S&P 500 Reverses Losses as March PPI Surprises Better

Also 30-year T-bond, gold, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): +0.20% 

2. 30-year T-bond futures (/ZB): +0.32% 

3. Gold futures (/GC): +0.42% 

4. Crude oil futures (/CL): -0.70% 

5. Euro futures (/6E): +0.08% 

Weakness in stocks and bonds overnight has reversed course this morning after the release of the March U.S. producer price index. The “factory gate” measure of inflation came in weaker than expected (+2.1% year over year vs. the 2.2% increase expected), offering a counterpoint to yesterday’s frustratingly stubborn March U.S. consumer price index. Disinflationary pressures may still be in the pipeline—a perspective reinforced by recent ISM services figures. Nevertheless, technical damage is accumulating for both stocks and bonds, setting up a crucial end to the trading week. 

U.S. equity markets continue to creak at trend support that has defined the rally since the October 2023 low, but bulls are putting up a modest defense thus far today. The morning rebound has seen the S&P 500 (/ESM4) and Nasdaq 100 (/NQM4) return to their post-CPI highs, although price action has proved feeble thus far. Earnings season kicks off in earnest tomorrow when the big banks report. 

Bonds touched fresh yearly lows earlier today but the surprisingly softer March U.S. producer price index this morning sparked an intraday turnaround, with losses turning into gains. Up across the curve, the rally is led by 30s (/ZBM4). It’s worth noting that the reduction in Fed rate cut odds as a catalyst may be exhausted in the short-term: No cuts are discounted until September. 30-year bond auction results will be released at 1 p.m. EST today; the 3s and 10s auctions in recent days have been terrible by recent standards. 

Higher CPI? Softer PPI? Neither matter for precious metals, apparently. Gold prices (/GCM4) have resumed their rally after a brief setback yesterday, with the tailwind of a weaker U.S. dollar and lower U.S. Treasury yields on the session helping prop up prices. Volatility remains high (IVR: 92.7), and while that may be tempting for traders to sell calls, it’s worth noting that technical momentum remains firmly positive. 

Supply data in recent days may be helping to curb the recent rally in energy markets. The latest OPEC figures showed that oil production increased in March, surprising markets this morning. Crude oil prices (/CLK4) have made little progress higher in recent days but there are certainly few signs of topping thus far. Elsewhere, the bottoming process in natural gas prices (/NGK4) is on hold as traders await weekly inventory data from the U.S. Energy Information Administration (EIA) later today. 

FX markets are proving highly sensitive to the March U.S. producer price index, where the U.S. dollar’s push to fresh yearly highs was undercut by the 8:30 a.m. EST data release. Now down on the day, the biggest gainer is the aussie (/6AM4) as commodity prices and Chinese data continue to point higher. Attention, however, is on the euro (/6EM4) in the wake of the European Central Bank interest-rate decision. While the ECB kept rates on hold as expected, hints of forthcoming rate cuts were balanced by concerns that Eurozone inflation pressures aren’t subsiding to the degree that gives policymakers confidence to begin the cutting cycle. Sound familiar? 

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

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