Key Takeaways with Craig

US Equity prices jumped and yields fell after this morning’s CPI number indicated lighter than expected inflation.  Prices were still higher in late afternoon trading but had come off earlier levels with the down up by less than 100 points, and the Nasdaq and Russell 2000 up by over 1%. CME’s Micro 2-Year Yield was down by almost 16 basis points while the 10-Year was lower by about 12 in late afternoon action.  Implied volatility in both the Equity Indexes and Treasury options markets declined, though the Skew in the 2-Year Treasury options yield increased slightly (toward the Calls) while that in the 10-Year traded a bit lower, according to CME’s CVOL indexes.  CME’s FedWatch tool did not indicate a material change in expectations for the July FOMC meeting, though it did suggest a smaller likelihood for another 25 basis point hike in the 3 remaining 2023 meetings after July. 

Perhaps related to the decline in Treasury rates, Gold and Foreign Exchange futures prices also reacted to this morning’s inflation number as precious metals caught a bid with Gold up by about 1.5% and Silver up by 4.5%.  In CME’s FX markets, the US Dollar was lower against most major currencies.  However, as opposed to the Equity and Interest Rates markets, CVOL levels rose slightly in the Metals, though they did come off in the FX options markets.

Finally, as we’ve also been talking about this week, the WASDE (agricultural supply and demand) report was released late this morning that seemed to put some downward pressure on CME’s Corn and Soybeans markets.  The price of Corn futures for December delivery was down by over 3.5% and that for November Soybeans was down by over 2.5%.  As we often see after a report like the WASDE is released, implied volatility declined in the options markets as the uncertainty of the information in the report is removed.  However, today we saw CVOL levels continue higher in both Corn and Soybean options.  It is worth noting that, in the Corn options market, convexity, which is a measure of the implied volatility of the out of the money options relative to the at the money options is near 3-month highs.  In other words, the implied volatility is higher “at the wings” when looking at the implied volatility curve.  

Today's Future Price Action

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