Russell 2000 Leads Equities on Triple Witching Friday

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

1. Russell 2000 e-mini futures (/RTY): -0.29% 
2. 10-year T-note futures (/ZN): -0.13% 
3. Silver futures (/SI): +1.42% 
4. Natural gas futures (/NG): -1.03% 
5. Japanese yen futures (/6J): -0.39% 

Equity futures are creeping higher on Friday as traders assess the lower chances for a cut from the Federal Reserve after this week’s round of inflation data.

There are multiple options expirations today, an event known as triple witching, which could induce some extra volatility in the market. European stock markets rallied overnight as the chances for a rate cut from the European Central Bank (ECB) grew following some dovish commentary from policymakers.

Overnight, China’s lending data disappointed expectations, with new yuan loans for February crossing the wires at 1.45 trillion yuan, missing the expected +1.5 trillion yuan. After today, traders will shift their focus to the upcoming Fed decision on March 20.  

Equity markets steady

Today is a triple-witching Friday and that could bring some added volatility to the market. Some moderation in Treasury yields is helping to steady the equity indexes.

The only data left that concerns equity traders is due this morning: the University of Michigan consumer sentiment survey. That is unlikely to change the direction of the equity market as traders look ahead to next week’s Fed meeting.

Bond yields remain high

Bonds moderated Friday morning but yields remain sharply higher on the week after traders digested the CPI and PPI prints that suggests a Fed rate cut may not come in June as previously expected.

This week saw a decent 10-year auction and a surprisingly strong 30-year auction. Next week’s Fed decision also comes with an updated set of projections for the economy and inflation, which may make it a mover for the Treasury market even though the Fed is likely to hold rates steady.

Silver jumps

Silver prices (/SIK4) took advantage of the moderation in yields to push higher this morning, jumping 1.12% to make a nearly 4% gain for the week. Precious metals traders left gold alone. The gold/silver ratio is now down to a more modest 85 level, which is still elevated and points to potentially more outperformance in silver prices over the short term.

Natural gas falls

Natural gas futures (/NGJ4) fell 1.03% Friday morning after Thursday’s +5% performance. The Energy Information Administration (EIA) reported a 9 billion cubic feet (bcf) draw in natural gas stocks for the week ending March 8, beating expectations for a three bcf withdrawal.

Earlier this week, the EIA said natural gas output will decline this year and demand will remain near a record high. The announcement comes after several large producers announced production cuts earlier this year amid near record-low prices. For now, prices are likely to remain near recent lows but the chances for volatility are present with a large short position among speculators.  

Long yen bets harder to stomach

The threat of a delayed Fed rate cut has trimmed the outlook for the Japanese yen (/6JH4), despite expected tightening from the Bank of Japan (BoJ).

While higher wages have helped the BoJ see its exit from its ultra loose monetary setting, higher U.S. yields and a stronger dollar is making the long yen bet harder to stomach for speculators. The BoJ’s announcement will come on Tuesday after its two-day meeting ends. Traders also expect the bank to end its purchasing of exchange-traded funds (ETFs).

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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