S&P 500 Resumes Rally Amid Low Trading Volume

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

1. S&P 500 E-mini futures (/ES): +0.47% 

2. 10-year T-note futures (/ZN): +0.06% 

3. Copper futures (/HG): -0.92% 

4. Natural gas futures (/NG): -3.36% 

5. Japanese yen futures (/6J): +0.16% 

The turn through the middle of the pre-holiday week may be offering reversion of the first two days of price action. U.S. equity markets have erased their modest losses on the week with their overnight gains, while bonds are trading higher ahead of a seven-year note auction. A calendar that’s free of events offers no reason for traders to change their behavior from earlier this week, which has been defined by a decided lack of activity: This week is on pace to be the lowest-volume week across asset classes since the week between Christmas and New Year. 

S&P 500 futures (/ESM4) rose about 0.5% this morning as traders brace for possible turbulence in the market amid quarter-end rebalancing and light volume before the U.S. holiday weekend. The above-par performance in stocks over the last three months may leave equities vulnerable to profit taking as pension funds rebalance their portfolios. Federal Reserve Governor Christopher Waller will speak today at the 2024 U.S. Monetary Policy Forum in New York. 

Treasuries are higher across the curve, driving yields lower and opening the path for some risk taking in the market. 10-year T-note futures (ZNM4) rose 0.06% ahead of the opening bell, putting the underlying yield at 4.226%, which is slightly lower than at the start of the month. Still, Friday’s inflation report leaves a big risk to end the month, but bond traders will be off on Friday for the holiday, which could leave the futures market exposed to higher-than-usual volatility. The Treasury will auction off two-year floating-rate notes (FRNs) today.  

Copper futures (/HGK4) are down today as the dollar makes a move higher but the pullback may serve as a buying opportunity for bulls. Speculators have been rushing into long bets on the metal since China’s copper smelters started to restrict output in a self-governed deal that should hold back supply going into the summer. That, along with above-trend growth in the United States and growing stimulus actions by China’s fiscal and monetary authorities, might help the metal to exit the sideways range where it has existed since earlier this year. 

Natural gas futures (/NGK4) fell over 3% and is on track for a fifth straight month of losses. A winter that has left stocks trending above-average in both the United States and Europe is keeping pressure on prices as the Northern Hemisphere enters its injection season, a time of year when supply outpaces demand, allowing for stocks to be replenished ahead of the next withdrawal season.  

Japanese Yen futures (/6JM4) reacted to comments from Japan’s top currency official Masato Kanda, who warned against outsized swings in the currency and stated that Japan would take action to stabilize markets if necessary. The comments came after the Bank of Japan (BOJ), the Ministry of Finance (MOF) and Japan’s Financial Services Agency met to discuss market conditions. Some yen shorts in the market capitulated after the comments, but the currency may remain under pressure with the U.S. central bank positioned relatively hawkish compared to the BOJ.

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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