S&P 500 Futures Drop After Misleading GDP Report

Also 30-year T-bond, gold, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): -1.21% 

2. 30-year T-bond futures (/ZB): -0.63% 

3. Gold futures (/GC): +0.18% 

4. Crude oil futures (/CL): +0.11% 

5. Euro futures (/6E): +0.03% 

1Q ’24 U.S. gross domestic product (GDP) came in weaker than anticipated at 1.6% annualized, but a misleading headline figure may be why both stocks and bonds are suffering in its wake. Stripping out external, volatile components, domestic demand—or “core GDP”—was strong, coming in at 3.1% annualized. The personal consumption expenditures (PCE) component was likewise hotter than expected. As for how the Federal Reserve might respond? Fed Funds futures no longer see greater than a 50% chance of a 25-basis-point (bps) cut in interest rates at any meeting before the December 2024 gathering—the final meeting of the year. 

Stagflation worries are back in the fold and it’s causing investors to sell equities across the board, with benchmark S&P 500 futures (/ESM4) down 1.26% ahead of the New York opening bell. A drop in economic growth coupled with a higher inflation measure was the worst-case scenario for stocks from this morning’s GDP data, injecting more uncertainty into the Fed’s path forward. Meta Platforms (META) is down 15% in pre-market trading after the tech giant reported earnings yesterday afternoon, adding to the headwinds for equity bulls. Microsoft (MSFT) and Intel (INTC) report today after the closing bell. Will it be enough to revive market sentiment?  

Bonds moved lower to extend yesterday’s move after this morning’s economic data. Yields are pushing into the highest levels since November along the long end of the curve. 30-year T-Bond futures (/ZBM4) fell 0.74% and are on track to record a fourth weekly loss. The Treasury will auction $44 billion worth of seven-year notes today following a mixed slate of auction results from earlier in the week. Tomorrow’s PCE numbers are the only thing that stands in the way of a continued selloff in the bond market, which looks like the most likely scenario for the short term as of now. 

Gold futures (/GCM4) glided lower after traders pushed back the chances for the first Federal Reserve interest rate cut. That leaves the outlook for yields firmer and hurts the non-interest-bearing metal. However, gold losses are likely being blunted by some haven demand amid a brutal selloff in equities, with the metal likely being cushioned by the safety that investors are seeking. Still, the data doesn’t bode well for the outlook and leaves traders watching tomorrow’s inflation data for the next clue on gold’s direction.  

Crude oil prices (/CLM4) fell as traders considered a softer U.S. economy, evidenced by this morning’s data. That combines with yesterday’s inventory data from the Energy Information Administration (EIA), which showed that gasoline inventories fell by less than expected and distillate inventories rose, pointing to softer demand for fuel products.  However, the commodity is being supported by lingering concerns about tensions in the Middle East as Israeli forces stage for a ground assault into Rafah. That assault, if it happens, could spark wider conflict.  

A weaker headline figure may have sparked an initial leg of U.S. dollar weakness, but the greenback is quickly clawing back its losses as U.S. Treasury yields race higher. The largest component of the DXY Index, the euro (/6EM4), has seen a sharp intraday reversal, failing to climb above former multi-month support (now resistance) around 1.0750. As for the Japanese yen (/6JM4), fresh multi-decade lows have been appearing day after day; with energy prices not pulling back and global bond yields pushing higher, it seems like an inopportune time for the Bank of Japan and Japanese Ministry of Finance to try to intervene. 

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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