Nasdaq 100 Tests Multi-Week Downtrend as Yields Continue to Ease

Also, 10-year T-note, silver, natural gas and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): +1.44% 
2. 10-year T-note futures (/ZN): -0.06% 
3. Silver futures (/SI): -2.3% 
4. Natural gas futures (/NG): -6.79% 
5. Japanese yen futures (/6J): -0.48% 

“Relief” is probably the best way to describe the mood in financial markets this week, underscored by price action today. A warm (but not hot) inflation report on Wednesday followed by softer retail sales and jobless claims yesterday and then stronger housing starts figures today have curated a goldilocks view: The U.S. economy is still growing, but it’s not overheating—reinflating—to the degree many feared. Moreover, a reported phone call between U.S. President-elect Donald Trump and Chinese President Xi Jingping has likewise boosted hopes the looming trade war may not be as disruptive as feared. 

Nasdaq futures (/NQH5) guided higher this morning as traders shifted to a risk-on mood following the week’s data prints that showed the Federal Reserve has some room to cut interest rates this year. The earnings results from several banks this week helped inject some confidence ahead of the next couple of weeks when earnings from big tech names are due. However, traders seem more focused on rates than earnings. That could change as we move deeper into the earnings season. But for now, traders see a green light to go risk on from the Fed’s path forward.  

Bonds are on track to record gains for the week, which would mark the first week of the year when yields dropped. President-elect Trump will be sworn into office next week, and traders are eager to see what the first days in office will bring, especially with tariffs and trade policy. Meanwhile, there is concern in Washington about how bond yields could affect the President-elect's plan to extend the 2017 tax cuts. This morning’s strong housing starts number didn’t manage to derail falling Treasury yields.  

Silver prices (/SIH5) fell nearly 2% this morning as market sentiment improved and traders shifted back into equities. The drop today was enough to wipe out the metal’s gains for the week. The losses come amid a weaker dollar and lower bond yields. Yesterday, silver hit a one-month high as rising bond prices opened some upside for the metal. Next week could prove volatile for metals because Trump’s inauguration and whatever moves he happens to make in the following days will likely affect the dollar and yields.  

Natural gas bears are out in force. Prices (/NGG5) are down over 6% this morning, with the contract falling from its highest levels since late 2023. Still, the commodity remains in positive territory for the week as a cold weather front is forecasted to sweep through the United States through late January. However, traders are looking beyond and with prices already at high levels, profit-taking combined with eager shorts are pushing volatility into the product. Inventory moves have been bullish this week, but we’ll need to see another bullish print next week to support prices remaining near 4.  

The U.S. dollar may be the top-performing currency at the moment, but that doesn’t tell the full story: The greenback has been losing ground while this note was being written and has started to flip over into negative territory on the day. A quiet week ahead for the Federal Reserve, which is in its blackout window, will put the focus on the Bank of Japan and the Japanese yen (/6JH5). 

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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