S&P 500 Looks to Close Out Strong Week as Oil Recovers

Also 10-year T-note, silver, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): +0.17%
2. 10-year T-note futures (/ZN): -0.07%
3. Silver futures (/SI): +0.20%
4. Crude oil futures (/CL): +1.36%
5. Euro futures (/6E): +0.14%

A week full of many bangs—from the October U.S. inflation report sparking the Russell 2000’s (/RTYZ3) best day in over a year, to the collapse in energy markets—appears set to end with a relative whimper. Better than expected October U.S. building permits and housing starts figures are helping to boost sentiment, if only marginally. Elsewhere, all eyes remain on the rapid evolution in Federal Reserve rate expectations, where markets are pulling forward odds of at least a 25-basis-point (bps) rate cut by March 2024.

Around the cash open, U.S. equity index futures are trading mixed, with the Nasdaq 100 (/NQZ3) trailing the other three gainers. The Russell 2000 (/RTYZ3) is thus far the strongest out of the gate, helping recoup some of its losses from yesterday. Overall, with the bulk of the earnings season in the rearview mirror and few if any macro events on the calendar, volatility continues to wind down ahead of the upcoming holiday trading week.

Traders are buying the middle and long-end of the Treasury curve this morning, but short-end 2- and 5-year yields are rising slightly after this week’s big move. While softening job markets and inflation numbers have helped drag yields down, there remains a lack of appetite from foreign investors. Yesterday, the Treasury said overseas bond traders sold $2.4 billion in long-term Treasuries for September. China and Japan have been heavy sellers of the U.S. debt. Meanwhile, 10-year T-note futures (/ZNZ3) was nearly unchanged at the opening bell.

Precious metals remain supported by the recent pullback in inflation numbers and expectations, which have pushed Treasury yields lower across the curve this week. Silver (/SIZ3) was up 0.2% this morning and on track to record its best weekly percentage gain since early July. Mary Daly, president and CEO of the San Francisco Federal Reserve, is set to speak later today.

After falling sharply on Thursday, crude oil prices (/CLZ3) are moving higher to start the day. The commodity officially entered a bear market yesterday, slipping 20% from highs reached in September. Meanwhile, the United States appears to be stepping up enforcement actions against tankers that have violated sanctions around Russian crude oil. U.S. rig count figures for crude oil and natural gas are due this afternoon. For now, however, the bounce today is likely being driven by some profit taking as traders look to take off some risk ahead of the weekend. The focus for oil markets will shift to the OPEC+ meeting later this month, when the cartel will review production targets.

The euro (/6EZ3) rose this morning but gains slowed from earlier in the week as short-term Treasury yields rose slightly amid broader dollar weakness. The prospect of possible rate cuts in Europe faded overnight after Bundesbank President Joachim Nagal said rates would need to remain at a “high level for a sufficient period.” Still, money markets remain optimistic about a cut in 2024, although those bets faded slightly on Nagal’s comments.

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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