U.S. Stock Futures Largely Unchanged, Bonds Gain

Also, 30-year T-bond, silver, natural gas and Australian dollar futures

1. Nasdaq 100 E-mini futures (/NQ): +0.08% 
2. 30-year T-bond futures (/ZB): +0.39% 
3. Silver futures (/SI): +1.07% 
4. Natural gas futures (/NG): -2.52% 
5. Australian dollar futures (/6A): -0.38% 

Today’s trading is producing more of the same from yesterday: The tech-heavy Nasdaq 100 is the laggard while the Russell 2000 leads; bonds are up across the curve; energy is softer; precious metals are outperforming base metals; and the U.S. dollar is holding its gains after a gap open to the upside. There are no meaningful economic data releases or bond auctions today. 

Nasdaq 100 futures (/NQZ4) traded slightly higher this morning, rising about 0.04% just ahead of the New York open. ASML Holdings (ASML) fell over 4% in pre-market trading after the chip maker released its earnings early and provided a sales warning. The Netherlands-based company said that it expects net sales to come in at the lower range of its previously provided forecast. Amazon (AMZN) traded flat after it announced an agreement with Dominion Energy (D) to build small module nuclear reactors (SMRs), advancing its plans to net-zero carbon emissions. Morgan Stanley (MS) traded nearly 4% higher after the bank reported a beta on earnings.

Bond yields fell across the curve this morning. The 30-year T-bond contract (/ZBZ4) rose 0.4%, as traders price in a nearly 93% chance for a 25-basis-point interest rate hike for the Federal Reserve’s November meeting. Retail sales data due tomorrow morning will provide an update on the strength of the U.S. consumer. Yesterday, San Francisco Federal Reserve President Mary Daly said there is more room to cut interest rates.  

Silver prices (/SIZ4) rose for a second day as a weaker dollar and lower yields cleared some upside for the metal. /SIZ4 has traded in the upper-half of its six-month trading range thus far this month, and persistently elevated volatility suggests more upside may yet be ahead. Gold prices (/GCZ4) are likewise on a similar trajectory, having broken the downtrend from the prior September and October swing highs.

Natural gas prices (/NGX4) sank over 3% to extend into fresh lows for the year after breaking the September swing low. The market remains backwardated even as prices for the forward months decline as well. The cyclicality in the trade is likely driving some of the selling here, as the weather forecast for much of the United States calls for warmer-than-average temperatures over the next two weeks. Meanwhile, gas production is trending just below 101 billion cubic feet per day (bcf/d), while residential and industrial power consumption has increased.  

Among the major currencies, the Australian dollar (/6AZ4) has stood out for its penchant for weakness in recent weeks. Given its proximity and relationship with China, this would appear to be a signal that traders aren’t buying into the narrative around stimulus efforts. Volatility is lower than a month ago, but an elevated IVR (still >40) coupled with a return to the midpoint of the six-month trading range offers reasonable opportunities for traders looking to sell vol. 

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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