Russell 2000 Leads Higher as Yields Drip Lower

Also 10-year T-note, silver, crude oil and Canadian dollar futures

1. Russell 2000 E-mini futures (/RTY): +1.33%
2. 10-year T-note futures (/ZN): +0.18%
3. Silver futures (/SI): +3.66%
4. Crude oil futures (/CL): +2.85%
5. Canadian dollar futures (/6C): +0.31%

U.S. equity indexes are trading higher this morning, continuing the rally seen in the second half of yesterday’s session. Bank earnings are out and while they’re not impressive on the surface, they are largely in-line if not slightly better than expectations. Following the strong 30-year bond auction on the heels of the December U.S. inflation report, U.S. Treasury yields are lower across the curve. A series of U.S.-led strikes against the Houthis in Yemen are providing a spark for energy markets, which are soaring at the end of the week.

The Russell 2000 (/RTYH4) is leading equity index futures higher this morning, with strength in energy, financials and utilities helping to bolster the index. The move, along with a weak dollar and falling yields, is sending a risk-on signal as traders head into the long holiday weekend. With little data left until the closing bell, the prevailing mood will likely continue through today and puts stocks on track for gains on the week after last week’s broad selloff.

Bonds traders are pushing this week’s inflation data aside and buying Treasuries on the policy-sensitive short-end and middle-end of the curve. The 10-year yield is now trailing lower below the 4% mark, although we remain about 16 basis points above December’s low. Treasury markets are closed on Monday for a U.S. holiday, which may front-load some volume to today’s trading. Yesterday’s 30-year auction went well, with a 0.003% tail and high yield of 4.229%.

Silver prices (/SIH4) are up nearly 4% for the best daily percentage gain since Dec. 16 as yields pull back across the short- and middle-end of the curve. Precious metals traders see yesterday’s inflation numbers as something that will leave the Fed’s interest rate path unfazed, instead focusing attention on more short-term economic factors. The tensions in the Middle East are also bolstering the metal on safe-haven flows.

Crude oil prices (/CLG4) rose nearly 3% before the opening bell this morning. The move brought prices into positive territory for the week, marking the second week of gains if prices hold through today. Oil tankers are avoiding Red Sea routes, and that is expected to continue after a series of U.S. and British airstrikes in Yemen that targeted Houthi militants. Tanker owners fear that a retaliation would target their ships.

Canadian dollar futures (/6CH4) rose Friday morning as a pullback in Treasury yields helped take some fight out of the dollar. Rising oil prices also helped the Canadian currency. Rate traders are unsure about when exactly the Bank of Canada (BOC) will start cutting rates, with inflation still entrenched in the nation’s housing costs while the prices of common household goods continue to ease. Next week’s inflation numbers for December will provide additional data for traders to mull over.

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 

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.