S&P 500 Takes a Breather After Hitting All-Time Highs

Also 10-year T-note, gold, crude oil, and British pound futures

1. S&P 500 E-mini futures (/ES): -0.22%
2. 10-year T-Note futures (/ZN): +0.25%
3. Gold futures (/GC): -0.05%
4. Crude oil futures (/CL): +1.34%
5. British pound futures (/6B): -0.47%

Energy markets remain the most volatile sector on the board, with crude oil prices (/CLG4) working on their fourth gain in five days, after gaining nearly 8.5% from their lows last Wednesday. Whether or not other segments of the market have noticed is another story: U.S. equities are marginally lower after stretching to fresh yearly highs across the board yesterday, while bond yields are falling lower. Elsewhere, a surprising drop in U.K. inflation rates has traders upping the ante on rate cuts bets for the Bank of England, driving down the British pound (/6BH4).

Will today be the day the streak is broken? The Nasdaq 100 (/NQH4) has rallied for nine consecutive days, while the S&P 500 (/ESH4) is up eight of the past nine sessions. Marginal weakness is creeping in across the board, as all four major U.S. indexes are trading lower around the cash equity open in New York. A light earnings and macro calendar this week, coupled with volatility holding near yearly lows, results in a high likelihood of an unremarkable trading session.

Growing fears about a deep recession in Europe pressured bond yields in Germany overnight, which helped prop up Treasuries. The 10-year T-note future (/ZNH4) is looking to break above its range from Dec. 14 and move into fresh multi-month highs. Upcoming U.S. gross domestic product (GDP) data and inflation via the personal consumption expenditures index (PCE), the Federal Reserve’s preferred gauge of inflation, will likely set the tone for bond traders going into next week as liquidity dries up amid holiday trading.

Despite falling bond yields, gold prices are inching lower this morning, down about 0.15%. Traders are looking ahead to Friday’s personal consumption expenditures index (PCE) to gauge the latest data on the inflation front. Rate traders were encouraged by Richmond Federal Reserve President Thomas Barkin yesterday, and European bonds caught a bid overnight. That should keep precious metals supported until Friday’s data print, although light market liquidity because of the U.S. holiday may leave some unexpected volatility in the market around the data print.

Crude oil (/CLG4) extended gains this morning, rising about 1.5% ahead of the Wall Street opening bell. Traders are wondering how long it will take a US-led maritime coalition to suppress the Houthi rebels, who have attacked several ships in the Red Sea, causing insurance rates to skyrocket for shippers and some to suspend operations. The U.S. Energy Information Administration (EIA) will release inventory data today after a private report showed a buildup in U.S. stockpiles on Tuesday.

Will the British pound (/6BH4) continue its rally from October after this week’s update on the United Kingdom’s GDP for the third quarter? That would help support rate traders’ view that the Bank of England (BOE) will shift to a more dovish stance after this week’s inflation print showed prices declined at a faster-than-expected pace. Meanwhile, headwinds to the dollar should help support the British currency.

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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