S&P 500 Starting Week at All-Time Highs

Also two-year T-note, gold, natural gas and Japanese yen futures

1. S&P 500 E-mini futures (/ES): +0.31%
2. Two-year T-note futures (/ZT): +0.04%
3. Gold futures (/GC): -0.29%
4. Natural gas futures (/NG): -5.73%
5. Japanese yen futures (/6J): +0.29%

The Federal Reserve is in its communications blackout window in the run-up to the January Federal Open Market Committee (FOMC) meeting next week, depriving markets of catalysts (e.g. Fed speakers) in the coming days. Nevertheless, earnings season is starting to heat up, and a handful of important macroeconomic data releases in the coming days will provide plenty of event risk. The pullback in U.S. Treasury yields at the start of the week is giving some more breathing room to stocks, among which the S&P 500 (/ESH4) and the Nasdaq 100 (/NQH4) are starting the week at all-time highs.

Technology stocks, led by semi-conductor names, look ready to continue rising this week, with tech-heavy Nasdaq 100 futures (/NQH4) up about 0.5% this morning. A respite in bond selling is helping to lower Treasury yields and the dollar, offering an additional tailwind to equity bulls. And small-cap stocks also look to be joining the rally, something traders have been waiting for over the past several weeks.

Bond traders are moving back into Treasuries after last week’s selloff that saw yields rise to multi-month highs. Two-year T-note futures (/ZTH4) rose 0.18% this morning ahead of the New York opening bell, but the underlying yield is still 26 basis points above levels traded just two weeks ago. Besides looking for U.S. gross domestic product (GDP) data later this week, bond traders are watching auction results for two-, five- and seven-year notes scheduled for tomorrow, Wednesday and Thursday.

Gold futures (/GCG4) are extending last week’s decline as markets continue to reprice the chance for the first interest rate cut from the Federal Reserve, with the chances for a reduction in March now less likely than not. Advance U.S. fourth-quarter GDP data and a U.S. purchasing managers’ index (PMI) will come into focus this week.

The cold snap that blanketed much of the United States over the past several weeks is expected to be replaced by a blast of warmer-than-average air, according to the National Weather Service (NWS). That is dragging natural gas futures (/NGG4) lower to start the week despite some overseas supply issues. Novatek, a Russian energy firm, said it suspended operations at one of its Baltic Sea fuel export terminals after a Ukrainian drone attack, according to a Reuters report. The terminal is also used for crude exports, but prices for that commodity don’t seem to have been affected.

After last week’s big down move, Japanese yen futures (6JH4) are pacing higher today ahead of the Bank of Japan’s interest rate decision set to cross the wires tomorrow. Traders pushed back interest rate hike bets after a major earthquake on Jan. 1, but this meeting may provide clues for when policymakers intend to make that shift.

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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