Where we are: Nasdaq futures are trading down 3.03% at 29724.50, a significant drop from yesterday’s close and well below the Nasdaq 100 cash level of 30347.08. Overnight sentiment has soured considerably, with futures gapping lower and failing to find any meaningful bids in early European trading. We’re seeing a clear risk-off tone emerge ahead of the US session, with the VIX futures already ticking higher.
What’s driving it: The primary driver this morning is a growing skepticism surrounding the sustainability of AI buildout costs and the potential impact on hyperscaler profitability. This narrative, amplified by recent wire reports, is hitting tech valuations hard. While US yields have softened slightly (US 2Y at 4.19%, US 10Y at 4.46%), this is not providing a floor for the Nasdaq, suggesting the tech-specific concerns are overriding broader macro signals for now. The Fed’s rate outlook, as hinted at by recent speeches, remains a background concern, but the immediate focus is on the tech sector’s fundamental outlook.
- Wire reports highlight concerns over AI buildout costs and Fed rate outlook impacting Nasdaq futures.
- The US 10Y real yield is trending lower (2.21%), a typical tailwind for gold, but not currently supporting tech.
- Speculator positioning in Nasdaq 100 futures shows a net non-commercial short of -8,908 contracts, at the 4th percentile over 52 weeks, indicating crowded short positioning with squeeze risk on positive surprises.
NY session focus: The 09:45 ET Flash Manufacturing and Services PMI prints will be the immediate data focus. While both are expected to show slight moderation, any significant deviation could trigger volatility. Key levels to watch on the downside for Nasdaq futures are the 29500 and 29000 psychological levels. The trade that’s working is shorting into rallies, with the pain trade being a sharp reversal higher if the PMI data surprises to the upside and the AI cost narrative proves overblown, leading to a short-covering squeeze.