S&P 500 Rebound Tempered by Hot ISM Services and JOLTS

Also five-year T-note, silver, natural gas and Japanese yen futures

1. S&P 500 E-mini futures (/ES): +0.26% 
2. 5-year T-note futures (/ZF): -0.01% 
3. Silver futures (/SI): +1.31% 
4. Natural gas futures (/NG): -3.4% 
5. Japanese yen futures (/6J): -0.11% 

Financial markets were jolted today following the release of the December U.S. purchasing managers’ index (PMI) report from the Institute for Supply Management (ISM). While the topline figure came in better than expected, a positive development, a look beneath the surface revealed an alarming rise in inflation: The prices paid subcomponent jumped to 64.4 from 58.2. Similarly, the November U.S. job openings and labor turnover survey (JOLTS) showed a sharp uptick in job openings at 8.09 million vs. the 7.7 million expected, further evidence of the resilient U.S. labor market. Equity markets have been losing ground, bond yields are rising, and the U.S. dollar has flipped from red to green on the day. 

U.S. equity markets dipped this morning, pausing a rally from the past two trading days. Nvidia (NVDA) rose in pre-market trading after announcing a new set of chips but surrendered those gains after the opening bell. S&P 500 futures (/ESH5) fell about 0.2% in early morning trading, with the consumer discretionary and technology sectors dragging on sentiment. Rising bond yields pressured equities, with Treasury yields making a break to fresh multi-month highs.  

Treasury yields moved higher across the curve this morning, following an overnight move in Europe that saw higher yields across the Euro Zone. According to Bloomberg, a record number of borrowers sold bonds in Europe, with 28 issuers raising about $32 billion after returning from the holidays. Today, the Treasury will auction off three-year notes. Bond traders will shift their focus to employment data later this week via the ADP report and non-farm payroll report.  

Gold prices (/GCG5) rose today despite a move higher in Treasury yields. Traders see fewer rate cuts this year amid rising inflation pressures on the economy. Traders may see gold as an appetizing asset to hold going into a higher inflationary environment. This week’s jobs data could help traders focus their view on where the Fed will go with rates, which could influence the trajectory of precious metals. 

Natural gas futures (/NGG5) slipped by about 3% in morning trading, continuing a selloff from last week’s highs when gas surged to fresh multi-month highs. Forecasters still expect colder-than-average temperatures across much of the eastern United States through the first half of January but that isn’t offering enough to keep prices elevated. Meanwhile, U.S. gas production has dropped to the lowest levels since early November, likely because of the extreme cold that has caused some production shut-ins. However, production will likely rebound, at least modestly, over the short-term, which could explain the failure to hold prices near last week’s levels. 

Japanese yen futures (/6JH5) extended a selloff from early morning trading despite recent warnings by Japanese authorities over excessive currency moves. While the recent news about the incoming Trump administration narrowing the scope of tariffs hit the dollar, it isn’t enough to stop the yen’s decline. Traders likely want to see more clarity on how tariffs will be implemented in the coming administration, and the scope of the Federal Reserve’s rate cuts will also play a key role in the yen’s direction.  

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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