Key Takeaways with Craig
US Equity prices attempted to rebound earlier in the day but were trading broadly lower in late afternoon action. Implied volatility (“vol”) in CME’s Equity Index options markets was little changed, though the options that expire tomorrow and Friday (after the FOMC decision on its Fed Funds target rate which is expected tomorrow afternoon) are trading at substantially elevated vol levels compared to the more deferred expiries.
And speaking of tomorrow’s FOMC decision, CME’s FedWatch tool, which we mentioned was showing a 35% probability for a 75 basis point rate hike at tomorrow’s announcement yesterday, is now showing a 91.5% chance of that 75 basis point hike. Somewhat related to that, the Micro 2-Year Treasury yield contract is up 14 basis points today and, at about 3.475 is yielding just about the same as the Micro 10-Year Treasury yield and both are above the Micro 30-Year Yield.
Commodity markets remain active at CME and perhaps no more so than Natural Gas futures which were down by about 16% today. We’ve written extensively about the rally in Natural Gas prices over the last several months and now we’re seeing the price come off over the last week. However, even as we’ve seen the prices come down somewhat, you can see in the green lines in the QuikStrike graph below of July implied volatility (top) and price (lower) both remain significantly higher than we’ve seen them at this time of year since 2016.
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