S&P 500 Futures Dip Despite Weaker Oil, Lower Yields

Also two-year T-note, silver, natural gas and Japanese yen futures

1. S&P 500 E-mini futures (/ES): -0.44%
2. Two-year T-note futures (/ZT): +0.07%
3. Silver futures (/SI): +1.03%
4. Natural gas futures (/NG): -0.54%
5. Japanese yen futures (/6J): +0.31%

The post-holiday trading week has begun not with a bang but a whimper across most asset classes. The four major U.S. equity index futures are pointing modestly lower, while U.S. Treasury bonds are grinding out minor gains ahead of three note auctions over the next two days. Elsewhere, energy markets remain a volatile mess thanks to rising inventories and a lack of coordination from OPEC+. Outside of small pockets, volatility metrics remain depressed.

Despite lower U.S. Treasury yields, weaker energy prices, and a softer U.S. dollar, U.S. equity markets are pointing to a modestly lower open at the start of the trading week. The losses are relatively minimal, however, thanks to the supportive cross asset flows. Earnings season is effectively finished, with more than 95% of S&P 500 companies having reported thus far, producing a 4.3% year-over-yearyearnings growth rate in 3Q ’23. Volatility remains low, with the Chicago Board Options Exchange's Volatility Index (VIX) printing 13.06 at the time this report was written.

Treasury yields are lower across the board on the other side of the holiday week ahead of a busy week of auctions. There are two-year note (/ZT) and a five-year note (/ZF) auctions later today, while there is a seven-year note auction tomorrow. Otherwise, there is a smattering of bill auctions over the remainder of the week. U.S. macroeconomic data releases are sparse in the days ahead, depriving bonds of meaningful catalysts until Federal Reserve Chair Jerome Powell’s speech on Friday. Learn more about how to read a Treasury bond auction.

Both gold (/GCZ3) and silver prices (/SIZ3) are pressing to multi-week highs, bolstered by the weaker U.S. Dollar and a decline in both nominal and real U.S. Treasury yields. No longer buoyed by geopolitical risk premia (how much a risky asset is expected to outperform a risk-free asset), precious metals appear more sensitive to the perception of when the Federal Reserve’s first rate cut will arrive in 2024. Indeed, rates markets no longer see rate hikes at either the December 2023 or January 2024 Federa; Open Market Committee (FOMC) meetings, pricing in a 24% chance of a 25 basis point (bps) rate cut by March 2024.

Natural gas prices (/NGF4) have reached their lowest since the last week of September as data continue to indicate stockpiles in both Europe and North American are topped off ahead of the winter months, rising above their five-year averages in the process. Meanwhile, crude oil prices (/CLF4) continue to press lower ahead of an OPEC+ meeting that was delayed from last week, as member states disagree over how much production should be cut to help prop up the ailing market.

Softer energy prices and lower U.S. Treasury yields are helping to prop up the Japanese yen (/6JZ3) at the start of trading this week. Rumors have swirled in recent weeks that the Bank of Japan is planning a gradual exit from its extremely accommodative policy efforts, but now cross asset flows are beginning to support a stronger Yen as well. Elsewhere, the Canadian dollar (/6CZ3) is slouching as both crude oil prices (/CLF4) and natural gas prices (/NGF4) continue to struggle.

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

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.