Key Takeaways with Craig
US Equity prices rallied ahead of tomorrow’s scheduled remarks from Fed Chairman Jerome Powell at the Jackson Hole economic conference. While implied volatility in CME’s Equity Index options that expire in 30-days declined with the price rally, the implied volatility in the options that expire tomorrow increased ahead of Chairman Powell’s speech. The QuikStrike graph below shows the current volatility curve (term structure of volatility) in the E-mini Nasdaq-100 options with the blue line and yesterday’s settle values in the orange line. As you can see, on both days the options expiring tomorrow are trading at significantly higher levels of vol but it has increased from yesterday to now.
US Treasury yields were lower at the longer end of the curve but near steady on the 2-Year yield. Using CME’s Micro Treasury Yield futures as a proxy, the inversion of the 2s versus 10s is at about 34 basis points. Additionally, CME’s FedWatch tool is currently showing a 64.5% chance of a 75 basis point rate hike at the September FOMC meeting. This is up from 61% yesterday and from 41% a week ago when the Fed Funds futures were pricing in a higher probability of a 50 basis point hike.
In other CME Group markets, Grains futures prices were broadly lower, WTI Crude Oil prices were down by about 2% and Natural Gas futures were slightly higher and remain at historically high
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