What you'll read in this issue: |
|
Awaiting the Effects of La Niña |
|
The past El Niño was one of the strongest since detailed records have been kept in the 1950s, and those “super El Niños” are usually followed by La Niñas the next two following winters.
Background: El Niño, the weather phenomenon that heats up sea surface temperatures, dissipated in the spring. Meteorologists were waiting for La Niña to take its place, but so far that hasn’t happened. La Niña is characterized by cooler sea surface temperatures and in the Midwest, it can cause ridging patterns, or heat domes. |
|
Changing Conditions: Agricultural weather forecasters say a wet winter and spring in much of the Corn Belt set up farmers to start the growing season off right.
As weather conditions shifted, weekly options trading in corn and soybeans at CME Group rose to record levels. These options allow producers and other market participants to manage risk around short-term, high impact events like a weather change or USDA report. |
|
Why It Matters: Weather patterns could change again as the impacts of La Niña remain to be seen:
-
There are risks for heat domes this summer, but the key is where the ridges go and if they stay in a particular spot or move throughout the season.
-
La Niña may not develop until at least August or even later into the fall, and there’s no guarantee if it occurs that it will affect the Corn Belt.
|
|
|
Liquefied Natural Gas (LNG) Supply and Demand Dynamics |
|
While natural gas prices are currently exhibiting typical summer seasonal demand due to traditional factors like air conditioning, they are also impacted by some changes in the current fundamentals from the supply side.
U.S. LNG Consumption In Asia: Seasonality isn’t the only factor to consider. As Asia strives to cut back carbon emissions by reducing its reliance on coal, LNG has emerged as a leading transition fuel that could pave the way for the United States to play a crucial role in the region’s energy landscape:
-
The region is reliant on LNG imports as growing energy demand outpaces supply.
-
In 2023, the U.S. became the world’s largest LNG exporter, surpassing Qatar and Australia.
Trading Hours: With considerable amounts of U.S. LNG exports heading to Asian consumers, the liquidity in CME Group Henry Hub Natural Gas futures during Asian hours (8 a.m. to 8 p.m. Singapore time) has been growing. Volume during Asian hours averages close to 34,000 contracts per day, which represents about 7% of the global volume in the first five months of 2024.
Why It Matters: U.S. LNG exports are projected to grow 2% in 2024 from last year, followed by a potentially significant rise of 18% in 2025 as new export terminals start operations, according to the EIA. |
|
|
 4 MIN READ |
|
Managing Exposure to the Nasdaq-100 Index® |
|
Over the past 25 years, technology stocks have become a source of economic strength, and the Nasdaq-100 Index® is now one of the main gauges global investors and traders watch.
Background: CME Group E-mini Nasdaq-100 futures launched on June 21, 1999 during the height of the first technology boom that propelled the cash Nasdaq-100 Index® to new highs at the time. The timing gave the upstart contract strong tailwinds, becoming one of the biggest contracts at CME Group in terms of volume and liquidity. |
|
A Changing Makeup: From the dot com era to AI, new economy stocks that make up the Nasdaq-100® have evolved from being a niche part of the overall stock market to a more prominent force. Looking at the S&P 500 index, Nasdaq-100® companies represented about 10-15% of the index market cap throughout much of the 2000s, and it has averaged closer to 50% in recent years.
Why It Matters: The growth of E-mini Nasdaq-100 futures reflects not only how technology has become a bigger part of the U.S. economy over the past 25 years, but also the importance of risk management tools in managing volatility in the market.
Quotable: “As people get familiar with the E-mini, the Micro E-mini, the Nasdaq options, they're now adopting all the other sort of varietal of products that we have similar to the other indices as well.” - Tim McCourt, Global Head of Equity and Foreign Exchange products, CME Group. |
|
4 MIN READ |
|
Americans are Keeping Travel in the Budget |
|
Inflation seems to have not stopped anyone when it comes to getting in their summer vacations. With a record breaking 2.9 million people passing through U.S. airports the Friday before Memorial Day, and 38.4 million drivers hitting the road the same weekend, what could be causing this surge of Americans to travel?
Background: Crude oil and gasoline prices have been down which is making it cheaper for Americans to travel this summer. Gas prices in mid-July averaged $3.52 a gallon in the U.S., down from a month earlier. Similarly, airfare at the start of summer was down about 5.8% from a year earlier, according to Skift, a travel news organization.
More Travel Spending: While fuel costs are lower, people are spending more on accommodations. Sean O’Neill, senior hospitality editor at Skift, pointed out that luxury hotels are seeing higher demand, even with their higher prices. Nearly half of all U.S. travelers are increasing their travel budgets over the next 12 months, according to a Skift survey.
Why It Matters: As gasoline demand has increased during the summer season, so has interest among gasoline traders looking to manage risk around probabilities of a sudden price shift. The RBOB Gasoline futures contract at CME Group saw open interest – or the number of open, unsettled positions – move to its highest point in more than three years in April, and interest has remained high since. |
|
 3 MIN WATCH |
|
Understanding Corporate Bond Markets |
|
With futures being launched on both investment grade and high yield corporate bonds, there are a few things investors should know about economics of these markets.
Correlations: U.S. corporate bonds inhabit a space in the investment landscape that is somewhere in between U.S. Treasuries and equities:
-
Investment grade bonds, like those in the Bloomberg U.S. Corporate Bond Index, usually correlate highly with U.S. Treasuries.
-
By contrast, high-yield bonds, such as those in the Bloomberg U.S. Corporate High Yield Very Liquid Index, usually correlate more strongly with the S&P 500.
Optionality: Unlike U.S. Treasuries, corporate bonds are not backed by the full faith and credit of the U.S. government. Instead, they depend on corporate cash flows to make good on their coupon and principal payments. As such, corporate bonds can be seen as being akin to being long a U.S. Treasury plus a short put option on the value of a corporation.
Quotable: “Futures allow investors to scale risk exposures up and down. For example, risk parity strategies can use futures to scale U.S. Treasuries up to equity-like levels of risk,” says CME Group Chief Economist Erik Norland, noting that up until now, scaling the risk of corporate bonds up to equity-like risk has been difficult. |
|
|
2 MIN READ |
|
Scholarships Awarded to City Colleges of Chicago Graduates |
|
CME Group and Chicago Mayor Brandon Johnson have awarded 25 City Colleges of Chicago graduates with a $5,000 scholarship toward their four-year degrees. |
|
|
2 MIN READ |
|
CME Group and Google’s Partnership Continues |
|
The two firms announced plans to build a private Google Cloud region and co-location facility in Aurora, Illinois to support CME Group’s markets. |
|
|
|
|
33 MIN WATCH |
|
Erik Norland Provides an Economic Update |
|
CME Group Chief Economist Erik Norland joins Anthony Crudele on Futures Radio to discuss an in-depth economic analysis on global financial markets. |
|
|
 |
|
|
|
Privacy Notice
| Terms of Use
| Cookie Notice
| Disclaimer
|
| |
|
Where risk meets opportunity. As the world's leading derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk. CME Group enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data. CME Group exchanges offer the widest range of global benchmark products across all major asset classes including interest rates, equity indexes, FX, energy, agricultural products and metals.
Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.
CME Group®, the CME Group Globe logo, and CME® are trademarks of Chicago Mercantile Exchange, Inc.
Copyright © 2024 CME Group. All rights reserved.
Mailing Address: 20 South Wacker Drive, Chicago, Illinois 60606
.
|
|
|
|
|
|
|
