Key Takeaways with Craig
As CME’s Fed Funds futures were indicating this week, at least according to the FedWatch tool, the Fed held its target rate steady today but suggested it might not be done with rate hikes for the year. US Equity prices initially sold off on the news, but near the cash equity market close, the Nasdaq was slightly higher, the S&P 500 was near steady and the Dow and Russell 2000 were lower. Implied volatility in CME’s Equity Index options that have 30 days until they expire was little changed after the announcement and remains well below the 3-year average.
Micro 10-Year Yields immediately rose a few basis points when the FOMC made its announcement but quickly fell back to pre-announcement levels and were trading just about 4 basis points lower than yesterday in late afternoon action. The Micro 2-Year Yield is near the unchanged mark on the day. CVOL continued to decline in both the 2 and 10 Year options. In the 2-year options, CVOL is as low as it’s been since about March 8th and in the 10-Year options, one has to go back to mid-February to find a level this low. This is illustrated in the top CVOL graph below with the 2-Year in orange and the 10-Year in blue.
CME’s FedWatch tool is not very different from yesterday, suggesting a 61.5% chance of a 25 basis point hike in July (versus 60% yesterday) and just a slightly higher probability than yesterday that the Fed Funds target is 50 basis points higher than its current level by December.
In other CME Group markets, the price of WTI Crude Oil futures fell and the US Dollar was lower versus most major currencies. The G5 aggregate CVOL level in CME’s FX options markets declined and is now trading at the lowest level since January 2022. We’ve shown this is the lower CVOL graph below.
So, even with all the seeming global uncertainty, both financial and geo-political, many of CME’s asset classes are characterized by low volatility and CVOL levels as we head into the second half of June. We’ll be back tomorrow to report on CME market performance after the dust settles on today’s FOMC decision.
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