Nasdaq 100 Leads Markets After Cooler-Than-Expected CPI Data

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

1. Nasdaq 100 E-mini futures (/NQ): +0.56%
2. 10-year T-note futures (/ZN): 0%
3. Silver futures (/SI): +0.99%
4. Crude oil futures (/CL): +1.81%
5. Japanese yen futures (/6J): -0.41%

The February U.S. inflation report came in a touch cooler than expected, initially leading to a feeling of relief. It may enable the Federal Reserve to cut rates before any tariff-driven recession sets in. Topline inflation came in at +0.2% month over month (m/m) and +2.8% year over year (y/y), below forecasts of +0.3% m/m and +2.9% y/y. The core readings likewise came in slightly below estimates at +0.2% m/m (+0.3% y/y exp) and +3.2% y/y (+3.3% exp). While the news was initially received well by stocks and bonds, gains have proved wobbly as the market has retraced all initial gains back to unchanged before resuming rallies anew. A softer U.S. dollar may likewise be helping to lift USD-denominated commodities.

Stocks have gyrated between gains and losses this morning after the consumer price index (CPI) report, although gains were coming back into favor at the time of writing. Given the affect the flow of news has had on equity prices in recent weeks, it stands to reason traders should continue to anticipate volatile two-way action throughout the trading day. The Nasdaq 100 (/NQH5) is the leader, although given the drawdown in the Mag7 names, it’s too early to suggest this is anything more than rebalancing.

Like their equity counterparts, bond markets have seen two-way whipsaw action today, although higher yields are prevailing as the session marches forward. The long-end of the curve is seeing the most action, and a 10-year note auction later today should likewise pique traders’ interest in the wake of the inflation data.

Metals are shining today, holding their ground despite volatility in most other asset classes that is producing “reach for safety” conditions. On the other side of a bout of market panic that saw cash levels raised (e.g. almost everything was being sold save Treasuries), metals are quietly approaching yearly highs amid a return of volatility into the space.

Crude oil prices (/CLH5) continue to chop around near their yearly lows, although today’s gains put oil closer to the topside of its one-week range. Volatility has started to appear in oil futures again, with IVRs stick above 30 for each of the past two days. The correlation between oil and stocks has been positive in recent sessions as traders contend with growth fear; in other words, if oil is going to rally, stocks may be the confirmation signal.

The U.S. dollar was trading stronger for much of today’s session but at the time of writing, gains were flipping into losses. The softer CPI reading doesn’t change much for the Fed in the short-term, but the combination of receding inflation coupled with fear of lack of growth fears leaves the U.S. dollar in an unenviable position in the short-term. Across the pacific, Japanese long-end yields hit their highest level since 2006, while across the Atlantic German yields are continuing to climb.

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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