Key Takeaways with Craig
The US FOMC raised its target Fed Funds rate today for the first time since December, 2018. The Fed also indicated that the 25 basis point increase to its target rate would be the first of 7 total hikes this year. According to CME’s Micro Treasury Yield futures, the US yield curve continued to flatten as the 2-Year contract was up by about 8 basis points and the 30-Year was down by about 3. Despite that the Fed suggested there would be six additional rate hikes this year, CME’s FedWatch tool shows a higher likelihood for a 25 basis point hike in May than a 50 point hike in a reversal from what it was indicating yesterday. Despite all of this and despite the fact that the Micro Treasury Yield futures are showing a narrowing in the difference between the 2-Year and 10-Year yields to 20 basis points, US Equity prices rallied in late afternoon trading.
Prices in all four CME Equity Index futures rose today, led by the Nasdaq-100, which was up by nearly 3.5%. Implied volatility in the Equity Index options markets fell with the price rally and is trading closer to the 3-month average closing level than it has in about a month. In other CME Group markets, Corn futures prices were down by over 3.5%, Wheat was down by nearly 7.5% and WTI Crude Oil fell again, this time by about 1.3%.
In addition to the implied volatility in CME’s Equity Index options declining generally, as you can see in the QuikStrike graph below of the E-mini Nasdaq-100 Risk Reversal (Call Volatility minus Put Volatility), Calls are trading as high relative to Puts as they have in abut a month and a half.
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