S&P 500 at All-Time Highs after CPI; FOMC Later Today

Also, 10-year T-note, gold, crude oil and Euro futures

1. S&P 500 E-mini futures (/ES): +0.85% 

2. 10-year T-note futures (/ZN): +0.81% 

3. Gold futures (/GC): +1.29% 

4. Crude oil futures (/CL): +1.69% 

5. Euro futures (/6E): +0.86% 

Relief is the mood on Wall Street this morning following the release of the May U.S. inflation report. The May U.S. consumer price index came in cooler than expected at 0% month-over-month (m/m) and 3.3% year-over-year (y/y) on the headline, and 0.2% m/m and 3.4% y/y on the core; both the headline and core readings missed forecasts (0.1% m/m and 3.4% y/y expected for the headline; and 0.2% m/m and 3.5% y/y on the core). 

While goods inflation has been the primary story in recent months, disinflationary pressures are appearing elsewhere. To wit: core consumer price index (CP) ex shelter is now 1.9% y/y. Such a reading will likely give Federal Open Market Committee (FOMC) officials confidence to look past the lag in shelter (owner's equivalent rent, or OER) and transportation (auto insurance). 

The initial reaction boosted stock futures and bond yields dropped. For equities, markets have rallied to fresh all-time highs. For bonds, they've erased nearly all of the losses after the jobs report last Friday. With these new data in hand, market participants seem to have no concern about the Federal Reserve's June policy meeting later today.

This morning’s CPI report gave a green light to bulls who rushed into equity markets following the data, which suggests the Fed will cut sooner rather than later. The market has gyrated between seeing one and two rate cuts this year, with equities sensitive to those changes.  

Oracle (ORCL) rose nearly 9% in pre-market trading after reporting better-than-expected earnings. GameStop (GME) is down 4% before the bell, following yesterday’s 22.8% gain. Citron Research tweeted this morning that it abandoned its short position on the stock, saying that the large cash position from dilution will likely keep the stock price afloat for now while also snubbing Keith Gill’s livestream as an insult to capital markets.  

Bonds yields across the curve dropped sharply after this morning’s inflation data, which supports a trend lower in prices for the U.S. economy. The 10-year yield dropped 2.7%—the largest single day percentage decline since January. Yields on the short end of the curve saw an even sharper drop, reflecting the dovish bets for Fed rate cuts. 10-year T-note futures (/ZNU4) were up 0.81% at the New York open, challenging an intraday high from June 7. The technical structure of higher highs and lower lows from the April swing low supports a continued uptrend for the bond future. Today’s Fed announcement may help to cement that view. 

Gold contracts (/GCQ4) were modestly higher before this morning's inflation report and accelerated following the soft CPI numbers, with a softer dollar and lower yields clearing upside for precious metals. While Fed rate cut bets have moved higher, there are still plenty of risks from today’s FOMC announcement although the path of least resistance now appears to be higher because it gives the Fed ammo to move further into the rate cutting headspace. After today’s Fed announcement, gold traders will turn their focus to tomorrow’s producer price index (PPI), which will inform markets further on the inflation story.  

Crude oil prices joined the broader rally, with a softer rate environment likely supporting the demand for oil later this year. Yesterday’s report from the American Petroleum Institute (API) showed a crude oil drawdown of 2.5 million barrels for the week ending June 7. That was deeper than the cut of 1.75 million barrels that markets expected. Today’s Energy Information Administration (EIA) report is in focus for energy traders. 

The U.S. Dollar has been thrashed in the wake of the May inflation report. The DXY Index has retraced nearly all of its gains from Friday. The largest constituent of the DXY Index, the Euro (/6EM4), is having its best day since December 2023. Sharp reversals on higher than normal volumes (> one-month average) across the FX market indicate a meaningful technical turn is afoot. 

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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