Nasdaq 100 at Monthly Lows After GOOGL and TSLA Earnings Reports

Also, 10-year T-note, silver, crude oil and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): +0.03% 

2. 10-year T-note futures (/ZN): -0.38% 

3. Silver futures (/SI): +0.40% 

4. Natural gas futures (/NG): +0.28% 

5. Japanese yen futures (/6J): -0.99% 

The rotation trade is taking a break today in favor of outright selling across the board in U.S. equities. Bonds are trading higher in the wake of this morning’s U.S. economic data, although the lower yields are dragging down the U.S. dollar (particularly in favor of the Japanese yen, again). The major energy products remain weaker, although the softer dollar may be helping to prop up gold and silver mid-week.  

Stocks are low in the wake of earnings from Alphabet (GOOGL) and Tesla (TSLA), with the latter down over 12% this morning. The disappointing earnings have been contextualized by former New York Federal Reserve President Bill Dudley’s essay in Bloomberg Opinion about the urgent need for the Fed to cut interest rates next week; historically, stocks don’t like “recession rate cuts.” Technical damage is accumulating, increasing the odds of a bigger setback in the Nasdaq 100 (/NQU4). 

The unwind of the yen carry trade, coupled with a deterioration in risk appetite, may be helping to prop up bonds as safe havens through the turn of the week. A two-year note auction yesterday did little to upset the apple cart, while five- and seven-year note auctions are due today and tomorrow, respectively. Fed rate cut odds are solidified around the first rate cut coming in September (100% chance per Fed funds futures), but the Dudley essay may provoke some speculation that next week’s Federal Open Market Committee (FOMC) meeting is live. 

Lower yields and a weaker U.S. dollar are the ideal mix for precious metals, which are taking advantage of the tailwinds today. Both gold (/GCQ4) and silver prices (/SIU4) are rebounding from meaningful technical levels, the former near 2400 and the latter near 29. Bullish opportunities are becoming “cheaper” to express, insofar as both precious metals’ implied volatility ranks (IVRs) have pulled back in recent days. 

Concerns around global growth continue to percolate following China’s surprise rate cuts at the start of the week. Demand for crude oil and global gross domestic product (GDP) have an impressive +0.92 correlation over the past 30 years, so signs that the world’s second largest economy—and perhaps its first largest as well—are slowing down. The return of even a modest amount of volatility is making positions in crude oil (/CLU4) more viable. After their rebound last week, natural gas prices (/NGU4) have failed to hold above the swing lows carved out in February. 

The Japanese yen (/6JU4) wrecking ball continues, having risen to its highest level since May. The remarkable turnaround began with the release of the June U.S. inflation report, and has since produced a break of the downtrend that has defined the market all of 2024. Talk of a Fed rate cut next week may be stoking fears leading to an unwind of the carry trade (across all JPY-pairs) as traders seek safe havens.

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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