S&P 500 Grinding Sideways as Geopolitical Risk, U.S. Inflation Data Loom

Also 10-year T-Note, Gold, Natural Gas, and Japanese Yen Futures

1. S&P 500 E-mini futures (/ES): +0.19% 

2. 10-year T-Note futures (/ZN): -0.07% 

3. Gold futures (/GC): +0.36% 

4. Natural Gas futures (/NG): +3.03% 

5. Japanese Yen futures (/6J): -0.84% 

While last week may have started with a bang and ended with a whimper – U.S. equity markets finished nearly unchanged after being down by around -5% at the lows on Monday morning – this week may prove the opposite. July U.S. inflation figures, both the producer price index (PPI) and the consumer price index (CPI), are due out over the next two days. Iran and Hezbollah continue to beat the war drums, with energy markets’ rising anxiety reflecting the increased likelihood of an attack this week. There are no meaningful Treasury auctions this week.  

S&P 500 futures (/ESU4) rose 0.19% Monday morning as traders looked forward to inflation data due out this week. Meanwhile, fear from last week continued to subside as volatility index futures fell, an encouraging sign that a short-term bottom has been carved out. KeyCorp (KEY) rose over 20% in pre-market trading after the Bank of Nova Scotia agreed to purchase a minority stake for nearly $3 billion.  

Treasuries started the week with some selling across the curve as traders wait for inflation data to be due over the next two days. The 10-year T-Note futures (/ZNU4) fell 0.07% ahead of the New York open. Its underlying yield is trading slightly below 4%. Bond market volatility has come in alongside equity market volatility, with the Merrill Lynch Option Volatility Estimate (MOVE) index about 10% off last week’s highs, although the index continues to trade near the highest levels since April.  

Gold futures (/GCZ4) rose Monday morning as the metal traded back near the upper end of its range that was carved out around the 2,530 level. There is plenty of data due this week that could influence gold-sensitive rates and the dollar. If that data turns out to be supportive for higher gold prices, we could see the upper range tested. A break higher would likely introduce a new leg higher for the metal.  

Surging gas prices in Europe are putting some upward pressure on natural gas futures (/NGU4) to start the week, with prices up over 3%. The European Dutch futures (/TTF), when adjusted to dollars and million British thermal units (mmBtu) are trading at an $11 premium versus U.S. prices, the steepest premium since November 2023. A reduction in flows in a pipeline that transits Ukraine is underpinning supply concerns ahead of the winter. This is occurring before major suppliers in Norway prepare to enter a maintenance period that will reduce Europe’s gas flows for at least several weeks. The increased premium will likely attract U.S. LNG cargoes and keep a floor under U.S. natural gas futures for now.  

Japanese yen futures (/6JU4) fell nearly 1% to start the week on Monday as the foreign exchange market normalizes after a period of volatility driven by the unwinding of carry trades in the Japanese currency. The dollar may direct a lot of the action in the FX space this week, with inflation data due out along with other potentially high impact prints that could shift the Fed’s rate cut outlook.  

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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