Buyers Flock to Fed Fund Futures!
Volatility has emerged in short-term interest rate futures, with word that the European Central Bank (ECB) injected 94.8 billion Euro – or $130 billion – into short-term rate markets after the London interbank offer rate jumped over 50 basis points today. The U.S. Federal Reserve added $24 billion into the repo market to meet the increased demand for cash today. This news spooked interest rate traders, with September Fed Fund futures surging as high as 94.900 after closing yesterday at 94.775. Today's 12.5 basis point range is quite large for near-term Fed Fund futures outside of a surprise announcement on interest rates by the Federal Reserve. Longer-term Treasury futures also gained some buying support from "flight-to-quality” buyers, as well as short-covering by momentum traders after the sharp sell-off in Bond prices this week. September Fed Fund futures closed at 94.875, up 0.100.
Natural Gas futures soared to highs for the month, as a smaller-than-expected storage build coupled with an increased chance for an above-normal hurricane season had traders in a buying mood. This morning, the EIA announced in its weekly Gas storage report that 42 billion cubic feet (bcf) of Gas was put into storage last week, well below the average pre-report estimate of a 53 bcf build. Also supporting prices was today's revised NOAA outlook on this year's hurricane season, which now sees an 85% chance for an above-normal season, up from 75% in its May outlook. Out of the 13 to 16 tropical storms expected to develop, between 7 and 9 may become hurricanes according to NOAA forecasters. Large speculators have been holding a large net-short position in Natural Gas futures, with the most recent Commitment of Traders report showing a net-short position totaling 122,719 contracts as of July 31st. Additional strength may be coming from the unwinding of long Crude Oil/short Natural Gas spreads that were popular with commodity funds this summer. Support for September Natural Gas is now seen at the 20-day moving average of 6.324, with resistance found at the July 31st highs of 6.684. September Natural Gas closed at 6.586, up 0.366. Written by Mike Zarembski, Senior Commodity Analyst
