Russell 2000, 30-year T-Bond, Silver, Nat Gas and Euro Futures

This morning’s Five Futures in Focus

1. Russell 2000 E-mini Futures (/RTY): +0.67%
2. 30-Year T-Bond Futures (/ZB): +0.05%
3. Silver Futures (/SI): -1.34%
4. Nat Gas Futures (/NG): -0.89%
5. Euro Futures (/6E): -0.58%

Split focus between the European Central Bank (ECB) and U.S. economic data has seen a wave of volatility crash through markets on Thursday morning. The ECB’s rate hike was signaled earlier this week when “unnamed sources” told Reuters the central bank’s inflation forecast was going to be upgraded. But with no more rate hikes appearing likely, global equity markets and bonds were finding that one major central bank appeared to be capitulating on its rate hike cycle. On the flip side, hotter than expected U.S. retail sales data and a stronger than anticipated U.S. producer price index sapped enthusiasm on the other end, just a few minutes later.

For the second consecutive day, all four U.S. equity index futures are pointing higher ahead of the U.S. cash equity open, led by the Russell 2000 (/RTYZ3). The August U.S. inflation consumer price index (CPI) report produced a mix result between the headline and the core readings, but the one the Federal Reserve cares about more—core—is showing signs of deceleration (the three-month annualized rate has fallen to +2.4%, the lowest in over two years.

Bonds were the telltale sign that traders weren’t fretting over the divergence in the August U.S. inflation report yesterday, and that lack of concern has filtered through into today. Across the curve, bonds are trading higher, led by ultras (/UBZ3). It remains the case that, when looking at the long-end of the curve, markets are fairly confident interest rates may not need to go higher from here. Energy remains the fly in the ointment, with crude oil prices (/CLZ3) hitting a fresh yearly high.

Silver (/SIZ3) is down about $0.45 this morning and approaching the mid-August low of $22.26. This morning’s wholesale price data from the United States via the producer price index (PPI) is pushing yields higher, which detracts from silver’s appeal. That helped an already strong dollar and also dented precious metals.

Natural gas prices (/NGZ3) are trading about 3.5% higher this morning ahead of a government report on U.S. stockpiles due at 10:30 a.m. Eastern EDT. Analysts expect to see a 48-billion-cubic-foot (bcf) increase for the week ending Sept. 8.

Earlier this week the Energy Information Administration (EIA) said domestic natural gas consumption would average 80.5 bcf per day (bcf/d) in September, representing a 5% year-over-year increase.

Meanwhile in Australia, Chevron reported an outage at its liquefied natural gas (LNG) Wheatstone facility. Despite a limited strike action at the terminal, Chevron didn’t attribute this outage to the workers' actions, although a group representing the workers said industrial action will escalate over the coming weeks. That said, we can likely expect more volatility in /NG over the short term.

The ECB may have levied a rate hike today, but the euro’s (/6EZ3) reaction says everything you need to know about the next step. Indeed, the ECB itself acknowledged that the terminal rate may have been reached, which means no further tightening efforts are anticipated. This is a bit of a prayer for the euro, as stagflationary conditions appear more likely by the day. This is good news for the U.S. dollar, which hit its highest level since March 10 following the ECB rate decision.

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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