Nasdaq 100 Trying to Find Footing as U.S. Labor Data Softens

Also 10-year T-Note, Gold, Crude Oil, and Euro Futures 

1. Nasdaq 100 E-mini futures (/NQ): -0.41% 

2. 10-year T-note futures (/ZN): +0.26% 

3. Gold futures (/GC): +2.5% 

4. Crude oil futures (/CL): +1.21% 

5. Euro futures (/6E): +0.25% 

Today’s slate of U.S. jobs data has done little to spark a turnaround in U.S. equity markets. The August U.S. Challenger Job cuts report shows a smaller-than-expected jump in layoffs (75,891 from 25,885, vs. 78,000 expected), the July U.S. ADP employment change reading came in weaker than anticipated (+99,000 vs. +111,000 expected), and weekly U.S. jobless claims came in a touch stronger (227,000 vs. 232,000 expected). In totality, the data leave open the possibility for a weak August U.S. nonfarm payrolls report tomorrow. In turn, bonds continue to edge back toward their August highs, and the drop in yields coupled with a weaker U.S. dollar is helping boost precious metals and energy. 

With 2Q ’24 earnings season in the rearview mirror, all attention has turned back to macroeconomic and geopolitical drivers for U.S. equity markets. Volatility has displayed a degree of stickiness in recent sessions, where upticks in stocks are not producing downdrafts in vol; the spot VIX remains above 20 (although it has come in meaningfully from its weekly high above 23). Technical erosion in both the S&P 500 (/ESU4) and Nasdaq 100 (/NQU4), coupled with a weak seasonality backdrop, warrants continued caution for bulls. 

A mixed bag of U.S. jobs data continued to stoke speculation that the Federal Reserve would begin its rate cut cycle with a 50-basis-point (bps) move in less than two weeks; Fed funds futures are discounting a 46% chance of such a move, up from 34% this time last week. The uninversion of the yield curve at the 2s10s spread is likewise garnering interest among traders fearful of the onset of recession (although it’s debatable as to whether or not the yield curve is a viable recession indicator). 

Lower yields and a softer U.S. dollar is all that metals needed today to stage a rebound. Both gold (/GCZ4) and silver prices (/SIZ4) are back to levels seen around the monthly open, having erased modest losses from earlier in the week. At the time of writing, a stronger than expected August U.S. ISM Services PMI report helped spark a pullback in metals from their daily highs.  

Crude oil prices (/CLZ4) crashed to 52-week lows in recent sessions alongside an expansion in volatility. Curiously, the parallel expansion in equity market volatility may be curating a unique environment: Since 2021, whenever the spot VIX has moved above 20, crude oil has positive returns one-, two-, three- and four-weeks thereafter. “Catching a falling knife” is never a wise endeavor; and yet, /CLZ4 posting a modest rebound from year-long range lows suggests selling put spreads may be prudent (as was the case when these levels were last seen in December 2023). 

Yield differentials are in the driver’s seat this morning, with the initial wave of softer labor data hurting the U.S. daollar while the ISM Services PMI helped stem the bleeding. FX markets seem to be in the gravitational pull of the NFP report, where the U.S. Dollar is the main character and all other economic data loses sway. Volatility across FX futures is running higher, with the IVRs ranging from 38.3 to 78.6.

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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