Nasdaq 100 Rebounds and Bonds Sink After U.S. Fully Loses AAA Rating

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

1. Nasdaq 100 E-mini futures (/NQ): -0.84% 
2. 30-year T-bond futures (/ZB): -1.27% 
3. Gold futures (/GC): +1.42% 
4. Natural gas futures (/NG): -4.74% 
5. Euro futures (/6E): +0.9% 

A rough start to the trading week is losing its legs — a welcomed sign for traders who entered the weekend with news that Moody’s stripped the U.S. of its final remaining AAA credit rating. While both stocks and bonds were hit hard out of the gate, by the time the US cash equity open rolled around this morning, stocks had taken back most of their losses. The downgrade has been modestly bad news for the US dollar, which in turn has sparked greater interest in alternative stores of value like cryptocurrencies and precious metals. 

Appetite for risk cooled over the weekend as traders digested a downgrade to US credit. Nasdaq 100 futures (/NQM5) fell nearly 1% in early trading. The move lower comes after a five-day winning streak that pushed equity prices to the highest levels since February. Walmart (WMT) fell over 1% as the company faces pressure from the White House to “eat the tariffs” after the company signaled it would need to raise prices. Reddit (RDDT) fell about 5% following a downgrade from Wells Fargo (WFC). Earnings from Home Depot (HD) and Target (TGT) due later this week will be watched closely for clues on how tariffs are affecting large retailers.  

Bonds fell across the curve today, but the longer end of the curve took on heavier losses following Moody’s downgrade to US credit. The development is the latest sign of how the trade war is affecting the United States. Lawmakers in the US also advanced a tax and spending package. GOP leadership is aiming to complete the package by the Memorial Day weekend. 30-year T-bond futures (/ZBM5) fell over 1% this morning, putting prices near the April swing low.  

Concerns over the US economic outlook pushed traders into safe-haven assets to start the week. Gold prices (/GCM5) rose 1.42% in early trading. The metal remains above the 3,200 level following some weakness over the last several weeks. If prices can stay above this level, gold may find its footing again over the short term, but we’re still well off the recent highs from April and early May. A weaker dollar is also helping to boost gold’s appeal.  

Natural gas futures (/NGM5) continued to decline today, dropping over 5% in early trading. The losses extend weakness from last week. Traders are being pushed out of the commodity as weather forecasters see mild temperatures across much of the United States through the end of the month. Meanwhile, inventory levels in the US have been building at a sold pace as we approach the summer months, which typically come with some renewed demand. Prices in Asia bounced over the weekend but the impact on US prices is minimal.  

Euro futures (/6EM5) took advantage of broader dollar weakness to start the week. Prices moved nearly 1% higher in early trading. The US and the European Union are getting serious about trade talks. Traders are front-running a deal announcement by getting long euros. The credit downgrade for the US is also weighing on the dollar. Technically, euro prices pierced above the 9- and 21-day exponential moving averages (EMAs). There was some resistance in overnight trading at the 1.13 level.

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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