Nasdaq 100 Looks Lower for Fifth Straight Day

Also 10-year T-note, gold, crude oil and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): -0.21%
2. 10-year T-note futures (/ZN): -0.35%
3. Gold futures (/GC): +0.45%
4. Crude Oil futures (/CL): +0.91%
5. Japanese yen futures (/6J): -0.82%

The Santa Claus Rally didn’t materialize Stocks traded lower during the final five days of 2023 and the first two days of 2024, an historically atypical performance. Bond yields are snapping higher as traders reassess overwrought Federal Reserve interest rate cut odds, helping prop up the U.S. dollar against counterparts like the Japanese yen (/6JH4). Elsewhere, geopolitical tensions and shifting weather outlooks are helping to stoke some more recovery in energy markets.

While three of the four major indexes are trading higher (the outlier: the Nasdaq 100 (/NQH4)), the more important question is: What happens when a Santa Claus Rally fails? The historic tendencies for equities in January is not promising after Santa doesn’t come. Since 1950, January has averaged a loss of 0.3% for the S&P 500, losing ground 60% of the time. This week is shaping up to be the first losing week for U.S. stocks since late October.

It looks as though the U.S. labor market is stronger than expected after this morning’s data crossed the wires. That pushed yields higher across the curve. 10-year T-note futures (/ZNH4) fell by about 0.5%, which pushed the underlying’s yield near the 4% mark, mostly undoing the past several weeks of progress in the market’s view on Fed policy and the economy. A soft landing may require some more time with the “higher for longer’ rate scheme. four-week and eight-week T-bill auctions are scheduled over the course of today’s session.

Despite rising Treasury yields, gold prices (/GCG4) are moving slightly higher after several days of losses. But the bounce at about 0.2% is far from convincing. The precious metal might remain in a holding pattern until tomorrow’s non-farm payrolls report. It’s likely that market bets for Fed cutting ran too hot going into the New Year, and we will see further adjustments to market bets.

Crude oil prices (/CLG44) are extending gains as protests in Libya continue to disrupt supply from the OPEC country. Meanwhile, tensions in the Middle East are expected to cool after Iran’s supreme leader allegedly directed military forces to use patience to avoid a direct military confrontation with the United States. Elsewhere in energy markets, natural gas prices (/NGG4) surged amid cooling weather forecasts.

The Japanese yen (/6JH4) is making a big break lower for its third day of losses as markets readjust bets on a Fed rate cut after robust labor market data was released this morning. That is pushing Treasury yields higher and the dollar as well. Traders went into 2024 expecting the Bank of Japan to shift into a hawkish, or at least less dovish, stance but if the Fed doesn’t cut, the trade loses some of its appeal. There is even a chance the BOJ doesn’t make the shift, which would severely limit the yen.

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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