S&P 500 Has a Quiet Start to a Big Week, Natural Gas Implodes

Also two-year T-note, silver, natural gas and Japanese yen futures

1. S&P 500 E-mini futures (/ES): -0.20%
2. 2-year T-note futures (/ZT): -0.80%
3. Silver futures (/SI): +1.39%
4. Natural gas futures (/NG): -%
5. Japanese Yen futures (/6J): +169%

We’re in the eye of the December macroeconomic storm. The November U.S. jobs report is in the rearview mirror, while the November U.S. inflation report is due tomorrow. There are also three important central bank rate decisions this week, with the Federal Reserve meeting on Wednesday and the Bank of England and European Central Bank meetings on Thursday. Today could be a quieter session (outside of energy) as is often the case ahead of a busy upcoming calendar.

U.S. equity indexes are barely trading lower at the start of the week, with the Russell 2000 (/RTYH4) constituting the biggest loser with a loss just in excess of 0.1%. Otherwise, the overnight session was fairly quiet, with the S&P 500 (/ESH4) carving out a range of 14.5 points in Asia and Europe. Traders aren’t anticipating the upcoming slate of data to be that consequential, with the weekly /ESH4 expiry (4DTE) pricing in +/-57.23 points, or +/-1.23%.

U.S. Treasury bonds are lower across the curve at the start of the week, continuing their retracement in the wake of the November U.S. jobs report on Friday. Federal Reserve rate cut odds are dropping at the start of 2024, with the probability of a March 2024 rate cut down to 45% from their high of 67% last week. Aside from the inflation data and Federal Open Market Committee (FOMC) meeting this week, there are also three Treasury auctions of consequence: three-year note and 10-year note auctions today; and a 30-year bond auction tomorrow.

Silver prices (/SIH4) fell this morning against a stronger dollar, but the metal has plenty of opportunity to change direction this week. Traders await several high-impact events, including tomorrow’s U.S. consumer price index (CPI) report, which could underpin silver if the reading comes in below expectations. Later this week, the Fed decision and retail sales figures will wrap up the week. Slowing inflation and still-resilient economic activity could give the Fed more room to maneuver and avoid a hard landing. Silver speculators trimmed short bets last week while adding slightly to long positions, according to Friday’s commitments of traders (COT) report from The Commodity Futures Trading Commission.

Natural gas prices (/NGF4) got clobbered this morning, with weather forecasts models showing a continuation of milder-than-normal temperatures across much of the United States. This comes after a summer when the United States and Europe made exceptional progress in filling storage tanks during the injection season. Meanwhile, speculators remain largely short. At this point, it would take a massive shift in weather trends in the U.S. and Europe to put supply at risk. And while this selloff has to take a break at some point to facilitate some profit taking, market fundamentals indicate prices are still primed to head lower.

The Japanese yen (/6JH4) is one of the biggest losers in the foreign exchange (FX) space to start the week, with the Bank of Japan expected to hold steady later this month at its Dec. 19 policy meeting. Recent comments from policymakers drove the yen higher last week, as speculation swirled that the bank could exit its ultra-loose monetary stance sometime next year. While that is still likely, the news triggered some selling, but it doesn’t change the fact that a rate hike is likely on the way. The yen could regain its support once traders start looking forward again.

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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