Key Takeaways with Craig

US Equity Indexes traded higher in early afternoon action but sold off during the last hour of cash equity trading to close mixed.  The Dow Jones Industrials was near steady, the Russell 2000 was slightly higher and the Nasdaq-100 and S&P 500 were both lower on the day.  Stock prices become volatile in the last half hour of cash equity trading while President Biden and German Chancellor Olaf Scholz held a joint press conference on Russia and Ukraine.

US Treasury yields were little changed on the day, particularly at the long end of the yield curve although the Micro 2-Year Treasury was down by nearly four basis points.  This followed a big rise in Treasury yields on Friday after a stronger than expected January Employment number.  Fed Funds futures also indicated that the market was pricing in a more aggressive rate-hike schedule from the FOMC.  Specifically, according to the CME Group FedWatch tool:

  • The Fed Funds market is pricing in a 25% chance of a 50 basis point hike at the March meeting; up from 8.5% a week ago
  • The Fed Funds market is pricing in a 25% chance of a 100 basis point hike by June; up from 6.1% a week ago
  • And a 46% chance that the target range is over 150 basis points by December; up from 30% a week ago

On Thursday, the release of the CPI number will give the market the latest reading on inflation in the US.  CME’s event volatility calculator, which uses the term structure of volatility to estimate the futures price chance that the options market is pricing, suggests that the options market is pricing in a 57 point move in the E-mini Nasaq-100 futures attributable to this number release.  As you can see from the elevated volatility level in the 10-Year Treasury options that expire on Friday relative to the expirations before and after in the QuikStrike graph below, the options market is also pricing in the potential for a price move in the Treasuries as well. 

Today's Future Price Action

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