S&P 500: Friday's September Jobs Report Could Make or Break All Asset Classes

Also 10-year T-notes, gold, crude oil and Japanese yen futures

This Morning’s Five Futures in Focus:

1. S&P 500 E-mini Futures (/NQ): +0.35%
2. 10-Year T-Note Futures (/ZN): +0.35%
3. Gold Futures (/GC): +0.11%
4. Crude Oil Futures (/CL): -1.68%
5. Japanese Yen Futures (/6J): -0.01%

The first week of the month means its jobs data week, and we see how have jobs data moved markets in recent days. After yesterday’s sell-off in U.S. equity futures sparked by the hot September U.S. job openings and labor turnover survey, or JOLTs report, a much weaker than anticipated September U.S. employment change report from human services provider ADP has provided an elixir to the jump in Federal Reserve interes-rate hike odds for December (up from 34% a month ago to 48% yesterday). It’s increasingly looking like the September U.S. nonfarm payrolls report, or NFP, on Friday will be the make-or-break binary event this week for all asset classes.

Monday and Tuesday were bad days for U.S. equities, but today is shaping up modestly better. Sparked by the JOLTs report yesterday, fears of another Fed rate hike this year gathered. However, the ADP report today, coming in well-below expectations, has defanged those concerns. We’re still in a "bad news is good news" world when it comes to U.S. economic data, so any evidence the labor market is slowing down is a welcome development because it suggests bond yields need not climb higher from here. Each of the S&P 500 (/ESZ3), the Nasdaq 100 (/NQZ3), the Russell 2000 (/RTYZ3) and the Dow Jones 30 (/YMZ3) have had a +0.85 or great one-month rolling correlation with the long bond (/ZBZ3).

Was yesterday an exhaustion event in the bond market? TLT, the Treasury bond exchange-traded fund, or ETF, saw its highest volume ever on Tuesday; Spikes in volume at price extremes are often associated with exhaustion moves in the market. That said, it remains a fool’s errand to try to call the bottom in bonds without substantial technical evidence, which has yet to be presented. A continued rebound through the end of the week, however, makes a bullish directional bet on bonds, particularly the long-end (30s, /ZBZ3, and ultras, /UBZ3) more appealing.

Gold (/GCZ3) and silver (/SIZ3) prices are trading higher together for the first time since Sept. 22, a testament to how damaging the recent price action in bonds has been for precious metals. In what felt like a "liquidation" kind of market, higher U.S. Treasury yields finally laid waste to gold and silver. But if bonds are stemming their bleeding and the U.S. dollar is pulling back, there may be a small window for precious metals to claw back some of their aggressive losses over the past week-plus.

Crude oil futures (/CLZ3) remain in retreat, having broken through last week’s lows. It's the strongest sign that the recent uptrend is losing its luster. But the uptrend from the June and August swing lows doesn’t come into play until 85 or so, leaving open the possibility that the recent retrenchment is mere profit-taking following the sharp summer run higher. Coming into this week, net-long positions held by speculators in the futures market was at its highest level since March 2022.

The U.S. dollar is on the retreat amid the swing lower in U.S. Treasury yields, but all eyes are on the Japanese yen (/6JZ3) following yesterday’s events. While no official confirmation has been provided, it appears the Japanese Ministry of Finance intervened to prop up the yen shortly after 10 a.m. EDT on Tuesday. A new line in the sand has been drawn in /6JZ3: 0.00675. Around there, another intervention may loom.

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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