Russell 2000 Leads Rebound After Worst Rout in Months

Also, 30-year T-bond, silver, crude oil and Japanese yen futures

1. Russell 2000 e-mini futures (/RTY): +1.16%
2. 30-year T-bond futures (/ZB): +0.33%
3. Silver futures (/SI): +0.14%
4. Crude oil futures (/CL): -1.35%
5. Japanese yen futures (/6J): +1.08%

Investors are brushing off the worst U.S. equities sell-off in months—since Sept. 26 for the S&P 500 (/ESH4), since Oct. 26 for the Nasdaq 100 (/NQH4), and since Oct.18 for the Russell 2000 (/RTYH4)—on Thursday.

Bonds continue to edge higher, undercutting the U.S. dollar, paving the way for modest strength in precious metals. A gross domestic product (GDP) revision and strength in weekly U.S. jobless claims have investors re-embracing the soft-landing narrative once more.

Dovish rate-cut bets stay put

A lackluster GDP print out of the United States kept dovish rate cut bets in place, sparking speculative buying across equity indexes.

E-mini-Russell 2000 futures (/RTYH4) is leading the pack, up over 1%. The small-cap index has benefited from falling yields, which has supported financial securities represented heavily in the index is heavy.

Smaller and mid-size banks benefit from falling rates that help support consumer lending, something those institutions heavily rely on for their bottom line.

The outlook on rate cuts will continue to dictate market sentiment, which leaves tomorrow’s personal consumption expenditures (PCE) report in focus for the next cue on where the Federal Reserve will go.

30-year yield below 4%

30-year T-note futures (/ZBH4) moved higher Thursday by about 0.43%, which pushed the 30-year note’s yield below 4% and to the lowest level since July.

The final third-quarter U.S. GDP print came in at 4.9% from a quarter ago, which was below the 5.2% consensus estimate. That helped to maintain dovish rate cut bets and put a bid on Treasuries. Today we will see a five-year TIPS auction and tomorrow will serve up the November PCE data print.

Bad news ahead for precious metals?

Silver futures (/SIH4) fell Thursday before the opening bell, dropping by about 0.64% after U.S. labor data showed fewer initial applications for unemployment benefits than expected.

If the U.S. can avoid a recession as the Fed looks to cut rates, it would bode poorly for precious metals and leave traders more focused on equities and other assets. Tomorrow’s PCE inflation data should influence the market’s narrative around where rates and the economy are headed.

Crude oil drops

Crude oil (/CLG4) is reversing gains from the prior two sessions as an inventory build and rising U.S. production figures bolster bearish sentiment for the commodity despite ongoing hostilities in the Red Sea.

Markets seem confident that a U.S.-led maritime force will be able to suppress Houthi activity in the vital shipping lane. Meanwhile, OPEC suffered a hit after Angola, a 16-year member, announced that it would leave the cartel.

Eyes on the Japanese yen

The Japanese yen will be in focus later today, with Japan’s November inflation data due to cross the wires.

Analysts expect the core measure—which excludes volatile food and energy prices—to come in at 2.5% from a year ago. That would be above the Bank of Japan’s target, although a lighter than expected print could sap some bullish optimism that the bank will exit from its current ultra-loose monetary policy stance early next year.

That said, if inflation beats to the upside, it may boost yen prices (/6JH4).

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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