Key Takeaways with Craig
We hope everyone enjoyed the Key Takeaways columns featuring CME Group products and tools this week. Upon returning to the office after spending the last 5 days in a hockey rink, it seems I missed quite a bit in the markets. Perhaps most notable was yesterday’s CPI report that reflected even higher rates of inflation in June than the market was expecting. After falling yesterday and declining this morning, US Equity markets rallied to close mixed with the Nasdaq logging small gains and the other major indexes falling slightly. We do find it somewhat interesting that, despite the inflation numbers, the corresponding rise in US Treasury rates, the inversion of the 2 Year and 10 Year Treasury Yields and the 40% probability of a 100 basis point hike at the next FOMC meeting (according to CME Group’s FedWatch tool – though that is down from 80% yesterday), implied volatility in CME’s Equity Index options markets has remained steady to slightly lower over the last couple of days. A QuikStrike graph of 3-months of E-mini Nasdaq-100 price (orange line) and implied volatility (blue line) can be found below.
And speaking of the Treasury rates, using CME’s Micro Treasury Yield futures as a proxy, the 2-Year Treasury is yielding about 20 basis points more than the 10-Year. Regular readers of the Key Takeaways section know that this is a much-watched interest rate relationship as this type of inversion (when the shorter term yields greater than the longer term) has historically predicted a recession in many instances.
Finally, last week we featured the price of the Euro FX here in the Key Takeaways section as it was approaching parity with the US Dollar for the first time in decades. That trend continues as the September Euro FX future printed a low price of 1.0000 during today’s trading session before recovering slightly to trade at 1.0061 in late afternoon action. The August expiration did trade below 1.0000 earlier in the session, printing a level of .99790.
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