S&P 500, 5-year T-Note, Gold, Crude Oil, and Australian Dollar Futures

This Morning’s Five Futures in Focus

1. S&P 500 E-mini futures (/ES): -0.57%
2. 5-year T-note futures (/ZF): +0.14%
3. Gold futures (/GC): -0.48%
4. Crude oil futures (/CL): -0.57%
5. Australian dollar futures (/6A): -0.06%

A classic risk-off, reach-for-liquidity kind of day is in the making after rough Asian and European session overnight. U.S. equity market futures are lower, bonds are higher, commodities are pulling back, and the U.S. dollar and Japanese yen are top performers. Amid further signs of stress in the Chinese property market, Fed officials have continued to suggest that another rate hike this year might still be necessary, boosting global concerns of a protracted economic slowdown.

Mixed price action in thin, holiday markets on Monday has given way to more selling on Tuesday. In what would be the third time in five trading sessions that all four U.S. equity index futures dropped in tandem, the Nasdaq 100 (/NQZ3) is leading the way to the downside. Meanwhile, despite a reprieve in bonds and commodities, the Russell 2000 (/RTYZ3) continues to struggle after making a significant technical breakdown last week.

The rise in U.S. Treasury yields over the past week have been the bane for much of the market, but tipping point could be approaching. Yes, the sell-off in bonds became so disruptive that a reach for liquidity is now spurring a bounce back in bonds due to their nature as safe-haven assets. Notably, it remains the long end of the curve that is driving the market: 30s (/ZBZ3) and ultras (/UBZ3) are the top performers ahead of the U.S. cash equity session.

Lower U.S. Treasury yields should be supportive for metals, both precious and base, but that is not the case this Tuesday. The kind of fear that infects the market leading to a decline in gold (/GCZ3) and silver (/SIZ3) against the backdrop of stronger bonds can only be described as a liquidity crunch, sentiment reinforced by the fact that the U.S. dollar and the Japanese yen are top performers. Renewed concerns around the Chinese property sector have had a deleterious effect on copper (/HGZ3) as well.

Chinese property market concerns leading to growth worries? Check. New signs of increased Russian exports? Check. Higher U.S. interest rates leading to lower growth? Check. All unwelcome news for crude oil (/CLZ3), which faces the prospect of weaker global growth and increased supply, at least as a near-term narrative shift confronting traders. Meanwhile, natural gas (/NGZ3) continues to adjust in the wake of the strikes ending at Chevron’s Australian LNG plants.

The deepest, most liquid market in the world continues to show signs of stress. The U.S. dollar has punched its way to a nine-month high, largely at the behest of the Australian dollar (/6AZ3) and British pound (/6BZ3). In spot markets, new multi-month extremes are being reached across the board: USD/CHF is at its highest level since May; EUR/USD and GBP/USD are at their lowest levels since March; and USD/JPY rates are at their highest level since last November.

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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