S&P 500, Nasdaq 100 Surge as Powell Tees-Up a September Rate Cut

Also 30-year T-Bond, Gold, Crude Oil, and Japanese Yen Futures

1. Nasdaq 100 E-mini futures(/NQ): +1.41%
2. 30-year T-Bond futures (/ZB): +0.68%
3. Gold futures (/GC): +1.01%
4. Crude Oil futures (/CL): -0.11%
5. Japanese Yen futures (/6J): +1.08%

Fed Chair Powell’s Jackson Hole remarks put the focus squarely on the downside risks to the labor market, while acknowledging visible inflation pressures from tariffs. Markets took this as confirmation that the Fed is preparing to ease, pulling Treasury yields lower across the curve, with the 2-year leading the move on reduced expectations for policy restraint. The front-end compressed by several basis points, consistent with traders pricing in higher odds of a September rate cut. Spilling into FX, the U.S. Dollar softened against the majors, as the balance of risks tilted away from prolonged policy tightness. Overall, Powell’s careful but dovish lean created a risk-on tone, with lower yields propping up stocks.

Nasdaq futures (NQU5) jumped about 1.3% in early Friday trading after the dovish commentary on the rate outlook for the Fed injected a fresh dose of optimism into equity markets. Despite the upside move, prices are on track for a weekly loss. Nvidia (NVDA) turned positive after trading in the negative ahead of the open after the company reported that it requested some of its suppliers to halt production of H20 chips. Intuit (INTU) fell 6% after the company offered weak guidance in its latest earnings report. Ross Stores (ROST) rose 0.86% after beating earnings per share (EPS) estimates Thursday after the bell.

30-year T-Bond futures (/ZBU5) shifted higher after Mr. Powell suggested that the Fed is open to a September rate cut. Today’s move put prices on track for a weekly gain, pushing above the 9- and 21-day exponential moving averages (EMAs) as well. Shorter-dated Treasuries also rose, pushing yields lower across the curve. The focus for markets will shift to economic data, as today’s comments don’t guarantee a rate cut as Powell expressed that the Fed will still have optionality to implement its policy decisions. Inflation data due next Friday will be closely monitored by markets.

A drop in yields and a softer dollar followed Mr. Powell’s comments this morning, which opened a path higher for gold prices. Gold futures (/GCZ5) rose over 1% following the speech, with prices clearing the 9- and 21-day EMAs. Gold is now trading a little over 3% from its record high reached back in early August. If yields and the dollar continue to moderate, the metal may have a chance to challenge that high in the coming weeks, especially if upcoming economic data bodes well for the dovish outlook on rate cuts.

Crude oil prices (/CLV5) traded nearly unchanged Friday morning, leaving prices on track for its first weekly gain since July. A larger-than-expected draw in U.S. crude oil inventories by the Energy Information Administration (EIA) helped to support prices this week. Meanwhile, trader remain uncertain about a potential peace deal between Ukraine and Russia. Moscow is insisting that Ukraine surrender land in a deal, but Ukraine has resisted those demands.

Japanese Yen futures (/6JU5) rose after comments from Jackson Hole weakened the dollar. Recent inflation data out of Japan also surprised to the upside, adding some support for the currency even if the data won’t immediately push the Bank of Japan (BoJ) to hike rates. However, positive movement on trade and stronger economic activity have pushed rate hike bets higher for Japan, offering a lane for the currency to strengthen. 

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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