S&P 500 Climbs Alongside Bonds as PCE Inflation Moderates

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

1. S&P 500 E-mini futures (/ES): +0.15% 

2. 10-year T-note futures (/ZN): +0.22% 

3. Gold futures (/GC): -0.09% 

4. Crude oil futures (/CL): -0.41% 

5. Japanese yen futures (/6J): +1.47% 

U.S. equity markets are pushing higher on this morning following the release of the Federal Reserve’s preferred gauge of inflation, the personal consumption expenditures (PCE) index. The August U.S. PCE reading came in at or below expectations for both the headline and the core, signaling the economy remains on a path toward a soft landing (or no landing). Bonds are finding relief as well, although a softer U.S. dollar is not necessarily providing a tailwind for commodities. The big news story of the week—the opening of the Chinese liquidity spigot—continues to take shape after the People’s Bank of China announced a slate of rate adjustments to close out the week. 

S&P 500 contracts (/ESZ4) are on track to close out a third week of gains, with prices guiding slightly higher this morning ahead of the opening bell. Costco (COST) fell 1% in pre-market trading after the wholesaler reported a miss on revenue yesterday after the bell. Bristol-Myers Squibb (BMY) rose over 3% on news that the Federal Drug Administration (FDA) approved its schizophrenia drug. Equity traders will have their eye on consumer sentiment data due this morning but the path of least resistance for stocks appears to be higher going into the weekend.  

The 10-year T-note futures (ZNZ4) moved higher this morning but remains on track to record a weekly loss. The underlying yield remains below 3.8% as the Fed’s rate cut path continues to pressure yields. The Treasury ended the week with a 7-year note auction, which saw a decreasing yield through the auction, indicating that there was decent demand for the offering. Upbeat confidence in the economy should also help to keep yields suppressed after this morning’s inflation data. 

Gold prices (/GCZ4) are little changed this morning as traders take stock of the most recent inflation data. A weaker dollar this week has helped to push gold higher. Positioning data from the Commodity Futures Trading Commission (CFTC) is due out this afternoon. Speculators, or non-commercial traders, have pushed bullish bets on the metal to the highest level since 2020 last week. Traders, along with big bank forecasters, have grown increasingly bullish on the metal following the Fed’s rate cut earlier this month. 

It hasn’t been a great week for crude oil futures (/CLZ4), with the commodity on track to record its first weekly loss in three weeks. The OPEC decision to increase output wasn’t enough to overcome stimulus efforts out of China. Moreover, Libya’s political factions have agreed to end their fighting earlier this week, which will see the free flow of oil exports come back onto the market. That could potentially release hundreds of thousands of barrels of oil per day. Rig count data from Baker Hughes is on the radar today for energy traders.  

The Japanese yen (/6JZ4) is surging at the end of the week, thanks to a surprise shift in the political landscape in Japan. After the first round of the Liberal Democratic Party (LDP) party election, Sanae Takaichi was leading the vote; she was an adamant opponent of the Bank of Japan (BOJ)hiking rates again. But with the final round of voting overnight, Shigeru Ishiba, a former defense minister, won the race to become the next prime minister of Japan. Ishiba is a supporter of the current BOJ regime and policy actions; the rally in /6JZ4 has little to do with cross-asset relationships that might otherwise prove meaningful (although lower U.S. Treasury yields aren’t hurting). 

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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