S&P 500 Futures Focus: Traders Await More Data

Also, updates on the Two-year T-Note, Silver, Natural Gas and Euro futures

This Morning’s Five Futures in Focus:

1. S&P 500 E-mini Futures (/ES): -0.18%
2. Two-Year T-Note Futures (/ZT): -0.11%
3. Silver Futures (/SI): -2.43%
4. Natural Gas Futures (/NG): -0.79%
5. Euro Futures (/6E): -0.41%

U.S. government shutdowns typically lead to bond yields pulling back and equity markets trading higher, and in the context of the Federal Reserve wanting to slow down the U.S. economy, the recent threat of a government shutdown may have been perceived as a small, positive catalyst. Alas, the government is keeping the lights on, which means attention shifts back to the Fed’s fight against inflation and whether or not another rate hike will be levied later this year.

After some earlier gains sparked by optimism over lawmakers averting a government shutdown, equity futures are slipping into the red. S&P 500 futures (/ESZ3) are down a shade under 0.2% as Treasury yields rise and the dollar gains against its peers. With traders squarely focused on rate hike bets, all eyes will be on Federal Reserve Chair Jerome Powell later today when he speaks at a roundtable event. However, it’s unlikely he moves the needle far in either direction, as the higher-for-longer narrative bakes into expectations. After today, equity traders will wait for additional economic data, with services purchasing managers' index (PMI) due Wednesday and the non-farm payrolls report (NFP) due Friday.

Despite some buying after U.S. lawmakers agreed on a deal to avert a government shutdown, traders are selling bonds again this morning. The risk-on mood was short lived, and traders shifted their attention back to where interest rates are heading. Federal Reserve Chair Jerome Powell is expected to speak at a roundtable event today along with Patrick Harker, Philadelphia Fed president. Traders will have the short end of the curve in focus today, specifically (/ZTZ3).

Silver (/SIZ3) prices dropped nearly 6% last week in the largest weekly percentage decline since June. This morning, prices are off to a rough start, down 2.6% as traders assess the threat of higher-for-longer interest rates. An averted government shutdown is pushing Treasury yields higher to the detriment of precious metals. Federal Reserve Chair Jerome Powell will speak in a roundtable event today, which may influence the metal’s direction.

Despite some supply disruptions in Europe, prices in the overseas benchmark fell as weather models shifted to show milder weather over the next week. U.S. futures (/NGX3) are following a similar path, dropping 0.6% in morning trading. The focus for natural gas this week will be inventory data, weather patterns and monitoring European supply disruptions.

Elsewhere, Crude oil (/CLX3) is moving higher to start October, up about 0.5% this morning. This follows a nearly 30% rally in the third quarter for the commodity as traders focused on supply risks from OPEC.

It looks like more selling for the euro (/6EZ3) this morning. The Euro Zone economy saw more bad news on Monday, with the HCOB Eurozone Manufacturing PMI dropping to 43.5 in August. (The Hamburg Commercial Bank, or HCOB, attaches its name to the purchasing managers' index, of PMI.) That, combined with a broadly stronger dollar, is keeping the currency pinned down. Besides for commentary from Federal Reserve Chair Jerome Powell, euro traders have their eyes on more economic data due later this week, with an additional set of PMIs due on Wednesday.

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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