Key Takeaways with Craig
It was a relatively quiet trading day until Federal Reserve Chairman Jerome Powell indicated during a speech that smaller increases to the Fed Funds target rate could begin as early as its December meeting. In afternoon trading, US Equity Index prices rallied sharply, US Treasury Yields fell, as did the US Dollar against most major currencies, precious metals futures prices rose and WTI Crude Oil was up by about 3% and back over $80 per barrel.
Even though the E-mini Nasdaq-100 futures price rose by over 4.5%, implied volatility in the options markets increased from about 23% to nearly 25%. Even with today’s rally, the market continues to look towards Friday’s release of the November Employment report. This is underscored by the implied volatility curve in the E-mini Nasdaq-100 options that you can see in the QuikStrike graph below. The options that expire Friday afternoon continue to trade at elevated vol levels compared to the expirations around it.
In CME’s Micro Treasury Yield contracts, the 2-Year yield declined by just over 12 basis points while the 10-Year was down by nearly 14. This leaves the inversion between the two at about 65 basis points. CME’s Fed Funds futures prices also rose, a move that was reflected in CME’s FedWatch tool. Yesterday, the tool was indicating a 66% chance of a 50 (rather than 75) basis point hike at the December FOMC meeting; today, that increased to about 75%.
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