

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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