Where we are: Nasdaq 100 futures are trading around 19,350, holding ground after a volatile overnight session. The index is attempting to consolidate above the psychological 19,300 level, but remains below yesterday’s New York close. The overnight range has been relatively narrow, suggesting a wait-and-see approach ahead of today’s FOMC minutes.
What’s driving it: Rising US real yields are creating a headwind for the Nasdaq 100, as the 10-year TIPS yield edges up to 2.13%. The rise in real yields is driven by persistent inflation concerns, as reflected in the 10Y breakeven rate holding at 2.49%, increasing the appeal of holding bonds and damping enthusiasm for growth stocks. The impact of higher real yields is compounded by the market’s anticipation of Nvidia’s earnings release after the close, and a wait-and-see attitude towards any forward guidance it provides. The crowded short positioning in Nasdaq 100 futures adds an element of squeeze risk.
- The 10Y real yield climbing 3bp signals diminishing appetite for growth stocks.
- Net non-commercial positioning at the 0th percentile (52-week) creates squeeze risk.
- The FOMC minutes due at 14:00 ET will give further insight into the Fed’s rate path.
NY session focus: Traders will be laser-focused on the 14:00 ET release of the FOMC minutes. The key levels to watch are 19,200, a breach of which could trigger further selling, and 19,450, which represents immediate resistance. The pre-earnings bid in Nvidia has been the working trade. Guidance that falls short of expectations could trigger a sharp correction in tech, while any hawkish surprises in the FOMC minutes would exacerbate the pressure from rising real yields. The pain trade is a dovish surprise in the minutes coupled with strong Nvidia guidance, triggering a violent short squeeze to test 19,500.