Russell 2000 at Highest Level Since April 2022 After February NFP

Also 10-year T-note, gold, natural gas and Japanese yen futures

1. Russell 2000 E-mini futures (/RTY): +0.77%
2. 10-year T-note futures (/ZN): +0.18%
3. Gold futures (/GC): +0.54%
4. Crude oil futures (/CL): -0.66%
5. Japanese yen futures (/6J): +0.78%

The U.S. economy is retaining economic momentum through 1Q ’24. With the latest jobs report suggesting the labor market may be cooling while at still-strong levels, traders have started to bump up expectations for a Federal Reserve interest rate cut in June.

The nonfarm payrolls report showed a headline gain of 275,000 vs. the consensus forecast of 200,000, although the two-month revision slashed 167,000 jobs. The household employment survey indicated the unemployment rate (U3) jumped to 3.9% against a forecast of holding at 3.7%, because workers reported 184,000 fewer jobs than in January. The labor force participation rate held steady at 62.5%.

The wage figures indicate deceleration as well, which may be a disinflationary signal over the coming months. Average hourly earnings increased by 0.1% month over month (m/m) vs. 0.3% m/m expected and 4.3% year over year (y/y) vs. 4.4% y/y expected.

Overall, the February U.S. jobs report produced an initial rally in both stocks and bonds (although the latter has given up gains), with the Russell 2000 (/RTYH4) leading the way higher to reach its highest level since April 2022. Gold prices (/GCJ4) hit a fresh all-time high, while the Japanese yen (/6JH4) hit its highest level in five weeks.

Russell 2000 futures (/RTYH4) pushed higher after U.S. jobs data reinvigorated market rate cut calls. Small-cap companies are more sensitive to rates, which dictate lending and labor costs. Chip makers are up about 1.25% this morning via the VanEck Semiconductor ETF (SMH), with guidance from Broadcom (AVGO) highlighting faster-than-expected spending on artificial intelligence for the year. In the retail sector, Gap (GPS) reported rosy fourth-quarter earnings figures and the stock is up nearly 10% in pre-market trading.

Bonds pushed higher after the U.S. jobs report crossed the wire, but some of those gains were trimmed ahead of the New York opening bell. 10-year T-Note futures (/ZNH4) rose 0.14%. That may be enough to help clear the way for risk asset buying through the day, although the underlying yield remains above the 4% mark. There are no auctions on tap from the Treasury today and we are finished with economic data for the week, which will leave bond traders to digest today’s numbers and evaluate the outlook for Fed rate cut odds.

Gold (/GCJ4) is enjoying another move higher into record territory as precious metal traders see the jobs number as a green light to buy more of the non-interest-bearing asset. Meanwhile, gold miner stocks are moving higher as well, although they are far from record highs on a net basis. The VanEck gold miner ETF (GDX) pushed about 1.5% higher, but it is only at the highs from January. However, if /GCJ4 prices remain at these record highs, it should translate into more strength for the miners.

Natural gas futures (/NGJ4) are down about 1.23% this morning, with the market mulling still-warm weather as we near the end of the withdrawal season against producers that are starting to slash output because of depressed prices. Yesterday's numbers from the Energy Information Administration (EIA) saw natural gas stocks drop 40 billion cubic feet (bcf), in line with expectations.

Japanese yen futures (/6JH4) put in another impressive run higher as hawkish rhetoric about a rate hike from the Bank of Japan (BoJ) rises. That decision will come on March 19 at the conclusion of the BoJ’s two-day meeting. Between now and then we will see the results of labor negotiations expected to conclude sometime next week, and it will likely result in more wage pressure on Japanese inflation, which should help the BoJ shift into its rate hike setting.

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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