S&P 500 Dips as Oil Ratchets Higher on Israel-Iran Tensions

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

1.  S&P 500 E-mini futures (/ES): -0.19% 

2. 10-year T-note futures (/ZN): -0.3% 

3. Gold futures (/GC): -0.46% 

4. Crude oil futures (/CL): +2.84% 

5. Japanese yen futures (/6J): -1.39% 

War in the Middle East. Port closures along the East Coast. The writing is on the wall: Traders should start thinking about supply chain issues. Commodity prices are continuing their trek higher, with bond yields moving up amid market-measure of inflation expectations moving to the upside. U.S. economic data has continued its streak of relative outperformance, with the September U.S. ADP employment change report coming in at an increase of 143,000 vs. the 120,000 increase anticipated. 

S&P 500 futures (/ESZ4) trimmed losses ahead of the opening bell but failed to turn positive as investors assessed job numbers for the U.S. economy. Nike (NKE) fell over 7% in pre-market trading. The shoemaker posted mixed first-quarter results and suspended its full-year guidance. Nike is in the middle of a leadership shakeup that could see the company shift direction in the near future. General Motors (GM) posted a sales decline but made gains in its EV sales. The stock was nearly unchanged ahead of the bell.  

Treasuries fell across the curve, with the recent jobs data showing the economy continues to perform. That trimmed interest rate cut bets, further increasing the odds for a smaller 25-basis point (bps) rate cut at the Fed’s November meeting. The 10-year T-note futures contract (/ZNZ4) was down 0.35% ahead of the New York open. This Friday’s jobs report could provide the next big cue for bond markets.  

Gold prices (/GCZ4) are taking a breather amid a move higher in yields and the dollar, two things that typically work against precious metals. Geopolitical tensions in the Middle East failed to benefit the safe haven, with traders instead focusing their attention on how oil supply could come under pressure. For now, the better-than-expected data from ADP is keeping a cap on the metal but the overall environment should keep prices supported.  

It’s been a big week for oil prices so far, with the December contract (/CLZ4) up nearly 6%, marking the biggest weekly percentage gain since early February. Israeli said possible retaliation targets for yesterday’s attack from Iran could include oil infrastructure. Iran is pumping nearly 4 million barrels per day, which is the most it’s produced in over five years. OPEC+, the cartel's broader alliance, meets later today, although no policy change is expected. The Energy Information Administration (EIA) is scheduled to report weekly stocks data later this morning.  

Japanese yen futures (/6JZ4) made a big move lower today, extending the past two days of downward action to bring the weekly loss to the biggest since January on a percentage basis. Kazuo Ueda, the Bank of Japan governor, failed to focus on rate hikes in a speech, instead concentrating on economic headwinds. At the same time, traders are moving into the safety of the dollar as tensions in the Middle East rise.  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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

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