S&P 500 Starts Week Closer to All-Time Highs

Also, two-year T-note, copper, crude oil and euro futures

1. S&P 500 e-mini futures (/ES): +0.25%
2. 2-year T-note futures (/ZT): +0.03%
3. Copper futures (/HG): -0.53%
4. Crude oil futures (/CL): +2.63%
5. Japanese yen futures (/6J): -0.57%

The week before the holidays, coming after triple witching, tends to be quieter.

Earnings have wound down and the U.S. macroeconomic calendar for the month—non-farm payroll, consumer price index and Federal Open Market Committee (FOMC)—is in the rearview mirror. That’s not to say there aren’t risks in the coming days, however.

Tensions in the Red Sea are beginning to impact global supply chains, stirring concern of a crimp on energy markets. A Bank of Japan (BoJ) rate decision on Monday night (in Chicago and New York; Tuesday in Tokyo) is likely to inject a fair amount of volatility into foreign exchange (FX) markets, given all the murmurs and shouts going on around the Yen.

More equity gains

Triple witching came and went without much ado on Friday, and U.S. equity indexes have started the new week with more of the same: gains across the board, even though they might be modest. The Russell 2000 (/RTYH4) is continuing the charge higher post-FOMC, up nearly 0.5% on Monday; the Nasdaq 100 (/NQH4) is the laggard. The S&P 500 (/ESH4) is less than two points down from all-time highs.

Bond markets adjust

Bond yields are mixed on Monday morning as markets continue to adjust to the realities of the post-December FOMC world.

Six rate cuts are nearly priced in for 2024, a meaningful divergence from the FOMC’s projections for three. This dissonance can continue for a long-time, but it once again seems like markets have run away from themselves.

Amidst this digestion, Treasury bonds are mixed on the session, with the policy-sensitive two-year note (/ZTH4) gaining ground while the long-end (30s (/ZBH4) and ultras (/UBH4)) dropping back.

Copper drops

Copper futures (/HGH4) fell Monday after Federal Reserve officials pushed back against interest rate cut expectations on Friday.

The market is pricing a cut as soon as March, which would make a soft landing more likely and potentially boost demand for industrial metals. Meanwhile, officials in Europe are also tempering optimism for rate cuts.

Rising crude oil prices

Crude oil prices (/CLF4) rose nearly 3% Monday morning amid growing concern about supply as Iran-backed Houthis step up attacks on ships in the Red Sea.

British Petroleum (BP) said on Monday that it was suspending all shipping through the vital supply line after the latest round of attacks targeted a Norwegian ship. Adding to supply woes, Russia, on Sunday, said it deepen its oil export cuts starting this month.

Still, a recent storm at one of Russia’s export ports took it offline and there is also scheduled maintenance, which suggests that Russia could be trying to play off the impact and attribute it to voluntary production cuts.

Bank of Japan decision to come

The Japanese yen (/6JH4) is slipping lower this morning ahead of the BoJ’s last rate decision for the year.

The yen has rallied over the past few weeks in anticipation of a policy shift from the BoJ, which could see it raise interest rates out of negative territory and mark a long-standing shift for the country.

While traders are watching to see any language that would indicate such out of today’s decision, the policy shift isn’t expected to occur this month. That could be seen as a sell event for traders who are looking to take profits after the rally.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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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