S&P 500, Two-Year T-Note, Gold, Crude Oil, and British Pound Futures

This morning’s Five Futures in Focus

1. S&P 500 e-mini futures (/ES): +0.06%
2. Two-year T-note futures (/ZT): -0.01%
3. Gold futures (/GC): -0.10%
4. Crude oil futures (/CL): 0.00%
5. British pound futures (/6B): -0.03%

The release of the August U.S. inflation report this morning provoked some volatility, but most markets are relatively unchanged ahead of the U.S. cash equity open on Wednesday.

Hotter-than-expected headline inflation may have initially spooked traders, who sold down both stocks and bonds. But with core measures still trending in the right direction, and the Fed’s "supercore" measure not showing a jump, the losses were quickly reversed. If there is a theme thus far to Wednesday, it’s “unchanged.”

All U.S. equity index futures are pointing modestly higher, led by the Russell 2000 (/RTYZ3). Yet, none of the four majors are showing any sort of significant gains, as /RTYZ3 was only up by +0.30% at the time this note was written. Technical studies continue to suggest a meaningful lack of momentum, either bullish or bearish, as trading ranges that were carved out starting in June remain in place.

Bond yields continue to press higher, although the August U.S. inflation report did very little by way of changing their standing on the session. two-year notes (/ZTZ3) dropped then recovered, with the two-year yield trading lower than it was ahead of the CPI report. The main concern for the bond market, across the curve, remains energy; crude oil prices hit another fresh yearly high today.

Gold (/GCZ3) is trading down about $0.50 per ounce, which is a rather modest move given that U.S. inflation increased for the first time in six months. However, if inflation pressures are further supported by tomorrow’s factory-gate price data, traders may increase their selling of the metal. For now, limited upside in the dollar and subdued bond prices are supporting what should otherwise be a bearish day.

Oil traders are awaiting U.S. inventory data from the Energy Information Administration (EIA) to support yesterday’s crude build of 1.7 million barrels reported by the American Petroleum Institute. WTI futures (/CLV3) are up about $0.06 per barrel this morning, hitting the highest of the year, despite yesterday’s inventory build. Typically, inventory data near the U.S. Labor Day weekend can be skewed by lower exports due to terminals and cargo ships running at reduced capacities amid lower head counts.

Meanwhile, the CBOE Crude Oil Volatility Index is trading at its lowest since December 2019, suggesting traders aren’t hedging downside exposure, at least not through options on the USO instrument. Outside of inventory data, U.S. and Japanese manufacturing data due this week my drive oil sentiment. Surging heating oil futures (/HO) continue to support strong outlooks on refinery profits, and diesel prices are expected to remain high going into the winter as OPEC cuts remove heavy-grade oils from an already tight market.

Stagflation, stagflation, stagflation. That’s the name of the game in Europe right now, for both the Eurozone and the U.K. Mixed performances in recent days may be attributed to a continued deterioration in data across the pond, and the ongoing rise in energy prices has proved to be an albatross around both the British pound’s (/6BZ3) and the euro’s (/6EZ3) proverbial necks. With the September European Central Bank rate decision tomorrow, it’s likely that the stagflation narrative will gain more attention in the coming sessions.

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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