S&P 500 and Russell 2000 Drop, While Bitcoin and Silver Jump on Latest Trump Tariffs

Also, 30-year T-bond, silver, crude oil and British pound futures

1. Russell 2000 E-mini futures (/RTY): -1.07% 
2. 30-year T-bond futures (/ZB): -0.77% 
3. Silver futures (/SI): +2.96% 
4. Crude oil futures (/CL): +1.65% 
5. British pound futures (/6B): -0.58% 

Fresh tariff threats by President Donald Trump toward Canada and, in effect, the entire global economy, have markets in a more defensive mode today. U.S. stocks are down across the board while U.S. Treasury yields at the long-end of the curve are pushing up. Elsewhere, the contours of the thematic “Sell America” trade are taking shape: precious metals and cryptocurrencies are surging. The only caveat is that the US dollar is proving resilient, refusing to replay the price action of early April. 

The escalation of threats to US trading partners dragged equities lower this morning as traders worried that trade restrictions will further dampen the economic outlook. Russell 2000 futures (/RTYU5) dropped about 1% in early trading to outpace the Nasdaq 100 and S&P 500 to the downside. Still, Russell remains over 3% higher since the start of the month, which exceeds the gains seen in the S&P 500. Big banks will kick off the earnings season next week.  

The increased threat of tariffs is injecting inflation concerns back into the market. Treasuries are down in response to the expected fallout from a trade war that’s perhaps slated to ramp back up. Concern about inflation from trade restrictions can threaten bets on cuts to Federal Reserve interest rates, which would likely keep yields higher for longer. Meanwhile, 30-year T-bond futures (/ZBU5) fell 0.77% to erase gains from yesterday and put prices on track to record a loss for the week. Next week doesn’t offer any notable auctions, which leaves prices susceptible to headlines and economic data.  

Silver prices (/SIU5) are undergoing a bullish technical breakout as prices rise about 3% to the highest levels traded in nearly 14 years. Since the start of the month, prices are up nearly 7%, which follows a 9.5% gain from June. Meanwhile, gold prices (/GCQ5) rose about 1.24%, driving the gold/silver ratio to the lowest level since mid-March. The gains come despite some strength in the dollar and yields, suggesting traders seem keener on silver as a hedge against trade war headlines that are pushing inflation expectations higher.  

Crude oil prices (/CLQ5) rose despite the threat to the economy from increased restrictions on US trading partners. The International Energy Agency (IEA) said markets could be tighter than expected in the near term as demand for travel keeps refinery rates high. News that Saudi Arabia is set to ship large volumes of crude oil to China are also helping to support sentiment. Meanwhile, Russia signaled it would slow production to compensate for overproducing earlier this year.  

The sole asset class that hasn’t swung into “Sell America” mode is FX, which is a notable divergence given the greenback’s flailing in early April. The US dollar ($DXY) is eying its first close above its one-month moving average since May 16 – as well as a break of the downtrend off the February, March and June highs. The Japanese yen (/6JU5) has quickly returned to the lows seen in May and June, while the British pound (/6BU5) may be on the verge of losing its 50-SMA (simple moving average) for the first time since early February.

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

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.