Five futures in focus

S&P 500 and Nasdaq 100 Flat After June CPI Report. Where Next?

By:Christopher Vecchio - CFA

Also, 30-year T-bond, gold crude oil and Japanese yen futures

Five Futures WTD Performance

  1. S&P 500 E-mini futures (/ES): +0.05% 

  2. 30-year T-bond futures (/ZB): +1% 

  3. Gold futures (/GC): +1.3% 

  4. Natural gas futures (/NG): -1.5% 

  5. Japanese yen futures (/6J): +2.05% 

A softer than expected U.S. inflation report is leaving traders feeling mixed this morning. The June U.S. consumer price index came in cooler than expected at –0.1% month over month (m/m) and +3% year over year (y/y) on the headline and +0.1% m/m and +3.3% y/y on the core; both the headline and core readings missed forecasts (+0.1% m/m and +3.1% y/y expected for the headline; and +0.2% m/m and +3.4% y/y on the core). 

The deceleration in price pressures harkens the start of the Federal Reserve’s rate cut cycle, with September cut odds rising to 97% from 81% before the release. Bonds have enjoyed their best day since the start of February, while precious metals are scaling toward yearly highs once more. 

But it’s a different story in equity markets: the Russell 2000 may be seeing some relief on the back of falling bond yields, but neither the S&P 500 nor the Nasdaq 100 is sharing that enthusiasm. While equities have historically tended to rise during the early phase of a rate cut cycle, that’s contingent upon the economy not falling into recession; the lowest Institute for Supply Management (ISM) services purchasing managers’ index (PMI) in four years, coupled with unexpected deflation, may be opening the door for a sentiment shift whereby the Federal Reserve is cutting for bad reasons (labor market weakness, recession) instead of good ones (inflation defeated while growth remains positive). 

Symbol: Equities 

Daily Change 

/ESU4 

+0.05% 

/NQU4 

+0.06% 

/RTYU4 

+2.29% 

/YMU4 

+0.05% 

S&P 500 futures are mostly unchanged this morning as prices hover near record highs following this morning’s inflation report. Costco (COST) rose in pre-market trading after the retailer raised its membership fee for the first time since 2017. Delta Air Lines (DAL) fell nearly 9% after missing expectations despite strong travel demand during its second quarter. Equity traders are likely waiting for earnings season to kick into gear before piling back into equities following the CPI print. Tomorrow will bring several big bank earnings reports.  

Strategy: (50DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 5400 p 

Short 5425 p 

Short 5950 c 

Long 5975 c 

65% 

+245 

-1005 

Short Strangle 

Short 5425 p 

Short 5950 c 

70% 

+1837.50 

Short Put Vertical 

Long 5400 p 

Short 5425 p 

86% 

+132.50 

-1117.50 

/ESU4

Symbol: Bonds 

Daily Change 

/ZTU4 

+0.23% 

/ZFU4 

+0.49% 

/ZNU4 

+0.64% 

/ZBU4 

+1% 

/UBU4 

+1.17% 

Bonds rallied, especially toward the long-end of the curve, after inflation data came in weaker-than-expected, accelerating Fed interest rate cut bets. A 30-year bond auction is on tap for today. The 30-year T-bond contract (/ZBU4) was up 1.03% ahead of the New York open. The resulting lower yield in the underlying may end up hurting demand for that auction.  

Strategy (43DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 115 p 

Short 116 p 

Short 125 c 

Long 126 c 

67% 

+234.38 

-765.63 

Short Strangle 

Short 116 p 

Short 125 c 

72% 

+687.50 

Short Put Vertical 

Long 115 p 

Short 116 p 

85% 

+140.63 

-859.63 

/ZBU4

Symbol: Metals 

Daily Change 

/GCQ4 

+1.3% 

/SIU4 

+2.36% 

/HGU4 

-1.25% 

Gold prices (/GCQ4) broke above a range carved out since June, putting the metal at the highest level since May 22. The drop in Treasury yields and the dollar is clearing a path higher as traders bet the Fed will cut sooner rather than later after this morning’s inflation data. Short speculators continued to exit their positions last week amid expectations that the Fed will begin cutting in September. 

Strategy (47DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 2275 p 

Short 2300 p 

Short 2525 c 

Long 2550 c 

67% 

+680 

-1820 

Short Strangle 

Short 2300 p 

Short 2525 c 

73% 

+2480 

Short Put Vertical 

Long 2275 p 

Short 2300 p 

85% 

+260 

-2240 

/GCQ4

Symbol: Energy 

Daily Change 

/CLQ4 

-0.11% 

/HOQ4 

-0.06% 

/NGQ4 

-1.5% 

/RBQ4 

-0.05% 

Natural gas prices are down for a third day, dropping 1.59% this morning. Natural gas stocks are due out later today from the Energy Information Administration (EIA). The number could be higher than expected because exports have been mostly on hold after a hurricane that blew through Texas caused export facilities to suspend operations. Freeport LNG terminal in Texas remains shut down but is expected to open within days. Earlier this week, the EIA’s short-term energy outlook (STEO) forecasted higher natural gas prices for the second half of this year at $2.90. 

 

Strategy (47DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 1.8 p 

Short 1.85 p 

Short 2.7 c 

Long 2.75 c 

67% 

+130 

-370 

Short Strangle 

Short 1.85 p 

Short 2.7 c 

74% 

+870 

Short Put Vertical 

Long 1.8 p 

Short 1.85 p 

86% 

+60 

-440 

/NGQ4

Symbol: FX 

Daily Change 

/6AU4 

+0.62% 

/6BU4 

+0.62% 

/6CU4 

+0.11% 

/6EU4 

+0.60% 

/6JU4 

+2.05% 

Japanese yen futures (/6JU4) surged over 2% following the U.S. inflation data, which dragged down U.S. yields, reducing the premium vs. their Japanese counterparts—something that has been a major drag on the Japanese currency. The move is the biggest since May when Japanese authorities likely intervened in the currency market. The move is a welcome development for the Bank of Japan and Ministry of Finance. 

Strategy (57DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 0.0061 p 

Short 0.00615 p 

Short 0.00655 c 

Long 0.0066 c 

62% 

+187.50 

-437.50 

Short Strangle 

Short 0.00615 p 

Short 0.00655 c 

70% 

+662.50 

Short Put Vertical 

Long 0.0061 p 

Short 0.00615 p 

88% 

+87.50 

-537.50 

/6JU4

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

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

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