S&P 500 Starts Worst Week of September on Stronger Footing

Also 10-year T-Note, Gold, Crude Oil, and Australian Dollar Futures 

1. S&P 500 E-mini futures (/ES): +0.16% 

2. 10-year T-note futures (/ZN): -0.22% 

3. Gold futures (/GC): +0.27% 

4. Crude oil futures (/CL): -0.04% 

5. Australian dollar futures (/6A): +0.39% 

The Federal Reserve’s rate cut last week, coupled with easing from the People’s Bank of China overnight, has offered a clear signal to markets: The world’s largest central banks are once again adding liquidity to markets. The reflation trade, as it were, continues to gather pace: U.S. equity indexes and commodities are higher while bonds are lower. For the latter, expanding growth and inflation premiums post-Fed are pushing up yields. Festering tensions between Israel and Hezbollah and a slew of U.S. Treasury note auctions this week will be in focus the next few days; the second half of the week will bring a speech from Fed Chair Jerome Powell and the release of the Fed’s preferred gauge of inflation, the personal consumption expenditures (PCE) index. 

Equity traders cautiously pushed stocks higher on this morning, with S&P 500 contracts (/ESZ4) up 0.16% just before the opening bell. Intel (INTC) rose nearly 5% in pre-market trading after Bloomberg reported Apollo Global Investment Group could invest up to $5 billion in the chip maker. Traders have their eyes on a set of purchasing managers’ indexes from S&P Global, due out this morning. A supportive economic backdrop amid a rate cut cycle will likely act as a tailwind for equities through the rest of the year. Bulls do have one calendar issue, though: According to the Stock Trader’s Almanac, the week after the September option expiration has produced an average loss of 0.76% since 1982, falling 69% of the time.   

Yields are slightly higher across the curve this morning, extending last week’s price action in the bond market. However, bond prices are near their mid- to late-August swing high levels, with the 10-year T-note futures contract (/ZNZ4) trading at 114’200, which marked a level that saw prices make several failed intraday attempts to break through. The Treasury will auction off three- and six-month bills today. 

Gold prices (/GCZ4) are in fresh record-high territory and continue to advance higher, with prices up 0.27% this morning. While traders remain overwhelmingly bullish, Friday’s Commitments of Traders report (COT) from the Commodity Futures Trading Commission (CFTC) showed speculator shorts added to their position for the third week in a row. Still, non-commercial traders remain about 309,000 contracts net long.  

Crude oil prices (/CLX4) are coming into some resistance near the August swing low levels around $71 per barrel. Last week’s inventory data and the Fed interest rate cut helped to fuel a second weekly gain, but prices remain well off of levels traded earlier in the summer. Demand concerns from the East continue to weigh on market sentiment, with China’s refinery demand failing to pick up into the end of the year. Geopolitical concerns may help to buoy prices this week after Israel conducted a large airstrike in Lebanon’s south. 

Australian dollar futures (/6AZ4) rose nearly half a percent to start the week as traders prepare for the Reserve Bank of Australia’s interest rate decision. The Fed rate cut likely won’t persuade policymakers in Australia to cut rates because inflation and employment remain a concern for the central bank. That divergence in policy will likely act as a tailwind as bond yield spreads widen.  

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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