Where we are: Nasdaq 100 futures are trading near flat this morning, hovering around 19,650 after a mixed overnight session. The index remains close to record highs, fueled by continued enthusiasm for AI-related stocks, but is finding resistance as inflationary pressures resurface. This level puts it just above yesterday’s NY close, with the overnight range relatively contained ahead of key US data.
What’s driving it: The primary driver is renewed inflation concerns in the US, as evidenced by the uptick in producer prices. Rising US real yields are also acting as a headwind. While the AI rally, particularly related to Nvidia and its engagement in China, is providing support, the market is struggling to fully embrace risk given the broader macro picture. The 2s10s spread remains positive, although compressed slightly at 46bp, suggesting a degree of caution persists regarding the growth outlook despite the inflation signal.
- US 10Y Real Yields are up 2bp d/d to 1.95%, increasing the opportunity cost of holding equities.
- Net non-commercial positioning in Nasdaq 100 futures is modestly long, at the 2nd percentile, suggesting limited room for further speculative inflows and possible squeeze risk to the downside if sentiment shifts.
- China AI stocks surged overnight following Nvidia CEO Huang’s visit, boosting Nvidia supply bets, but this tailwind may be limited given domestic inflation concerns.
NY session focus: All eyes are on the 08:30 ET release of Core PPI and PPI data, which will likely dictate the near-term direction. A hotter-than-expected print could accelerate the sell-off. Support lies around 19,500, while resistance sits near the all-time highs around 19,700. Traders should monitor the reaction in US Treasury yields. We also have the Fed Chair Nomination Vote at 14:30 ET, but that’s widely expected to pass and shouldn’t be a major market mover. The trade that’s working is shorting the NDX on rallies above 19,700, while the trade at risk is chasing the AI narrative without acknowledging valuation risks. The pain trade here is PPI misses substantially to the downside, unleashing another big wave of AI-led euphoria.