Nasdaq 100 Tries Again to Make a Low After PCE Index Report

Also, 30-year T-bond, silver, natural gas and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): +0.64% 

2. 30-year T-bond futures (/ZB): +0.66% 

3. Silver futures (/SI): 0% 

4. Natural gas futures (/NG): +0.19% 

5. Japanese yen futures (/6J): -0.08% 

U.S. equity markets are trying to find some relief for the second straight day, although bulls are hoping this time is different. The June U.S. personal consumption expenditures (PCE) index came in on the screws, confirming the trend of disinflation toward the Federal Reserve’s medium-term target is continuing. The data are proving beneficial for bonds and, in turn, lower yields are undercutting the U.S. dollar. Commodities are mixed, with an ongoing tilt away from growth-sensitive assets. 

Nasdaq futures (/NQU4) rose this morning after the Fed’s preferred inflation gauge printed an in-line estimate. That bolstered the case for a September rate cut. The rotation trade into small caps doesn’t appear to be over yet. The Russell 2000 (/RTY) is up over 3% this week vs. a 2.7% loss in the Nasdaq. The market focus will turn to technology earnings next week, with Microsoft (MSFT) and Amazon (AMZN) set to report.   

Bonds are moving higher across the curve after U.S. inflation data but the steepener trade remains in effect, with long-end yields outpacing to the downside today. The Treasury’s seven-year Note auction saw strong demand yesterday, posting a bid-to-cover ratio of 2.64 and a high yield of 4.162%. Auctions have been notably strong recently but not last month’s 30-day bond auction. The market for those bonds will be tested again next in August with another auction.  

Silver prices (/SIU4) fell 0.18% this morning despite a somewhat supportive backdrop following this morning’s inflation report.  The gold/silver ratio rose to its highest level since May 6, climbing to 85.57. Gold has benefited amid broader market volatility, attracting traders who see it as a diversifier and store of value. That trend may change if turbulence in the equity markets cool.  

Natural gas futures (/NGU4) are slightly higher this morning, rising about 0.29%, but prices remain nearly 5% lower heading into the weekend. The Energy Information Administration (EIA) reported a 22 billion cubic feet (bcf) storage build for the latest week, which was above analysts’ estimates. Falling below the July swing low at 2.055 would likely threaten further downside on a technical basis. However, if prices fall too far too fast that could threaten production. On the other hand, the market is in a steep contango structure and we are close to the winter withdrawal season, which would incentivize producers to keep production running. 

Japanese yen futures (/6JU4) are little changed this morning but remains up over 2% going into the weekend. The yen’s ascent has pressured sentiment in the market and reduced the appeal of the so-called carry trade. Further strength is likely but also depends on Fed interest rate cut bets and the outlook for Japanese rates. 

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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