S&P 500 Struggling as Oil, Yields Continue Topside Push

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

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

2. 10-year T-Note futures (/ZN): -0.30% 

3. Silver futures (/SI): +2.94% 

4. Crude Oil futures (/CL): +0.75% 

5. Euro futures (/6E): +0.17% 

A late-day rally yesterday in stocks and bonds has found no follow through today. U.S. economic data continues to run hotter, with the Atlanta Federal Reserve GDPNow growth tracker for 1Q ’24 pointing to 2.8% real annualized growth. The March U.S. ADP (Automatic Data Processing) employment change report did little to dispel the notion that the economy is reaccelerating. Coupled with rising energy prices spurred on by fears of widening conflict from the Israel-Hamas war, bonds are quickly back to their yearly lows. Markets may be crossing the proverbial Rubicon whereby moves higher in oil and yields can no longer be ignored. All eyes are on Fed Chair Jerome Powell’s speech at 12:10 p.m. EST today. 

U.S. equity markets are on track for a third day of losses, with S&P 500 futures (/ESM4) down 0.22%, after better-than-expected data from ADP showed the labor market will likely stand in the way of three interest rate cuts this year from the Federal Reserve. Semiconductor stocks are also dragging on sentiment after Intel (INTC) reported big losses in its foundry business. Traders will look to tomorrow’s jobless claims data before Friday’s non-farm payrolls report, which is teed up as the main event risk for this month. 

Ten-year T-Note futures (/ZNM4) are breaking below a price floor that has been in place since February, with prices now pushing into fresh lows for the year. The stronger-than-expected jobs data from this morning and rising energy prices are pushing yields higher as the threat of a strong economy and price pressures force traders to rethink Fed interest rate cut bets. The Treasury will auction 17-week bills today. 

Silver prices (/SIK4) continued to surge higher today as safe-haven demand amid rising inflation pressures helps fuel investor sentiment in the metal. Speculative traders increased their long positions on the metal again in the latest week, according to CFTC data. Non-commercial traders are long 80,721 contracts, the largest long position since May 2021. If Friday’s jobs report confirms the ADP’s numbers, it could help to underpin the metal further. 

Crude oil futures (/CLK4) rose firmly above the 85 handle overnight as geopolitical concerns in the Middle East and Russia reinforced concerns around supply. At the same time, the U.S. economy remains resilient, evidenced by the latest jobs data released this morning. And because of high oil prices, the Department of Energy (DOE) canceled planned purchases of oil meant to go into the Strategic Petroleum Reserve (SPR).  

The Energy Information Administration (EIA) will release inventory data today. Yesterday, data from the American Petroleum Institute (API) showed a 2.3 million barrel decrease in stocks last week. Meanwhile, crack spreads remain supportive for refiners to keep production high, and the prompt spread in WTI futures, currently trading at a backwardation of 86 cents, points to a tight market. 

In a world where U.S. equities are weaker and yields are higher, one might assume that would cater to U.S. dollar strength. But not recently. Instead, the past two sessions have produced U.S. dollar weakness, with the beleaguered euro (/6EM4) as the prime example of quizzical strength in the face of seemingly difficult fundamental conditions. Yet there may be a perfectly reasonable explanation: weakness in stocks, bonds and the U.S. dollar is a sign capital is flowing out of U.S. financial markets—an ominous signal that portends increasing concern around inflation and how the Fed is positioning its communications around recent data. 

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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