Category: Indexes

  • FTSE 100 Consolidates Gains Amid Cautious Optimism – Tuesday, 19 May

    Where we are: The FTSE 100 is trading around 8,395 in early London trade, consolidating gains made in the previous session. The index is holding above its 50-day moving average and is within striking distance of recent highs. The overnight range has been relatively tight as traders await fresh catalysts from across the Atlantic.

    What’s driving it: UK inflation figures, while still above target, are showing signs of stickiness. The latest CPI print came in at 3.3% YoY, a modest increase from the previous 3%, and core CPI remained unchanged at 3.2%. This suggests the Bank of England may maintain its current cautious stance on monetary policy, with the market currently pricing in a higher probability of a rate hold in the near term. This expectation is slightly offsetting the positive sentiment stemming from improved risk appetite and stabilization in global oil prices, as domestic rates are being kept higher for longer.

    • Claimant Count Change data is due to be released at 07:00 London; forecast is 23.1K, with previous at 26.8K — a better-than-expected print may suggest further strength in employment.
    • Average Earnings Index, also at 07:00 London, is expected to remain unchanged at 3.8% — a higher print could reignite wage-price spiral concerns.
    • The FCA and Bank of England’s joint vision on tokenisation suggests an innovative approach to financial markets which may be a positive catalyst for the FTSE 100 long term, even if current impact is minor.

    NY session focus: All eyes will be on US 2Y and 10Y yield curve movements. The VIX continues to trade around 18, which means the market is still seeing some risk as the US 10Y real yield rose to 2.1% on Friday. No major US data releases are scheduled before the NY session opens, meaning that pre-existing sentiment will likely dominate the trading landscape. Key levels to watch for the FTSE 100 are 8,350 for support and 8,450 for resistance. The current trade is to continue to hold long FTSE positions, but the risk trade is any hawkish communication from the Federal Reserve. The pain trade for the FTSE 100 would be a rapid and unexpected rally in the DXY alongside a sharp decline in Brent crude prices, exacerbating inflation concerns.

  • Nikkei 225 Lacks Direction Despite Stronger Growth – Tuesday, 19 May

    Snapshot: The Nikkei 225 struggled overnight, last seen down 0.44% near 60,550, even after Japan’s Q1 GDP exceeded expectations. Stronger economic growth has seemingly been offset by lingering Middle East tensions.

    • Watch for follow-through selling if the Nikkei breaks below 60,000, a key psychological level.
    • Rising US real yields and a firmer dollar pose a headwind to Japanese equities; monitor for any escalation in risk aversion.

    Bias into NY: Cautious bias on the Nikkei. While the domestic growth outlook appears supportive, external pressures from a stronger USD (broad index at 119.28) and higher US yields could limit upside potential, especially as the VIX is bid.

  • DAX Momentum Stalls as Inflation Eases – Tuesday, 19 May

    Snapshot: The DAX is trading around 24,550, fractionally higher on the day, struggling to extend gains after German HICP inflation eased to 2.0% YoY. The lower inflation print reduces pressure on the ECB to maintain its hawkish stance. Today’s catalyst will be US data at 08:30 ET.

    • A break above 24,600 would open the path towards prior highs.
    • Rising US real yields present a headwind, potentially pressuring the DAX if risk sentiment sours during the NY session.

    Bias into NY: Neutral. While the softer German inflation provides a modest tailwind, rising US yields and uncertainty surrounding the US-Iran situation will likely limit upside. We expect choppy trading between 24,450 and 24,600.

  • NY Session Tactical Brief – Monday, 18 May

    Regime: Risk-off, driven by rising real yields as 10Y TIPS push above 2% and oil climbs to $105, pressuring equities.

    Today’s market themes:

    • Real-yield repricing and inflation fears weighing on risk assets.
    • Geopolitical tensions in Middle East adding to oil supply concerns.
    • Watch for signs of USD/JPY intervention as pair tests 159.

    The setup: Rising real yields are the dominant driver, pressuring risk assets. Focus on the US 10Y TIPS yield, currently at 2%, as it sets the tone. A break above 2.1% could trigger further equity sell-off and dollar strength. Trade: short SPX futures, stop above 5300. Risk: surprising dovish Fed commentary.

    Watch list (native time per event):

    • 08:30 ET US Retail Sales (m/m) Forecast: 0.4%, Prior: 0.7%
    • 10:00 ET US NAHB Housing Market Index Prior: 51
    • 11:00 CET ECB President Lagarde Speaks

    Bias by asset:

    • DXY:
      • Direction: Bullish
      • Domestic (US): Hawkish Fed rhetoric, rising US yields
      • Cross: Risk-off sentiment, safe-haven demand
      • Levels: Support 117.80 / Resistance 118.30
    • EUR/USD:
      • Direction: Bearish
      • Domestic (EU): Weak German data, dovish ECB comments
      • Cross: Stronger DXY, widening US-DE 10Y yield spread
      • Levels: Support 1.0800 / Resistance 1.0850
    • GBP/USD (Cable):
      • Direction: Bearish
      • Domestic (UK): Cautious BoE stance, weak data prints
      • Cross: Stronger DXY, risk-off flows
      • Levels: Support 1.2550 / Resistance 1.2620
    • USD/JPY:
      • Direction: Bullish
      • Domestic (JP): BoJ dovish, rising JGB yields, intervention watch
      • Cross: Rising US 10Y, DXY strength, risk-off
      • Levels: Support 158.50 / Resistance 159.00
    • USD/CAD (Loonie):
      • Direction: Bullish
      • Domestic (CA): BoC holds, CPI is soft, rangebound
      • Cross: Stronger DXY, US-CA 10Y spread widening
      • Levels: Support 1.3650 / Resistance 1.3700
    • AUD/USD (Aussie):
      • Direction: Bearish
      • Domestic (AU): Hawkish RBA stance but crowded long positioning
      • Cross: Stronger DXY, weaker China growth, US-AU spread
      • Levels: Support 0.7050 / Resistance 0.7120
    • NZD/USD (Kiwi):
      • Direction: Bearish
      • Domestic (NZ): RBNZ easing bias, weakening economic momentum
      • Cross: Stronger DXY, risk aversion, US-NZ yield divergence
      • Levels: Support 0.5800 / Resistance 0.5850
    • USD/CHF (Swissy):
      • Direction: Bullish
      • Domestic (CH): SNB neutral, CPI contained
      • Cross: DXY strength, safe-haven unwinding
      • Levels: Support 0.7800 / Resistance 0.7850
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP Neutral, EUR/JPY Bearish, GBP/JPY Neutral
      • Domestic: Diverging central bank policies, relative yield spreads
      • Cross: DXY strength, risk regime dynamics
      • Levels: EUR/GBP 0.8500-0.8550, EUR/JPY 169.50-170.50, GBP/JPY 192.00-193.00
    • XAU (Gold):
      • Direction: Bearish
      • Domestic (asset-specific): Rising real yields, soft CB demand
      • Cross: Stronger DXY, risk-off environment
      • Levels: Support $4,500 / Resistance $4,550
    • XAG (Silver):
      • Direction: Bearish
      • Domestic (asset-specific): Weaker industrial demand, high Gold-Silver ratio
      • Cross: Stronger DXY, risk aversion
      • Levels: Support $30.00 / Resistance $31.00
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): Tight supply, geopolitics, rising demand
      • Cross: Risk-off, inflation hedge
      • Levels: WTI Support $100 / Resistance $105
    • Copper:
      • Direction: Bearish
      • Domestic (asset-specific): Weak China, rising LME stocks
      • Cross: DXY strength, global growth concerns
      • Levels: Support $5.00 / Resistance $5.10
    • SPX:
      • Direction: Bearish
      • Domestic (US): Rising yields, Fed outlook
      • Cross: VIX elevated, global risk-off
      • Levels: Futures 5285, support 5250, resistance 5300 cash
    • NDX:
      • Direction: Bearish
      • Domestic (US): Real yields pressure valuations
      • Cross: Rates sensitivity, VIX
      • Levels: Support 18,100 / Resistance 18,300
    • US30 (Dow):
      • Direction: Bearish
      • Domestic (US): Earnings cyclical concerns, yields
      • Cross: Bond-yield reaction
      • Levels: Support 39,700 / Resistance 40,000
    • UK100 (FTSE):
      • Direction: Neutral
      • Domestic (UK): Mixed data, Gilt yields
      • Cross: Global risk, US tone
      • Levels: Support 8,400 / Resistance 8,450
    • DAX:
      • Direction: Bearish
      • Domestic (DE): Weak German data, rising Bund yields
      • Cross: US tech, DXY, risk regime
      • Levels: Support 23,600 / Resistance 23,800
    • Nikkei:
      • Direction: Bearish
      • Domestic (JP): Strong JPY, rising JGB yields, BoJ stance
      • Cross: US tech, risk regime
      • Levels: Support 60,500 / Resistance 61,000
    • BTC:
      • Direction: Bearish
      • Domestic (asset-specific): ETF outflows
      • Cross: DXY, risk regime, Nasdaq correlation
      • Levels: Support $60,000 / Resistance $62,000

    Positioning watch: AUD and Copper are crowded long at >98th percentile, creating significant squeeze risk if US data surprises to the upside or China stimulus disappoints. Nasdaq is crowded short at the 0th percentile, vulnerable to a rally.

    The pain trade: A dovish surprise from a Fed speaker would ignite a risk rally, squeezing crowded short positions in Nasdaq and causing dollar weakness.

  • S&P 500 Under Pressure as Yields and Oil Climb – Monday, 18 May

    Where we are: S&P 500 futures are currently trading around 5285, down roughly 0.5% from Friday’s close. The overnight range has been relatively tight, but the downside bias is evident, reflecting concerns about rising yields and energy prices. We’re seeing some profit-taking after last week’s gains, particularly after the late pullback as the week ended.

    What’s driving it: Rising US Treasury yields are the primary headwind for equities this morning, fueled by persistent inflation concerns and elevated oil prices. The 10-year Treasury yield is sitting at 4.47%, up 1bp on the day, and the 10Y real yield is a notable headwind, climbing to 2.0%. The market’s pricing in a prolonged period of restrictive monetary policy, and the “higher for longer” narrative is gaining traction, even as traders have discounted near-term Fed cuts. This yield dynamic, coupled with concerns about Middle East tensions and their impact on energy supply, is dampening risk appetite. The market impact of Nvidia earnings on Wednesday is also creating some wariness.

    • US 10Y Real Yield at 2.0%, putting pressure on gold and risk assets.
    • WTI Crude trading above $101, adding to inflationary pressures.
    • The net non-commercial positioning in S&P 500 futures remains modestly short, suggesting limited room for a significant short squeeze, but is off recent lows, so the window is closing.

    NY session focus: The main focus today will be on how the market absorbs the higher yield environment. Watch the 2s10s spread, currently at +0.5%, for signs of further steepening, which could provide some relief for risk assets. Keep an eye on the 08:30 ET data dump. Key levels to watch are 5275 (support) and 5300 (resistance). The trade that’s at risk is chasing AI infrastructure names higher ahead of Nvidia earnings on Wednesday. The pain trade would be a sharp reversal in yields if incoming data weakens significantly, sparking a renewed rally in growth stocks, although this looks unlikely given the current macro backdrop.

  • Nasdaq 100 Faces Pressure as Yields Climb – Monday, 18 May

    Where we are: Nasdaq 100 futures are currently trading around 18,250, extending losses from last week’s pullback. The index is holding above the overnight low of 18,200 but remains well below Friday’s NY close of 18,350. This recent weakness follows a period of record highs, suggesting some profit-taking and a shift in risk sentiment. Traders are watching the 18,000 level as key support.

    What’s driving it: Rising US Treasury yields are weighing on the Nasdaq 100, as the 2-year yield sits at 4% and the 10-year at 4.47%. The real yield on 10-year TIPS, now at 2%, is adding further pressure, particularly on growth stocks, as it raises the discount rate applied to future earnings. While the Fed remains on hold, the market is pricing in a prolonged period of restrictive rates, spurred in part by geopolitical tensions and their impact on energy prices and inflation expectations. The net-short positioning may also be a factor, suggesting that any positive surprise could trigger a short squeeze, but for now, the pressure is downward.

    • US 10Y real yield at 2% continues to pressure tech valuations.
    • WTI crude at $101.56, fueled by US-Iran tensions, maintains inflationary pressures.
    • Nasdaq 100 net non-commercial positioning is crowded short at the 0th percentile, raising squeeze risk on any bullish surprise.

    NY session focus: All eyes will be on Nvidia earnings after Wednesday’s close, but before that, the near-term focus is on risk sentiment and how the market absorbs the rise in yields. Watch for the 10:00 ET release of the NAHB Housing Market Index for further insight into the health of the US economy. Key levels to watch are 18,200 as initial support and 18,400 as immediate resistance. The trade that’s working is shorting rallies, while the trade at risk is chasing the downside given the crowded short positioning. The pain trade would be a dovish surprise on the Nvidia earnings call triggering a violent short squeeze.

  • Dow Jones Under Pressure as Yields and Oil Climb – Monday, 18 May

    Where we are: Dow futures are currently trading around 39,850, slipping further into the red after an overnight range of 39,980-40,120. This puts the Dow on track to open lower than Friday’s New York close, continuing the late-week pullback. Resistance sits at 40,200, while initial support lies around 39,700.

    What’s driving it: Rising US Treasury yields and elevated oil prices are weighing on the Dow, mirroring the broader risk-off sentiment. The 10-year Treasury yield sits at 4.47%, its continued climb is putting pressure on equities, especially with the 2-year/10-year spread widening to 0.5%. Adding to the bearish backdrop is the elevated level of WTI crude at $101.56 a barrel, fuelling inflation concerns. There is no fresh US catalyst today.

    • The US 10-year real yield (TIPS) at 2% remains a headwind for risk assets, as higher real rates typically weigh on equity valuations.
    • The VIX, while down to 17.26, is not low enough to suggest complacency, and a spike higher could trigger further equity selling.
    • Speculator positioning in Dow Jones futures is moderately short, suggesting limited squeeze potential, but also a degree of bearish conviction.

    NY session focus: Focus will remain on Treasury yields and oil price action, with traders watching for any indication of a reversal. Keep an eye on the 10-year yield; a break above 4.50% could accelerate the Dow’s decline. Nvidia’s earnings after Wednesday’s close will be a key event for sentiment, potentially providing some support if results are strong. The trade that’s working is shorting rallies in the Dow. The trade at risk is buying the dip, as macroeconomic headwinds persist. The pain trade is a surprise dovish pivot from the Fed, sending yields lower and equities sharply higher.

  • Footsie Range-Bound, Awaiting Catalyst from US Data – Monday, 18 May

    Where we are: The FTSE 100 is trading flat around 8,420 in early London trading, contained within a narrow 20-point overnight range. This is slightly below Friday’s New York close of 8,430, with initial support around 8,400 and resistance at 8,450.

    What’s driving it: The UK domestic picture is mixed. While the Bank of England is exploring tokenisation in wholesale markets and cost-reducing ring-fence changes, the macro backdrop continues to show sticky inflation, with March CPI at 3.3% YoY. Despite this, the unemployment rate saw a positive surprise, dropping to 4.9% in January. Rising oil prices are providing a boost to energy heavyweights like BP and Shell, lending some support to the index, but broader market sentiment remains cautious. The upward move in US real yields is adding to headwinds for risk assets.

    • The Bank of England’s focus on tokenisation signals a forward-looking approach to financial market infrastructure.
    • Falling UK unemployment provides a glimmer of hope amidst inflationary pressures.
    • Relatively high WTI crude (above $100) and resulting oil-sector gains, are masking deeper weakness in the index.

    NY session focus: All eyes will be on the US data releases this morning, although no high-impact prints are scheduled before the NY open. Traders will be watching US Treasury yields and the dollar index for broader risk sentiment cues; a break above 118.10 in the DXY could trigger further FTSE downside. Key levels to watch are 8,400 for support and 8,450 for resistance. The trade that’s working is still long energy names, but this is increasingly vulnerable to a broader risk-off move. The pain trade for the FTSE 100 is a surprise dovish shift in US monetary policy expectations sending yields lower and risk appetite soaring.

  • Nikkei 225 Vulnerable as Geopolitics Offset Macro Calm – Monday, 18 May

    Snapshot: The Nikkei 225 closed down almost 1% overnight at 60,816, pressured by escalating Middle East tensions and spillover from Friday’s Wall Street selloff. The absence of fresh domestic catalysts leaves the index vulnerable to risk sentiment in the NY session.

    • Watch for a break below 60,500 as an initial signal of further downside.
    • Geopolitical risks surrounding Iran remain a key watch item, potentially overshadowing positive US macro sentiment.

    Bias into NY: We are biased slightly negative on the Nikkei 225, targeting a potential move towards 60,000, as lingering geopolitical worries and elevated oil prices outweigh the supportive backdrop of a relatively stable VIX and rising US real yields.

  • DAX Faces Geopolitical Headwinds After HICP Drop – Monday, 18 May

    Snapshot: The DAX is under pressure, trading near 23,750 (-0.5%) following lower-than-expected German and Eurozone HICP prints indicating easing inflationary pressures, compounded by rising geopolitical tensions stemming from US-Iran war threats. Focus shifts to US data later today.

    • Watch 23,600 support; break opens a move to 23,400.
    • Escalating geopolitical tensions remain a significant risk, potentially triggering further risk-off sentiment during the NY session.

    Bias into NY: We lean bearish on the DAX below 23,800 as the combination of geopolitical risks and the tepid reaction to lower HICP suggests limited upside; a break below 23,600 would confirm the bearish setup.

  • NY Session Tactical Brief – Friday, 15 May

    Regime: Risk-off, driven by rising oil prices and inflation worries spooking bond markets, pushing US 2Y yields to 3.98%.

    Today’s market themes:

    • Oil supply scare: Strait of Hormuz tensions driving WTI above $104, fueling inflation concerns.
    • Global bond selloff: Rising oil and inflation fears triggering broad-based bond yield increases.
    • USD strength: Dollar continues to rally on Fed hike expectations, nearing best week since March.

    The setup: Oil supply disruptions are the dominant driver, pushing inflation expectations higher and triggering a global bond selloff. The trade is to fade equity rallies, especially in growth names, as real yields rise. Risk is a de-escalation in Middle East tensions, sending oil and yields lower.

    Watch list (native time per event):

    • 08:30 ET US PPI (Prior: +0.2%)
    • 10:00 ET US University of Michigan Consumer Sentiment (Prior: 77.2)
    • 15:00 CET ECB’s Lagarde speaks

    Bias by asset:

    • DXY:
      • Direction: Bullish
      • Domestic (US): Hawkish Fed bets, resilient US data, rising US yields.
      • Cross: Global risk aversion, flight to safety, EUR/USD weakness.
      • Levels: Support 98.50, Resistance 99.50
    • EUR/USD:
      • Direction: Bearish
      • Domestic (EU): Dovish ECB, persistent inflation challenges, peripheral stress.
      • Cross: Strong DXY, widening US-DE 10Y yield spread, risk-off sentiment.
      • Levels: Support 1.1600, Resistance 1.1700
    • GBP/USD (Cable):
      • Direction: Bearish
      • Domestic (UK): BoE hawkishness priced in, potential for dovish repricing, Gilt underperformance.
      • Cross: Strong DXY, widening US-UK 10Y yield spread, risk aversion.
      • Levels: Support 1.3350, Resistance 1.3450
    • USD/JPY:
      • Direction: Neutral
      • Domestic (JP): BoJ remains dovish, intervention threat looms, JGBs constrained.
      • Cross: Rising US 10Y yield, strong DXY, risk aversion.
      • Levels: Support 157.50, Resistance 158.50
    • USD/CAD (Loonie):
      • Direction: Bullish
      • Domestic (CA): BoC’s cautious stance, CPI remains elevated, sensitive to oil price swings.
      • Cross: Strong DXY, widening US-CA 10Y yield spread.
      • Levels: Support 1.3650, Resistance 1.3750
    • AUD/USD (Aussie):
      • Direction: Bearish
      • Domestic (AU): RBA reluctance to tighten aggressively, iron ore price concerns.
      • Cross: Strong DXY, China slowdown fears, risk-off sentiment.
      • Levels: Support 0.7150, Resistance 0.7250
    • NZD/USD (Kiwi):
      • Direction: Bearish
      • Domestic (NZ): RBNZ easing bias firmly entrenched, Dairy prices remain weak.
      • Cross: Strong DXY, risk aversion.
      • Levels: Support 0.5800, Resistance 0.5900
    • USD/CHF (Swissy):
      • Direction: Bullish
      • Domestic (CH): SNB likely to maintain dovish stance, moderate Swiss yields.
      • Cross: Strong DXY, risk aversion driving safe-haven flows out of CHF.
      • Levels: Support 0.7800, Resistance 0.7900
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP: Bearish, EUR/JPY: Bearish, GBP/JPY: Neutral
      • Domestic: BoE remains relatively more hawkish than ECB/BoJ, yield divergence supports GBP.
      • Cross: DXY strength, risk aversion, cross-of-crosses flows impacting correlations.
      • Levels: EUR/GBP: R: 0.8550 S: 0.8500; EUR/JPY: R: 171.00 S: 170.50; GBP/JPY: R: 193.00 S: 192.50
    • XAU (Gold):
      • Direction: Bearish
      • Domestic (asset-specific): Rising real yields, lower breakevens weighing on gold.
      • Cross: Strong DXY, risk-off sentiment limited support.
      • Levels: Support $4,575, Resistance $4,600
    • XAG (Silver):
      • Direction: Bearish
      • Domestic (asset-specific): Weak industrial demand, Gold-Silver ratio trending higher.
      • Cross: Strong DXY, risk aversion exacerbating downside.
      • Levels: Support $4,450, Resistance $4,500
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): Strait of Hormuz tensions, potential supply disruptions, inventories tight.
      • Cross: Weaker DXY providing some offset to risk-off flows.
      • Levels: WTI: S: $102, R: $105; Brent: S: $106, R: $109
    • Copper:
      • Direction: Bearish
      • Domestic (asset-specific): China growth concerns, LME stocks elevated, supply outlook improving.
      • Cross: Strong DXY, risk-off sentiment weighing on industrial metals.
      • Levels: Support $9,800, Resistance $10,000
    • SPX:
      • Direction: Bearish
      • Domestic (US): Rising real yields, concerns about future earnings growth.
      • Cross: Elevated VIX, global risk-off sentiment weighing on equities.
      • Levels: Futures: Support 5220, Resistance 5280
    • NDX:
      • Direction: Bearish
      • Domestic (US): Real yield sensitivity, mega-cap valuations stretched, AI hype fading.
      • Cross: Rates sensitivity, elevated VIX indicating heightened volatility.
      • Levels: Support 19500, Resistance 19700
    • US30 (Dow):
      • Direction: Bearish
      • Domestic (US): Concerns about future earnings growth, pressure on cyclical sectors.
      • Cross: Rising bond yields impacting valuations.
      • Levels: Support 39500, Resistance 40000
    • UK100 (FTSE):
      • Direction: Bearish
      • Domestic (UK): Stronger Sterling weighing, Gilt yields rising, commodity sector under pressure.
      • Cross: Global risk aversion, US tone dragging on sentiment.
      • Levels: Support 8350, Resistance 8400
    • DAX:
      • Direction: Bearish
      • Domestic (DE): Rising Bund yields, weak IFO/ZEW survey data, EU growth concerns.
      • Cross: US tech weakness, DXY strength, risk-off sentiment.
      • Levels: Support 24100, Resistance 24300
    • Nikkei:
      • Direction: Bearish
      • Domestic (JP): Stronger JPY weighing, BoJ under pressure to act, JGB yield curve flattening.
      • Cross: US tech weakness, risk aversion.
      • Levels: Support 38500, Resistance 39000
    • BTC:
      • Direction: Bearish
      • Domestic (asset-specific): Elevated funding rates, ETF flows slowing, on-chain metrics mixed.
      • Cross: Strong DXY, risk aversion, Nasdaq correlation weighing on sentiment.
      • Levels: Support $61,000, Resistance $63,000

    Positioning watch: AUD and Bitcoin are crowded longs (>95th percentile) vulnerable to disappointment if risk aversion intensifies or data disappoints, creating squeeze risk. JPY is a crowded short (<15th percentile) and could rally hard if the BoJ surprises or intervention occurs.

    The pain trade: A de-escalation in Middle East tensions, leading to a sharp drop in oil prices and a rally in risk assets, would hurt crowded short positions in bonds and crowded long positions in the dollar.

  • S&P 500 Futures Tumble as Tech Trade Cools – Friday, 15 May

    Where we are: S&P 500 futures are trading around 5250, down roughly 1% pre-market, retreating from record highs seen in the prior session. The overnight range has been choppy, mirroring the pullback in tech. This level is significantly below yesterday’s New York close, signaling a potentially weak open.

    What’s driving it: The primary driver is a cooling off in the AI-led rally, triggering a broad risk-off move. While Fed speakers Barr and Bowman offered remarks on central banking, they haven’t provided any immediate catalyst for today’s move, leaving the focus on broader market sentiment. The recent surge in energy prices is also contributing to concerns about inflation, prompting traders to anticipate a more hawkish stance from the Fed down the line despite the two-year yield sitting at 3.98%.

    • Nvidia, Tesla, Amazon, Oracle, and Alphabet are all showing premarket weakness, down around 2%.
    • The recent strength in US economic data, particularly low jobless claims and a rise in the retail sales control group, bolsters the argument for hawkish dissenters at the Fed.
    • Speculator positioning in S&P 500 futures remains modestly short, with net non-commercial positions at -98,581 contracts, offering limited squeeze potential as this is only the 77th percentile on a 52 week basis.

    NY session focus: The market will be closely watching for further developments in the energy sector, and assessing how rising energy prices may impact broader inflation expectations. Keep an eye on the 08:30 ET data print. Key levels to watch are 5230 as initial support and 5280 as resistance. The trade that’s working is shorting overvalued tech names. The trade at risk is holding onto long positions in AI hyperscalers. The pain trade is a sharp reversal and continuation of the AI-led rally, squeezing shorts and punishing those who missed the initial move.

  • Nasdaq 100 Faces AI Reality Check – Friday, 15 May

    Where we are: Nasdaq 100 futures are trading around 19,650, down roughly 1.6% premarket, after a fresh record close in the prior session. The overnight range has been relatively contained, but the bias is clearly lower as the exuberance around AI names cools somewhat. Resistance looms above at the all-time high near 19,900.

    What’s driving it: The primary driver is a pullback in tech and AI-related stocks after their recent surge to new highs. This profit-taking is being exacerbated by concerns over persistent inflation and the potential for a more hawkish Fed, with solid economic data seemingly emboldening dissenters. While Fed speakers Barr and Bowman spoke last night, their remarks on central banking and the future of banking seem to have had little immediate market impact beyond a brief flattening of the curve. The US 2Y yield is currently at 3.98%, down 2bp yesterday, but the broader narrative of rates staying higher for longer is weighing on sentiment.

    • Tech giants like Nvidia, Tesla, Amazon, Oracle, and Alphabet are all down around 2% premarket, leading the Nasdaq lower.
    • Speculator positioning in the Nasdaq 100 is modestly long, with net non-commercial positions at +1,221 contracts. While the weekly change shows an increase of +3,543 contracts, this is still only at the 2nd percentile, meaning that despite the recent rally, there is little risk of a violent squeeze to the upside.
    • Energy prices and Boeing’s disappointing China order figures are also contributing to the risk-off tone.

    NY session focus: Keep an eye on the open and the initial reaction to the overnight moves. Watch for bargain hunters if we test down towards 19,500. The 08:30 ET data print will be key; a stronger-than-expected number will likely reinforce hawkish Fed bets and pressure the Nasdaq further. If the AI trade really falters, we could see a deeper correction towards 19,300. The trade that’s working is shorting over-extended tech names; the trade at risk is dip-buying without confirmation. The pain trade for the Nasdaq would be a sudden reversal driven by dovish surprises.

  • Dow Jones Faces Pressure as Tech Trade Cools – Friday, 15 May

    Where we are: Dow futures are currently trading around 39,700, down roughly 0.7% from yesterday’s close. The index is retreating from recent highs, trading within a relatively narrow overnight range, but showing a clear bias to the downside. Key technical levels to watch are 39,500 as immediate support and 40,000 as overhead resistance.

    What’s driving it: The primary driver is a cooling in the tech sector, triggered by profit-taking after the recent surge in AI-related stocks. While Fed speakers Barr and Bowman offered remarks on central banking, their comments lacked immediate market-moving implications; no fresh guidance was offered. The broader backdrop is one where the market remains sensitive to inflation risks and potential hawkish signals from the Fed, with the 2Y yield holding near 3.98% even after yesterday’s slight dip of 2bp. Rising energy prices are adding to the inflationary concerns and weighing on broader market sentiment.

    • S&P 500 and Nasdaq Composite closing at record highs yesterday raises the risk of a deeper correction, particularly if upcoming data points disappoint.
    • Analyst downgrades across several tech names, including Nvidia and Alphabet, are exacerbating the selling pressure.
    • Net non-commercial positioning in Dow futures is modestly short, but the +754 w/w increase suggests a possible build-up of shorts, creating some squeeze potential if sentiment shifts.

    NY session focus: Attention will be on how the US cash market opens and whether the selling pressure intensifies. Keep an eye on the 08:30 ET data releases for any surprises. The level to watch on the downside is 39,500; a break below could trigger further selling. The trade that’s currently working is shorting overvalued tech names. The trade that’s at risk is being long high-multiple stocks vulnerable to yield increases. The pain trade for the Dow would be a sudden resurgence in the AI rally, fuelled by positive economic data.

  • Footsie Weakness Persists Amid Inflation Concerns – Friday, 15 May

    Where we are: The FTSE 100 currently trades around 8,370, down roughly 0.5% on the session. The index saw a modest bounce in the prior two sessions but failed to hold gains, trading in a relatively tight 50-point range overnight. This level is significantly below the recent highs and suggests continued selling pressure below the psychological 8,400 level.

    What’s driving it: Renewed inflation concerns are weighing on the Footsie. The March CPI print of 3.3% year-on-year, a 0.3% increase from the previous month, and the corresponding CPIH figure of 3.4% are raising questions about the Bank of England’s ability to control inflation, despite the drop in the unemployment rate to 4.9%. This has created a risk-off sentiment, compounded by political uncertainty surrounding a potential leadership challenge.

    • UK CPI YoY increased to 3.3% in March, exceeding expectations and fueling inflation fears.
    • The UK Unemployment Rate decreased to 4.9% in January, but the inflation data overshadows this positive economic signal.
    • Mining and banking sectors are leading the decline, suggesting a broad-based sell-off driven by macroeconomic concerns.

    NY session focus: With no major UK data releases scheduled before the New York close, focus will likely be on the performance of US equities and movement in US Treasury yields, which are already showing a slight dip with the 2Y at 3.98%. Keep an eye on the 10-year Gilt yield relative to US Treasuries for directional cues. A break below 8,350 could open the door to further downside. The pain trade would be a surprise hawkish pivot from the Bank of England in response to persistent inflationary pressures, triggering a sharp rally in Sterling and a squeeze in UK equities.