S&P 500 Futures Break Losing Streak as Eyes Focus on Earnings

Also 10-year T-note, copper, crude oil and Euro futures

1. Nasdaq 100 E-mini futures (/NQ): -0.14% 

2. 10-year T-note futures (/ZN): +0.13% 

3. Copper futures (/HG): +1.57% 

4. Crude oil futures (/CL): -0.78% 

5. Euro futures (/6E): +0.09% 

April’s terrible start for stocks and bonds may be taking a breather today. U.S. equity markets are off their weekly lows, but the bounce has been lackadaisical. With the Israeli military announcing it will not strike Iran in the immediate future because of Passover, geopolitical risk premia may be contracting as evidenced by moves in energy futures. Elsewhere, the rally in bonds may be undercutting the U.S. dollar, which touched a fresh 2024 high yesterday. 

U.S. equity markets are experiencing their worst drawdown of 2024 thus far, and the rallies seen off the lows continue to lack conviction and participation. Three of the four major indexes are trading higher today, but the Nasdaq 100 (/NQM4) is lagging. Given the increasing sensitivity to bonds and commodities, the Treasury auction results at 1 pm. EDT may prove to be a significant catalyst. Earnings of note after the closing bell: CSX (CSX), Kinder Morgan (KMI), Las Vegas Sands (LVS), and Discover Financial Services (DFS). 

Bonds have been brutalized in recent days as markets price in higher inflation expectations thanks to movements in commodity prices (for demand or geopolitical reasons), and with Federal Reserve Chair Jerome Powell finally acknowledging cuts in interest rates may not be appropriate in 2024. With energy prices backing down, bonds may be getting some breathing room. That said, the technical picture for 10s (/ZNM4) remains bearish; there is not enough evidence on the charts to think that a low has formed. Moreover, there is a Treasury 20-year bond auction (/ZBM4) later today; recent auctions have underwhelmed and led to weakness in bonds. 

Gold prices (/GCM4) may be taking a breather, but silver prices (/SIK4) continue to streak to the upside in their quest for 30. And while implied volatility ranks (IVRs) for both /GCM4 and /SIK4 remain elevated (oscillating around 80-100), it’s worth noting that IVR measures the past year. Historical volatility has risen to much higher levels over the past decade so, in reality, precious metals volatility is not high by longer-term standards. But the biggest mover in metals today is not precious but base, with copper prices (/HGK4) jumping to a fresh yearly high. /HGK4 prices are up over 12% year-to-date and are at their highest level since June 2022.

Consensus may be coalescing around no further escalation between Israel and Iran in the immediate future, and that sentiment may be starting to filter through into energy markets. Natural gas prices (/NGK4) are off by more than 3.5% on their way to fresh yearly lows. Crude oil prices (/CLM4), one of the futures-market bellwethers for geopolitical risk, is barely holding onto 84; a drop through 84.13 takes /CLM4 below its September 2023 swing high, a level that has served as support throughout April, suggesting a near-term top would be in place. 

The decline in U.S. Treasury yields is enough of a reason for the U.S. dollar to take a breather today, a day removed from fresh 2024 highs. The continued strength in base metals may be helping to prop up the Australian dollar (/6AM4), the top performer on the session. Elsewhere, firmer inflation data out of the U.K. is helping to support the British pound (/6BM4), while the final March Eurozone inflation report did little to weigh on the euro (/6EM4). 

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

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