Key Takeaways with Craig

US Equity prices rallied today after the “Fiscal Responsibility Act” passed in the House of Representatives last night.  All four major indexes were higher, with the Nasdaq leading the way, up by nearly 1.5%.  Implied volatility in the more deferred expiries CME’s Equity Index options fell today, though the options that expire tomorrow remain elevated.  This makes some intuitive sense given that the debt ceiling bill must still pass the Senate vote and also that the May Employment Situation report will be released tomorrow morning, providing the latest view into the health of the US job market. 

US Treasury yields fell slightly today with the Micro 2-Year Yield future down by about 5.5 basis points and the Micro 10-Year down by just about 3.  CME’s FedWatch tool now reflects a 77% chance of no change to the Fed Funds target rate at the June FOMC meeting; up just slightly from yesterday.   

WTI Crude Oil futures prices rose by about 3% today and are back above the $70 per barrel mark.  Implied volatility in the options market, as measured by CVOL, continued to rise today and is trading at the highest level since the beginning of May.  Similarly, while there remains a Put skew, it is closer to neutral as we’ve seen since the beginning of April.  CVOL is depicted by the blue line in the top CVOL graph below while skew is depicted in purple.  This market action comes ahead of the June 4th OPEC meeting.  The bottom image is an excerpt from CME’s OPEC Watch tool that seeks to predict the likelihood of the OPEC decision on output based, primarily, on CME options markets.  As you can see, this tool suggests that the WTI Options market is pricing in a ~85% probability of no output change.  

Today's Future Price Action

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