Key Takeaways with Craig

US Equity Index futures prices were higher overnight but fell sharply when the August CPI report was released at 7:30 AM Central Time this morning.  At the time of this writing (with about 30 minutes left until CME Equity Index futures settle), the E-mini Nasdaq-100 futures price is down by over 5%.  The higher than expected inflation number also prompted a sell off in US Treasuries (higher yields), particularly in the 2-Year where the Micro 2-Year Treasury Yield futures rose by about 19 basis points.  The Micro 10-Year yield was up by about 6.5 basis points so the inversion between the two increased to about 35 basis points.  Major Foreign Currency futures at CME were lower versus the US Dollar with the Euro FX down by about 1.4% and is trading back below parity. 

CME’s FedWatch tool is now showing a 0% chance of a 50 basis point hike, a 76% chance of a 75 basis point hike and a 24% chance of a full 100 basis point hike, up from 0 yesterday, at the September FOMC meeting. 

As might be expected, implied volatility in CME’s Equity Index options rose with the price break, but CME Treasury Options volatility was near steady on the day.   We did see a bid in the 2-Year Treasury options Puts relative to the Calls and, remember, these are options on the standard Treasury Futures that are quoted in price, not yield.  As you can see from the blue line in the QuikStrike graph of the 25 Delta Risk Reversal below, Puts are trading as high relative to Calls in the 2-Year Treasury Options as they have since June. 

Today's Future Price Action

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