Nasdaq 100 Struggle, Russell 2000 Futures Slide as Bond Breakdown Continues

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

1. Russell 2000 E-mini futures (/RTY): -0.57% 

2. Five-year T-note futures (/ZF): -0.10% 

3. Silver futures (/SI): -1.07% 

4. Natural gas futures (/NG): +1.42% 

5. Australian dollar futures (/6A): -0.42% 

Markets continue to hinge on whether or not Israel is going to launch a retaliatory strike against Iran. Commodity prices have not retraced meaningfully, keeping inflation expectations pointing higher, weighing on the bond market—which is seeing fresh yearly low across the curve today.

Energy markets are mixed but oil prices, buoyed by rising geopolitical risk premia, still have not sold off below key technical levels to suggest that a top is in.

Elsewhere, the higher U.S. Treasury yields are helping the U.S. dollar, which is setting a fresh multi-decade high vs. the Japanese Yen again. 

As was the case for much of 2023 and early 2024, the Russell 2000 (/RTYM4) is proving most sensitive to the continued breakdown in U.S. Treasuries, although the Nasdaq 100 (/NQM4) is also struggling with the higher rates environment.

Seasonally, April is a good month for stocksb but it’s the second half of the month that typically produces the gains, beginning right after tax day—which was yesterday. If bulls are to remain in control, this is as good as a time as any to show that strength. Otherwise, equity market technicals are looking increasingly “toppy.”

Bonds can’t stop bleeding. Down across the curve for the second day in a row, traders are weighing a few interconnected factors: declining odds of a Federal Reserve interest rate cut; increasing U.S. deficits; and higher near-term inflation pressures. The good news for options-focused retail traders: volatility is back. Each of 5s (/ZFM4), 10s (/ZNM4), and 30s (/ZBM4) have implied volatility ranks (IVRs) above 40. The only Treasury auction of the day is a 52-week bill sale, offering limited binary risk for 2s (/ZTM4) later today. 

Aside from energy markets, one of the clear tells that investors are worried about inflation and geopolitical risks is that gold (/GCM4) and silver prices (/SIK4) are holding onto most of their gains after the weekend gap.

Volatility in /SIK4 is undoubtedly high (IVR: 105.6), but it’s worth noting that raw implied vol spiked to higher levels in 2023 (around the regional banking crisis genesis) and in 2020 (at the onset of the coronavirus pandemic).

The point is, silver vol is high relative to where it’s been over the past year but not necessarily high by all-time historical standards, making it difficult to think the highs seen in recent days constitute a meaningful enough turning point to look to sell calls. 

Crude oil prices (/CLK4) are churning as traders await the latest developments in the Israel-Iran conflict.

While restraint may ultimately be the likely outcome, the mere possibility of a protracted engagement threatens to choke off the Strait of Hormuz, where around 20% of global oil consumption passes through each day.

Meanwhile, traders are attempting to bottom fish in natural gas (/NGK4) again, barely a day removed from the fresh yearly low. 

Weaker copper prices (/HGK4) amid concerning Chinese industrial production figures for March is proving to be a major stumbling bloc for the Australian dollar (/6AM4). In the span of a week, it has sold off from multi-month range highs to its lowest levels since November.

Like much of FX, /6AM4 has seen a meaningful rise in volatility (IVR: 64.9). Elsewhere, the push higher in U.S. Treasury yields continues to plague the Japanese yen (/6JM4), which is at fresh monthly, yearly and multi-decade lows. 

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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