Key Takeaways with Craig
US Equity prices soared, and Treasury yields dropped sharply after a lower-than-expected CPI reading was released this morning. E-mini S&P 500 and Nasdaq-100 futures prices were up by over 2% while the Russell 2000 was up almost 5.5%! Somewhat unsurprisingly, implied volatility in CME’s Equity Index options declined, which you can see in the top QuikStrike image below. In a reversal from yesterday, the blue line, which represents the current implied volatility value in E-mini Nasdaq-100 options is below yesterday’s, represented by the orange line.
US Treasury prices also rallied, which means yields fell, with the Micro 2-Year Yield Treasury future down by over 21 basis points and the Micro 10-Year lower by nearly 20. The options action was interesting as CVOL in the 2-Year, which is potentially more impacted by Federal Reserve decisions, climbed to 1-month highs while the 10-Year CVOL was little changed and 30-Year CVOL fell slightly. This is represented, respectively, by the green, orange and blue lines in the bottom CVOL graph below.
CME Group’s Fed Funds futures also reacted to the CPI report, which was reflected in its FedWatch tool which now reflects nearly no chance of a Fed Funds target rate increase at the December meeting; down from about 14.5% yesterday. Further, the tool is suggesting a 33% chance of a target rate cut at the March, 2024 meeting; up from about 10.5% yesterday.
In other CME Group markets, perhaps related to the decline in interest rates, Gold and Silver futures prices traded higher while most major currencies were higher versus the US Dollar in the FX futures markets. The G5 FX CVOL index declined slightly today, but it is trading with a call (as opposed to put) skew for the first time since the end of July.
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