Markets are Struggling and Commodities are Mixed as the U.S. Dollar Climbs

Also, 30-year T-bond, copper, natural gas and euro futures

1. Nasdaq 100 E-mini futures (/NQ):- -1.44% 
2. 30-year T-bond futures (/ZB): -1.02% 
3. Copper futures (/HG): +0.6% 
4. Natural gas futures (/NG): -1.11% 
5. Euro futures (/6E): -0.19% 
   

After meandering price action for much of the week, a sourer tone has set in today. U.S. equity markets are struggling across the board, led lower by the Nasdaq 100. U.S. Treasuries, particularly at the long end of the curve, continue to struggle. Commodities are mixed as the U.S. dollar has resumed its climb. The odds of a Federal Reserve interest rate cut have fallen in the wake of Fed Chair Jerome Powell’s comments yesterday afternoon; the probability of a 25 basis-point (bps) rate cut in December has dropped from a high of 82% to 53% over the past 48 hours. 

Nasdaq futures (/NQZ4) fell 1% in this morning’s trading, extending the weekly loss to about 2%, as traders step back from the risk taking of last week’s post-election trade. Applied Materials (AMAT) fell 9% in pre-market trading after reporting mixed guidance that disappointed investors. That spoiled the sentiment in the chip sector, with the VanEck Semiconductor ETF (SMH) falling 1.5% ahead of the bell. Alibaba (BABA) was nearly unchanged after trimming earlier gains that the stock made on its earnings release. 

Treasuries were lower today as interest rate cut bets eased, with traders expecting less chance of the Fed cutting in December than was priced in just a few days ago. Fed speakers as of late have pushed back against expectations that the December rate cut is “not a done deal,” as Boston Federal Reserve President Susan Collins put it. The downward move in the bond markets over the past two weeks have likely put some pressure on the Fed to reconsider its strategy over the short term.   

Some good news from China helped copper futures (/HGZ4) in overnight trading, with prices up about 0.7% this morning. China’s retail sales for October rose 4.8% from a year ago. That was up from the previous month’s 3.2% year-over-year increase. Still, copper was on track to record a loss of over 4% for the week, which would mark the biggest drop since July. The data from China is encouraging, but likely provided a trigger for some profit taking on the short side of the trade, given that the macro and geopolitical situations remain a headwind for industrial metals. 

Natural gas futures (/NGZ4) continued to fall today, extending a move from yesterday that saw the price drop over 6%. Still, prices remain on track to record a 2% gain for the week, if today’s price action holds. The Energy Information Administration (EIA) reported a 42 billion-cubic-feet (Bcf) storage build yesterday for the previous week. That nearly matched expectations but left inventory in the U.S. well above its one- and five-year averages. Meanwhile, warm weather is expected across the Eastern United States into December, tempering expected demand. Gains from earlier in the week came off of the contract lows, and prices may have trouble extending the rally amid the bloated supply situation.  

Euro futures (/6EZ4) were nearly unchanged this morning as prices moderated going into the weekend. The currency is on track to put in a second week of losses, as traders in the U.S. price in a reduced pace of rate cuts from the Federal Reserve. The incoming Trump administration has bolstered bets that the European Central Bank (ECB) will move to cut rates at a faster pace. Markets expect a 25bps cut at next month’s ECB meeting, as the expectation of tariffs complicates the path for the European economy. The continuous contract is coming up against the 2023 October swing low 1.0482.  

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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