Nasdaq 100 Holds Gains as CPI Meets Expectations

Also five-year T-note, gold, crude oil and euro futures

1. Nasdaq 100 E-mini futures (/NQ): +0.22% 
2. Five-year T-note futures (/ZF): +0.10%  
3. Gold futures (/GC): +0.40% 
4. Crude oil futures (/CL): -1.05% 
5. Euro futures (/6E): +0.31% 

The markets were much more restrained after the release of the November U.S. inflation rate thanb they were after the previous monthly report. Meanwhile, the November U.S. consumer price index (CPI) came in very close at expectations, up by 0.1% month over month and 3.1% year-over-year on the headline, and 0.3% month over month and 4% year over yer on the core; the only “miss” was the headline month over month reading (vs.0% expected). 

The lack of a meaningful beat is eroding U.S. equity indexes’ gains overnight and pushing U.S. Treasury yields modestly higher. The U.S. dollar is rebounding across the board, while precious metals are pulling back. Attention now turns to the The Federal Open Market Committee (FOMC) meeting tomorrow.   

After reaching a fresh yearly high yesterday, Nasdaq futures (/NQH4) are nearly unchanged this morning as markets digest the latest round of data around prices for November, which wasn’t as soft as the market expected. All eyes are on tomorrow’s Federal Reserve rate decision. While there is virtually no chance of a cut at this meeting, markets expect the Fed to start making moves as early as March—but tomorrow could see the bets shift. Fed Chair Jerome Powell may decide to push back against dovish expectations if he isn’t encouraged enough by the latest economic data.  

 Five-year T-Note futures (/ZNH4) trimmed gains after the latest U.S. inflation numbers dropped this morning. Core inflation, a measure closely watched by the Fed that strips out food and energy prices, rose 0.3% from October, matching estimates. The market was looking for some more relief ahead of tomorrow’s interest rate decisions, which will likely influence rate cut bets over the coming weeks. Swap markets currently price about a 50% chance of a hike at the March meeting, and odds for a cut before then are rather slim. Meanwhile, bond traders will listen to remarks from Treasury Secretary Janet Yellen, who is scheduled to speak this morning at The Wall Street Journal’s CEO Council Summit.  

Treasury yields trimmed losses this morning after November’s inflation report crossed the wires, which wasn’t bullish enough to boost Fed rate cut odds. Still, gold prices (/GCG4) held onto earlier gains, although the metal remains vulnerable near four-week lows. Traders may wait until tomorrow’s FOMC decision crosses the wires before making the next big move.  

Rising tensions in the Middle East, including a missile attack on a chemical tanker cruising off the coast of Yemen, isn’t enough to counter the bearish sentiment in oil markets. Crude oil prices (/CLG4) fell over 2% this morning as traders focused on a weak demand outlook, which was recently affirmed by forecasts from OPEC and the Paris-based International Energy Agency (IEA). Today will see the American Petroleum Institute (API) report U.S. inventory data for the week ending Dec. 8, with traders expecting a 1.5 million barrel draw.  

The euro (/6EH4) got a boost from a pickup in sentiment across the Euro Area, according to a report for December. Still, there is a lot of event risk for the currency left in the week, with the Federal Reserve and the European Central Bank (ECB) set to deliver rate decisions. While inflation remains slightly higher in Europe than in the United States, rate traders still see an ECB cut by July 2024. The recent drop in energy prices, in oil and natural gas, is also helping to soften the path for the central banks, albeit Europe remains more at risk from any potential price shocks.  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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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