S&P 500, Russell 2000 Off Lows After U.S. GDP Report

Also, 30-year T-bonds, gold, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): -0.40%
2. 30-year T-bond futures (/ZB): +0.26%
3. Gold futures (/GC): -0.14%
4. Crude oil (/CL): -2.75%
5. Euro futures (/6E): -0.21%

This morning’s U.S. economic data might seem to reflect a “Goldilocks” economy, at least relative to expectations. The 3Q ’23 U.S. gross domestic product (GDP) reading came in at +4.9% annualized, above the +4.3% consensus forecast but below the Atlanta Federal Reserve GDPNow growth tracking estimate of +5.4% (which had accurately predicted several of the previous releases). The report says inflation is continuing to subside, with core prices up 2.4% on the quarter, vs. the 2.5% expected. Elsewhere, September U.S. durable goods jumped by 4.7% on the month, the strongest pace in two years, while weekly U.S. initial jobless claims crept higher to 210,000 from 200,000, offering a sign the labor market may have plateaued.

Earnings have been mostly disappointing, though a mixed batch from Meta Platforms (META) and IBM (IBM) have the Nasdaq 100 (/NQZ3) leading to the downside. But perhaps the more noteworthy development is that all four major U.S. stock index futures rallied after this morning’s U.S. GDP report and the durable goods orders report. The latter suggests capital expenditures, or capex spending, is still strong; companies rarely increase it if they’re concerned about a recession on the horizon. The S&P 500 (/ESZ3) is 25 points off of its lows, while the Russell 2000 (/RTYZ3) has swung into positive territory.

Very good U.S. economic data—but not necessarily as good as anticipated—may be helping U.S. Treasuries find some footing in the second half of the week. Yields are down across the curve, led by price action at the long-end. 30s (/ZBZ3) and ultras (/UBZ3) are up by half a point each. The 2s10s spread is at -16 basis points, or bps, as the 10-year yield backs away from 5.00%.

Gold prices (/GCZ3) are inching lower as the precious metal moves into the weekend little changed from the beginning of the week. Markets remain in a cautious mood amid the turbulence in the Middle East, which is likely helping to keep gold afloat. Another replay of the past two weeks could see precious metals bid heading into the weekend as traders take refuge from geopolitical risks while markets are closed.

Crude oil (/CLZ3) sank this morning in a move that extinguished yesterday’s gains. U.S. inventories increased 1.3 million barrels, according to yesterday’s data from the Energy Information Administration (EIA), suggesting demand is waning despite a still-hot U.S. economy. Spirit Airlines, a budget carrier, said this morning it isn’t seeing the demand it had expected. That could foreshadow a wider pullback in air travel.

The European Central Bank ended is streak of 10 consecutive rate hikes today, putting policy on hold while warning that “inflation is still expected to stay too high for too long.” The euro (/6EZ3) has slipped back modestly, though significant deflationary pressures are building and could ultimately bring rate cuts sooner than anticipated. Elsewhere, the USD/JPY spot rate moved above 150 overnight, dragging Japanese yen futures (/6JZ3) to their lowest level since Oct. 21—incidentally the date of an intervention by the Bank of Japan and Japanese Ministry of Finance.

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 

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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