S&P 500 Continues Rally as Yield Dip Persists

Also 30-year T-note, gold, crude oil, and Japanese yen futures

1. S&P 500 e-mini futures (/ES): +0.45%
2. 30-year T-bond futures (/ZB): +0.51%
3. Gold futures (/GC): +0.46%
4. Crude oil futures (/CL): -0.54%
5. Japanese yen futures (/6J): +1.04%

U.S. equity markets are climbing back for a second consecutive session amid a drop in bond yields across the curve.

The 10-year yield has dropped below 4.100% for the first time since Feb. 8 amid a flurry of activity from central banks overseas: the Bank of Japan signaled that the end of negative interest rate policy (NIRP) could be around the corner, sparking a sharp rally in the Japanese yen (/6JH4); and the European Central Bank indicated that rate cuts may be coming soon, leaving the euro (/6EH4) as the laggard on a day when the U.S. dollar is down versus every other major currency.

S&P 500 rises

S&P 500 futures (/ESH4) caught a bid Thursday morning, rising 0.41%, as the U.S. benchmark eyes Monday’s record high level of 5,157.75.

Will traders continue to push prices higher or take some risk off the table ahead of tomorrow morning’s non-farm payroll report? Stocks that have been driving the market like Nvidia (NVDA) are up in pre-market trading despite some insider selling.

Treasury yields fall

Treasury yields are down on Thursday after weekly U.S. initial jobless claims remained at 217,000 for the week ending March 2, slightly above the expected 215,000.

Yesterday’s testimony from Federal Reserve chair Jerome Powell failed to sway market rate cut bets, which appeared to open the door for some bond buying. Today will see the Treasury auction off four- and eight-week bills. The focus is now on tomorrow’s nonfarm payrolls (NFP) report, which is one of the last big data prints before the next Fed decision.

Gold rises

Gold prices (/GCJ4) are up again, extending into record high territory, as signs point to further declines in Treasury yields.

Precious metals look to be one of the favored routes that traders are betting on for a lower rate environment. Gold is now on track to record a sixth daily gain and is up over 5% for March. Meanwhile, gold volatility is up 35.93% month to date, via the gold volatility index (GVZ), the biggest monthly gain since March 2020.

Crude oil dips

Crude oil (/CLJ4) is trimming gains from Wednesday, slipping about 0.57% Thursday morning.

The losses come despite some positive data out of China, where export growth beat estimates, a sign that global demand could be strengthening.

Despite the decline in crude prices, gasoline futures (/RB) and heating oil futures (/HO) are outperforming oil after Wednesday’s data from the U.S. government showed some signs that fuel demand is picking up. That is pushing crack spreads higher, which should benefit downstream activities and help refiner-related equities.

The yen moves up

The Japanese yen (/6JH4) is surging higher after positive data on wages bolstered bets that the Bank of Japan (BoJ) will exit its ultra-loose monetary policy setting.

A weak bond auction in Japan for 30-year debt also helped to push bond yields higher. Traders are now betting that the BoJ will hike its benchmark rate later this month. A wage negotiation between firms and unions is also due on March 13, with expectations that the deals will result in further wage pressure.

The BoJ meets on March 18 and a decision will cross the wires a day later.

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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