S&P 500, 30-year Bond Extend Gains Post-FOMC, Pre-NFP

Also, 10-year T-note, gold, natural gas and British pound futures

1. S&P 500 E-mini futures (/ES): +0.33% 

2. 10-year T-note futures (/ZN): +0.52% 

3. Gold futures (/GC): +1% 

4. Natural gas futures (/NG): +3.24% 

5. British pound futures (/6B): -0.5% 

U.S. equity markets are extending their gains after the turn through the middle of the week—and the Federal Reserve’s July interest rate decision—helped spark a sharp turnaround in both the S&P 500 and Nasdaq 100. Bonds are rallying across the curve as well, as Fed Chair Powell offered a clear signal that a September rate cut is increasingly likely. Elsewhere, rising tensions between Israel and Iran may be contributing to a revived “war trade,” whereby bonds, oil and precious metals outperform the rest of the market. Across the pond, the Bank of England cut rates by 25 basis points (bps) in a 5-4 vote without offering clear guidance on the timing of the next rate cut. 

Equity markets rose this morning following yesterday’s impressive report from Meta Platforms (META), which showed investors some promise of returns on artificial intelligence spending. The upbeat mood comes ahead of earnings from Apple (AAPL) and Amazon (AMZN), due today after the market close.  

Treasuries rose across the curve, but the long end outpaced to the upside, as traders digest yesterday’s comments from Fed Chair Powell. The Fed chief pointed to a rate cut at next month’s meeting, which prompted U.S. markets to go risk on. The rising bond prices are pushing yields lower, and this morning’s initial jobless claims data seemed to put more pressure on yields. The 10-year T-note futures contract (/ZNU4) rose 0.53% ahead of the New York open.  

Gold prices (/GCZ4) are approaching the July swing high as traders push the metal higher after yesterday’s Fed announcement cleared the view on rate cuts. The resulting drop in Treasury yields from yesterday is helping gold prices, as lower rates encourage investors to buy the non-interest-bearing asset. Elsewhere in the metals space, copper prices (/HGU4) are retracing yesterday’s gains amid concerns about Chinese demand. 

Natural gas prices (/NGU4) rose over 3% today as a volatile week of trading in the commodity continues. A hotter-than-normal weather forecast is pushing prices higher, while increased flows to Freeport LNG in Texas supports export pressure. Meanwhile, European and Asian prices are trading at hefty premiums vs. U.S. product, which supports arbitrage flows, especially to Asia. Eyes remain on crude oil (/CLU4) amid escalating tensions between Israel and Iran.

A Bank of Japan rate hike and a strong hint from the Fed that a September cut is around the corner helped propel the Japanese yen (/6JU4) to one of its best trading days of the year yesterday. Today, attention has shifted to the British pound (/6BU4) in the wake of a divisive Bank of England (BOE) meeting: the Monetary Policy Committee voted 5-4 to cut rates by 25-bps. The BOE did not indicate that further cuts are going to come on any set schedule. While this may be considered a “hawkish cut” on the surface, the reality is that the BOE now finds itself facing a credibility issue akin to the European Central Bank: Markets don't like when cutting cycles start-stop-start. 

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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