S&P 500 Starts Big Macro Week on Weaker Note

Also, 2-year T-note, silver, natural gas, and Australian dollar futures

1. S&P 500 e-mini futures (/ES): -0.22%
2. Two-year T-note futures (/ZT): -0.07%
3. Silver futures (/SI): +0.89%
4. Natural gas futures (/NG): +6.92%
5. Australian dollar futures (/6A): -0.25%

Investors are stepping back to start the week following Friday’s bullish performance that saw the S&P 500 U.S. benchmark close at a record high.

The story was the same in overnight trading in Asia and Europe. Traders are assessing the outlook for the economy, with several high-impact prints expected this week, including rate decisions from Canada and the European Central Bank.

We will also hear from Federal Reserve Chair Jerome Powell on Wednesday, and the U.S. jobs report is due out on Friday. Analysts expect a big slowdown in job growth for February, slowing to 200,000 from January’s 353,000 print.

Oil steady, chip sector moves higher

Oil prices held steady after OPEC decided to extend production cuts into the second quarter of the year, disappointing expectations that the cartel would push the cuts through the end of the year.

The energy sector on the equity side should be supported by a decision from a U.S. natural gas producer to cut production.

While Apple (AAPL) is dragging lower due to a fine from European Union (EU) regulators, the chip sector is moving higher to start the week, which may help to carry stocks.

Stock traders hesitate

Equity markets are flashing signs of hesitation after Friday’s run into record highs for the S&P 500.

This morning, /ESH4 futures are trading 0.20% lower but remain firmly above 5,100, a reassuring level that was closed above to end last week.

A decision out of the European Union to hit Apple with a $2 billion fine is weighing on stocks, although the chip sector is pulling technology higher, with SMH—the VanEck Semiconductor ETF—adding nearly 2% in pre-market trading.

Treasury notes slip

Treasuries are under some pressure to start the week as optimism from last week’s inflation data settles.

Two-year T-note futures (/ZTH4) slipped by 0.06% ahead of the opening bell, although the underlying yield remains near three-week lows. Today will see auctions for 13- and 26-week bills and there are several more offerings for short-term bills due later this week. However, we don’t have any note or bond auctions due until next week.

Precious metals rise

Precious metal traders are brushing off the move higher in yields this morning and remain focused on the prospect for a rate cut from the Federal Reserve, which would help the non-interest-bearing metal.

Stronger-than-expected economic data has also helped the case for silver prices, which benefit from industrial applications. /SIH4 is outpacing gold prices this morning, with a gain of 0.67%.

Natural gas keeps soaring

Natural gas futures (/NGJ4) rose nearly 7% Monday morning after EQT Corporation (EQT) announced a production cut of almost 1 billion cubic feet per day (bcf/d).

The company—among the largest producers of natural gas in the U.S.—is responding in a similar fashion to other producers, who have announced their own cuts in recent weeks as price trade near multi-decade lows.

It was an unusually warm winter throughout the U.S. and Europe, which has left inventory levels at above-average levels, and with the withdrawal season nearly over, a sustained price recovery is less likely. That said, traders could expect more volatility and sharp moves with prices at these extreme levels.

Traders wait for Australian rate decision

We are two weeks away from the next Reserve Bank of Australia (RBA) meeting and traders are undecided on whether Australian policymakers will take a hawkish or neutral approach to their rate setting.

Prices remain relatively high in Australia, which has led the RBA on a more aggressive calculus against inflation than their European and U.S. counterparts.

However, short bets have risen against the Aussie, with fund managers increasing their bets to short the currency. According to Friday’s Commitments of Traders report (COT), non-commercial traders (speculators) increased their short position to 128,816 contracts, which was the second highest on record.

If those funds are wrong, however, it leaves /6AH4 susceptible to upside risk on short covering.

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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