Nasdaq 100 Rise Steadies and Bond Yields Drop as May OPEX Looms

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

1. Nasdaq 100 E-mini futures (/NQ): +0.23% 
2. 30-year T-note futures (/ZN): +0.8% 
3. Copper futures (/HG): +1.7% 
4. Natural gas futures (/NG): +1.61% 
5. Euro futures (/6E): +0.14% 

A pivotal week for financial markets comes to a crescendo today with May options expiry. The torrid rally in recent weeks leaves dealers heavily long stock given the call/put imbalance for today’s expiry, which could lead to a situation where dealers unwind their long stock hedges, weighing on equities. The sharp turn in Treasuries has effectively erased the weekly losses. Elsewhere, metals remain pressured, further evidence the Liberation Day “Sell America” fear trade is finished.  

US equity markets are on pace to finish the week at their highest levels in several months: The S&P 500 (/ESM5), since the first week of March; the Nasdaq 100 (/NQM5), since the last week of February; and the Russell 2000, since the third week of March. The remarkable performance has seen VIX futures move back into contango, while the spot VIX is angling for a weekly close below 18. VVIX has likewise dropped below 110 (cut in half from its high above 220 in early-April), suggesting all of the tariff-induced angst – and relief – has been squeezed out of the markets. 

The rally in Treasuries over the past two sessions might be tied to remarks made yesterday by Federal Reserve Chair Jerome Powell. Adjusting the Federal Open Market Committee’s average inflation targeting framework would suggest policymakers won’t tolerate inflation that persists above the Fed’s medium-term target of 2%. In other words, the Fed will be less likely to shift policy in a manner that proves reflationary in the future. In the near-term, Fed rate cut odds remain depressed, with traders favoring no change in rates in either June (91.7% chance of a hold) or July (60.7% chance of a hold). 

Copper prices (/HGN5) remain rangebound this week, with prices dipping about 1% following a similar gain from the previous session. The 90-day pause in tariffs between the US and China has left traders undecided on the direction of the metal, with forecasters having trouble predicting future inventory levels. Stocks in Shanghai have risen in recent weeks as trade stalled amid the initial volleys of the trade war.  

Natural gas futures (/NGM5) rose nearly 2% today following several days of losses. The weather for the United States has shifted to a mild outlook over the next several weeks and flows of liquefied natural gas leaving US ports has slowed. The commodity is trading in the middle of a range carved out between late April and May. Traders see firm support around the 3 handle, but resistance near 3.8 is also evident in the price action. Inventory levels next week are in focus nas the market decides how fast stocks are going to build given the modest weather of late.  

The move lower in Treasury yields is propping up non-U.S. dollar currencies. Euro futures (/6EM5) rose about 0.14% Friday morning. U.S. consumer confidence remained suppressed in May, which may pose a problem for the dollar until the market gets the chance to digest next week’s economic data. Retail sales data and inflation caused some softening in the dollar earlier this week.  The move lower in Treasury yields is propping up non-U.S. Dollar currencies.  

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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