S&P 500 Holds Gains After September CPI Report

Also, 30-year T-bonds, gold, crude oil, and Canadian dollar futures

1. S&P 500 E-mini Futures (/ES): +0.19%
2. 30-Year T-Bond Futures (/ZB): +0.30%
3. Gold Futures (/GC): +0.26%
4. Crude Oil Futures (/CL): +1.89%
5. Canadian Dollar Futures (/6C): +0.07%

The jubilance in markets following the September U.S. jobs report encountered a hurdle this morning when the September U.S. inflation report came in slightly hotter than anticipated, dragging down the S&P 500 (/ESZ3) and the other U.S. equity index futures from their session highs. The September U.S. consumer price index showed gains of 0.4% month over month and 3.7% year over year on the headline, and 0.3% month over month and 4.1% year over year on the core; the headline reading was a touch hotter than anticipated (0.3% month over month and 3.6% year over year expected), while the core came in right on the screws.

Aside from the initial reaction that sent stock futures slightly lower and bond yields marginally higher, there was little meaningful movement in Fed funds futures. Rates markets are discounting an 89% chance of no change in policy in November (up from 88% yesterday), while the odds of no change in December fell to 62% from 72%.

A strong close into the end of the session yesterday was met with continuation overnight, but the September U.S. inflation data curbed the enthusiasm as stocks fell back from their highest level in over two weeks. That said, all four U.S. equity index futures remained in positive territory at the time this report was written. The Russell 2000 (/RTYZ3) and the Dow Jones 30 (/YMZ3) were the top performers. With bank earnings coming out starting tomorrow, attention will quickly shift back to the S&P 500 (/ESZ3).

More and more Federal Reserve officials have suggested the Federal Open Market Committee, or FOMC, need not raise rates again this cycle, and the release of the September FOMC meeting minutes yesterday did little to disabuse market participants of that notion. But the slightly warmer hue to the September inflation data did help stir the pot, as bonds sank across the curve. Given the gap opens higher in 30s (/ZBZ3) and ultras (/UBZ3), today may produce the first loss at the long-end of the curve since last Friday.

Despite rising Treasury yields, gold prices (/GCZ3) are moving higher. Although the upside momentum seen from yesterday appears to have slowed as traders weigh the latest U.S. inflation numbers out. The Israel-Hamas conflict is likely keeping a safe-haven bid on the metal, with the situation rapidly evolving as Israeli Defense Forces, or IDF, mount an assault in Gaza.

Crude oil (/CLZ3) is reacting to the intensifying conflict in the Middle East, with energy traders on edge that the flow of oil in the region—which accounts for about a third of all seaborne crude shipments—will be disrupted. The International Energy Agency (IEA), in its monthly report, noted the potential risks from the conflict, although the Paris-based group lowered its demand forecast for next year as well. Traders have their eyes on inventory data from the U.S. Energy Information Administration due out today.

Rising oil prices are offering no relief for the Canadian dollar (/6AZ3) as traders focus on rising Treasury yields and a stronger dollar following this morning's inflation numbers. There is little to offer in terms of economic data for the rest of the week regarding the loonie—as the Canadian dollar coin is called—which keeps the prevailing narrative as the driving force. On a technical basis, the next area that traders can hope will offer some support is at the September 0.6349 low.

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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