Nasdaq 100 Dips, Yields Drop as Traders Tangle with $2.7 trillion February Opex

Also 30-year T-bond, copper, natural gas, and euro futures 

1. Nasdaq 100 E-mini futures (/NQ): +0.36% 
2. 30-year T-bond futures (/ZB): +0.11% 
3. Copper futures (/HG): -0.87% 
4. Natural gas futures (/NG): +3.52% 
5. Euro futures (/6E): -0.25% 

Friday has arrived, and with it the $2.7 trillion (notional) worth of options that face expiration today. Hot inflation expectations data from the University of Michigan showed consumers expecting the fastest pace in price pressures since 1995, contributing to a rough open for stocks. Bonds remain higher on the day, however, and despite the drop in U.S. yields, the U.S. dollar is higher across the board as FX markets await the results of German elections on Sunday. 

At the time of writing, U.S. equity indexes were backsliding around the cash equity open, as expiration repositioning sent hitters through markets. The Russell 2000 (/RTYH5) is a prime example, which was trading near 2285 before the cash open, only to be seen near 2250 less than an hour later. Overall, a touch of weakness in equities may not be a surprise, given the historical tendency (seasonality) of stocks to soften in the back half of February. 

Searing hot inflation expectations data have done little to disrupt today’s rally in Treasuries. Even after the consumer sentiment report release, long-end yields pushed lower, with the 10-year yield dropping below 4.46%. End-of-year Federal Reserve rate cut odds are up marginally on the day, with the Fed’s main rate now priced to end the year at 3.96% from 4% yesterday. The Treasury auction schedule in the coming days is more relevant to the twos (/ZTH5) and fives (/ZFH5). 

While metals have enjoyed a strong run of late, price action over the past 24 hours has indicated there still may be some more technical wood to chop before new highs (for this year, or all-time) can be reached. Gold prices (/GCJ5) remain in a sideways consolidation up near their all-time highs, while copper prices (/HGH5) continue to hold above key swing support that is being buttressed by its one-month moving average.  

Natural gas prices (/NGH5) continue their upward trek, staving off yesterday’s minor bout of weakness. Low inventories in Europe persist, and the ongoing polar vortex in North America continues to strain supplies on this side of the pond. A recent report from Bank of America suggested AI hyperscalers’ capex increased by +21% y/y in 4Q’24, up from +17% y/y in 3Q’24, indicating the AI narrative that’s been helping natural gas over the past year remains strong. 

A weak economic print from Europe punished Euro futures (/6EH5) this morning. The HOCB composite PMI reading came in at 50.2 vs. an expected 50.5, signaling that the European economy remains below trend. Meanwhile, European leaders have been sidelined from negotiations between Russia and the United States in talks about the war in Ukraine. Combined with a broader strengthening of the dollar and the euro is facing headwinds into the weekend.  

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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