S&P 500, Russell 2000 Bounce After CPI-Induced Sell-Off
S&P 500, Russell 2000 Bounce After CPI-Induced Sell-Off
Also, 10-year T-note gold, crude oil, and British pound futures
- S&P 500 e-mini futures (/ES): +0.43%
- 10-year T-note futures (/ZN): +0.06%
- Gold futures (/GC): -0.20%
- Crude oil futures (/CL): +0.49%
- British pound futures (/6B): -0.19%
After a deleterious trading session on Tuesday, asset classes are reversing meaningfully at the start of trading on Wednesday.
Quirks in the January U.S. inflation report may have led to an overreaction by traders, who with the benefit of hindsight, are reassessing their positioning amid a sharp decline in Fed rate cut odds (the first cut is now priced in for June). The S&P 500 (/ESH4) is attempting to retake the psychologically significant 5000 level, while the Russell 2000 (/RTYH4) is leading the rebound, up over +1%.
Symbol: Equities | Daily Change |
/ESH4 | +0.43% |
/NQH4 | +0.53% |
/RTYH4 | +1.26% |
/YMH4 | +0.25% |
Stock futures move up
Equity futures bounced back Wednesday morning as traders wrote off yesterday’s inflation report that sent stocks sharply lower.
Despite rate traders trimming bets for a Fed cut in March, analysts expect the central bank to loosen policy later this year and that is enough for equity traders. Lyft Inc. (LYFT) Rose sharply this morning despite a typo in its earnings report that launched the stock nearly 70% higher.
Strategy: (43DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 4900 p Short 4950 p Short 5150 c Long 5200 c | 35% | +1212.50 | -1287.50 |
Short Strangle | Short 4950 p Short 5150 c | 51% | +4312.50 | x |
Short Put Vertical | Long 4900 p Short 4950 p | 70% | +512.50 | -1987.50 |
Symbol: Bonds | Daily Change |
/ZTH4 | +0.05% |
/ZFH4 | +0.07% |
/ZNH4 | +0.06% |
/ZBH4 | 0.00% |
/UBH4 | -0.20% |
Bond futures inch higher
In the bond market, 10-year T-note futures (/ZNH4) inched higher ahead of the opening bell but prices remain well below where they were before yesterday’s CPI print.
Yields remain near their highest levels since December along the middle of the curve. Friday’s producer price index is set to drop on Friday, which may help to put a bid on Treasuries if the data comes in on the light side. Tomorrow’s U.S. retail sales report also has some potential to influence rate cut bets and yields for that matter.
Strategy (37DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 107 p Short 107.5 p Short 112.5 c Long 113 c | 64% | +125 | -375 |
Short Strangle | Short 107.5 p Short 112.5 c | 70% | +484.38 | x |
Short Put Vertical | Long 107 p Short 107.5 p | 89% | +62.50 | -437.50 |
Symbol: Metals | Daily Change |
/GCJ4 | -0.20% |
/SIH4 | +0.09% |
/HGH4 | +0.03% |
Gold drops
Gold prices (/GCJ4) are down again and the metal is approaching the critical 2,000 level, which hasn’t been touched since November.
A close below that mark could induce another round of weakness. Meanwhile, traders continue to put their cash into equities with the prospect of rate cuts later this year, and despite geopolitical tensions in the Middle East, gold hasn’t seen much benefit. We do have some Federal Reserve speakers due today, which could change things for gold, but probably not.
Strategy (47DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 1980 p Short 1990 p Short 2060 p Long 2070 c | 43% | +560 | -440 |
Short Strangle | Short 1990 p Short 2060 p | 39% | +3140 | x |
Short Put Vertical | Long 1980 p Short 1990 p | 59% | +300 | -700 |
Symbol: Energy | Daily Change |
/CLH4 | +0.49% |
/HOH4 | -0.37% |
/NGH4 | -3.08% |
/RBH4 | -0.44% |
Crude oil goes higher
Crude oil prices (/CLH4) rose after OPEC left its forecast for demand unchanged for 2024 and 2025. Meanwhile, Kazakhstan—an OPEC member--stated that it would trim its production over the next few months to make up for overproducing in January.
Today will see a U.S. inventory report from the Energy Information Administration (EIA) and tomorrow will bring the International Energy Agency’s monthly oil report.
Strategy (38DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 72 p Short 73 p Short 82 c Long 83 c | 50% | +420 | -580 |
Short Strangle | Short 73 p Short 82 c | 63% | +2020 | x |
Short Put Vertical | Long 72 p Short 73 p | 77% | +180 | -820 |
Symbol: FX | Daily Change |
/6AH4 | +0.51% |
/6BH4 | -0.19% |
/6CH4 | +0.22% |
/6EH4 | +0.07% |
/6JH4 | +0.13% |
The dollar weakens
The U.S. dollar is mostly weaker across the board on Wednesday as traders rethink their reaction to the U.S. inflation report yesterday.
The one currency failing to rebound is the British pound (/6BH4), which saw its own January U.K. inflation report today come in slightly weaker than expected. The Bank of England rate cut odds jumped in the wake of the report, with markets pricing the probability of a 25-basis-point rate cut in June rising from 41% to 69%.
Strategy (51DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 1.23 p Short 1.24 p Short 1.27 c Long 1.28 c | 45% | +318.75 | -306.25 |
Short Strangle | Short 1.24 p Short 1.27 c | 58% | +781.25 | x |
Short Put Vertical | Long 1.23 p Short 1.24 p | 81% | +143.75 | -481.25 |
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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