S&P 500 Extending Higher Amid Dollar Slide

Also 10-year T-note, silver, natural gas and Canadian dollar futures

1. S&P 500 E-mini futures (/ES): +0.56%
2. 10-year T-note futures (/ZN): +0.28%
3. Silver futures (/SI): +2.46%
4. Natural gas futures (/NG): +2.35%
5. Canadian dollar futures (/6C): +0.19%

Bulls remain on parade, at least in U.S. equity markets, where all four major indexes are higher at the start of today’s session. U.S. Treasury yields are down across the curve, following a move lower in European bond yields after a round of soft purchasing managers’ index (PMI) data from the Eurozone and U.K. Metals are benefiting from a softer U.S. dollar, which has been undercut by weaker yields. Elsewhere, energy markets are relatively calm, though both gas and oil are nudging higher.

Declining volatility and strong earnings results are helping to propel U.S. equity markets to fresh monthly highs. Both the S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) are starting this morning at all-time highs, with technical momentum continuing to improve in recent sessions. The decline in U.S. Treasury yields is giving some breathing room for the Russell 2000 (/RTYH4) to catch up after yesterday’s underperformance. Tesla (TSLA) reports earnings after cash equity markets close later today.

Yesterday’s two-year note auction came in on the screws, underscoring that bond investors believe the market is correctly priced with respect to how the Federal Reserve will proceed on the interest rate front over the next several months. A round of light PMI readings from the Eurozone and the U.K. have helped drag global bond yields lower overnight, providing a boost for U.S. Treasury bonds across the curve. 10-year notes (/ZNH4) are modestly higher, with the 10-year yield (/10Y) at 4.090%; the 2s10s spread is steeper by +4-basis points (bps) to -20-bps.

The decline in the U.S. dollar and U.S. Treasury yields is catering to a supportive environment for metals today. Silver prices (/SIH4) are outperforming their golden counterpart, though that /SIH4 declined more than gold prices (/GCH4) in recent weeks, so mean reversion may be a contributing factor to the divergence in performance. Overall, the technical outlook outlined yesterday is still valid, with /SIH4 fighting off a recent break of a multi-month uptrend while /GCH4 remains rangebound.

Crude oil future (/CLH4) is on the move higher this morning, reversing yesterday’s modest losses. And while most of the energy complex has moved by less than +/-0.5% in either direction thus far, natural gas prices (/NGH4) stand out as the outlier mover on the session. A double bottom in prices may be forming, and yesterday’s bullish daily key reversal suggests a short-term swing low has been found on the charts.

A day of meaningful price movement in FX is seeing the U.S. dollar pull back sharply, thanks in part to strength in the Japanese yen (/6JH4) and the euro (/6EH4). But the one laggard is the Canadian dollar (/6CH4), which awaits the results of the Bank of Canada rate decision at 10 a.m. EST/9 a.m. CST. With inflation on the decline and an economy in contractions (per the PMI surveys), a dovish tone is anticipated from the BOC.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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