S&P 500 Grinding Higher Ahead of 20-year Bond Auction and FOMC Minutes

Also, 30-year T-bond, silver, crude oil and Japanese yen futures

1. S&P 500 E-mini futures (/ES): +0.22% 

2. 30-year T-bond futures (/ZB): +0.15% 

3. Silver futures (/SI): +0.31% 

4. Crude oil futures (/CL): +0.53% 

5. Japanese yen futures (/6J): -0.18% 

After breaking their eight-day winning streak yesterday, U.S. equity markets are slowly grinding back toward their monthly highs. Bond yields continue to erode as well, although the Treasury’s 20-year bond auction this afternoon poses a risk. The release of the July Federal Open Market Committee (FOMC) meeting minutes later in the session may indicate Federal Reserve officials are increasingly likely to cut interest rates in September (which is already known). Elsewhere, continued weakness in the U.S. dollar continues to serve as a cushion for USD-denominated commodities like crude oil and silver. 

S&P 500 futures (ESU4) broke an eight-day winning streak yesterday after closing slightly lower on the day. Today saw a return to optimism, with prices slightly higher ahead of the New York open, as traders waited for minutes from the Fed’s latest meeting. There is little doubt that markets will get an interest rate cut in September, but the minutes could help to inform traders on the Fed’s thinking. 

30-year T-bond futures (/ZBU4) continue to move higher, with prices approaching early August highs. Today poses some potential risks to bonds, with the FOMC minutes and an update on jobs data due for release. The Treasury is also scheduled to auction off 20-year bonds later this afternoon, and 30-year Treasury inflation-protected securities (TIPS) tomorrow. 

Silver (/SIU4) fell this morning following four days of positive price action. A steep drop in the dollar helped to fuel upside for the metal but a basket measuring the dollar, the DXY, is higher this morning. It's worth noting, however, that precious metals denominated in non-USD terms have been pulling back in recent sessions.

Crude oil prices (/CLV4) rebounded from morning losses after the commodity briefly fell below 73. Traders have sold oil this week after economic data from China showed a bearish picture for demand. A ceasefire deal brokered in the Middle East between Israel and Hamas hasn’t been accepted yet by both sides, but it has relieved some tensions in the region, which has taken out some geopolitical premium from oil prices. The Energy Information Administration (EIA) is set to report inventory data this morning.

Are currency markets expecting too much from the Federal Reserve? The dollar hit fresh 2024 lows overnight as traders continued to price in an aggressive interest rate cut path by the Fed. The hopes may be slightly overdone, however. Today’s FOMC minutes could help calm markets, which could recalibrate the dollar’s path. The Japanese yen (/6JU4) has benefited from the move, rising over the past three days before strength eased this morning. Today could cause a repricing across FX markets if any of the data surprises.  

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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