Nasdaq 100 Continues Slide Ahead of NVDA Earnings

Also, 5-year T-note, gold, natural gas and euro futures

1. Nasdaq 100 e-mini futures (/NQ): -0.58%
2. 5-year T-note futures (/ZF): +0.01%
3. Gold futures (/GC): 0%
4. Natural gas futures (/NG): +12.37%
5. Euro futures (/6E): +0.03%

More selling pressure overnight in U.S. equity markets underscores the uncertainty brewing ahead of two key events today: the January Federal Open Market Committee (FOMC) meeting minutes release and the Nvidia (NVDA) earnings report.

Bonds continue to stage a modest rally through the first half of the week, paving the path for the U.S. dollar to pullback versus its major counterparts. Several asset classes are sitting at technical turning points, making today the most consequential trading day for the rest of February.

Equity futures down

Equity futures are trailing lower for the third day, with Nasdaq 100 futures (/NQH4) down over 0.5% Wednesday morning as traders cautiously await earnings from NVDA.

We also have minutes due from the Federal Reserve, although the chip maker seems to be the most front and center issue for traders concerning equities. NVDA must live up to grand expectations and any weakness in its earnings report could trigger a selloff that could drag the entire market lower.

Bonds move up

Bonds continue to stage a modest bounce through the first two days of the trading week. The 2s/10s spread has been stable over the past week, holding near 33-bps. Two Treasury auctions are on tap for today, with two-year floating rate notes (FRN) and 20-year bonds for sale.

The January FOMC meeting minutes are set for release at 2 p.m. Eastern Time/1 p.m. Central Time today as well. Odds of a 25-basis-point rate cut in the first half of 2024 are now 77.4%, down from 99.4% one month ago.

Metals show progress

The pullback in U.S. Treasury yields and a weaker U.S. dollar are helping to prop up base and precious metals in recent days, with Wednesday proving no different.

Gold prices (/GCJ4) may be playing catchup to silver (/SIH4), the latter of which experienced a sharp rally last week. Meanwhile, copper prices (/HGH4) continue to make progress higher after a raft of measures by announced by the Chinese government aiming to stimulate the housing market have lifted sentiment.

Natural gas moves higher

Natural gas prices (/NGH4) jumped nearly 10% Wednesday morning after hitting 30-year lows following a sustained downtrend.

The low prices come amid a glut of supply amid a much warmer-than-average winter for the continental United States. That has hurt producers to the point where they are shutting down wells. But the market continues to be overwhelmed by supply, which is partially due to associated natural gas flows from oil producers, many of whom are still pumping at or near full capacity.

Today’s rebound is likely fueled in part by an elevated short position that has accumulated over the last several months, with many of those shorts likely taking profits on those positions.

The dollar gets weaker

The Federal Reserve may soon "out hawk" the rest of the world’s major central banks, but this week thus far has been a recalibration of expectations around the timing of rate cuts from the Bank of England,

European Central Bank, and Reserve Bank of Australia. The U.S. dollar is weaker across the board for the second day in a row as rate differentials become relatively less favorable. The euro (/6EH4) is attempting to close above its daily 21-day exponential moving average (EMA) for the first time since Jan. 11.

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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