S&P 500 Recovers and Then Slumps After 2Q ’24 U.S. GDP Beats Expectations

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

1. S&P 500 E-mini futures (/ES): +0.03% 

2. 10-year T-note futures (/ZN): -0.38% 

3. Gold futures (/GC): +0.40% 

4. Crude oil futures (/CL): +0.28% 

5. Australian dollar futures (/6A): -0.99% 

Better-than-expected U.S. gross domestic product (GDP) data for the second quarter, alongside a modest improvement in weekly jobless claims, are allowing traders to breath a sigh of modest relief today. U.S. equity markets are off their weekly lows, while bonds have backed off their daily highs. Lacking evidence that a recession is imminent, interest rate cut odds have pulled back, allowing the U.S. dollar to rebound. USD-denominated assets are struggling as a result, with energy and metals sitting near weekly lows. 

U.S. equity markets are trying to stop the bleeding following the batch of data releases this morning. Fears of an imminent recession—and thus a July Federal Reserve interest rate cut—are backing off.

Overall, earnings have come across as disappointing for investors: through 9:30 a.m. EDT today, 580 companies had reported, with only 43% of stocks moving higher; the average return around earnings has been -0.2% thus far. This would be the worst quarter for earnings (with respect to how the market has responded) since 3Q ’23 (45% positive returns with an average return of -0.7%). It remains to be seen whether the positive reaction today is a dead cat bounce, insofar as the optimism began fading shortly after the U.S. cash open. 

Better than expected growth data are pushing back Fed rate cut odds for July, reducing the potential of a 25-basis-point (bps) rate cut and for September, reducing the potential of a 50-bps rate cut, which may be weighing on Treasuries today. Treasury auctions this week have been mixed (good twos, mediocre fives), and there is a seven-year note auction later today. 

The U.S. economy may not be sliding into imminent recession, but the rest of the world is still struggling. The diminished prospect of an emergency Fed rate cut next week is hitting precious metals hard, in particular silver prices (/SIU4), which are down over 5% today. If /SIU4 is any guide, then gold prices (/GCQ4), which just broke below 2400, may be on track to return to multi-month range lows near 2300. 

Energy markets remain under pressure despite the stronger-than-expected 2Q ’24 U.S. GDP report. Why? Markets are forward looking, and the growth reading doesn’t tell us anything about the future. What did tell us something about the future this week? The surprise rate cuts from China. Further easing from the People’s Bank of China (PBOC) suggests underlying demand continues to weaken, which in turn translates into expectations that global growth will remain pressured in the second half of 2024.

Growth concerns are front and center today for most assets outside of the U.S. Part and parcel to this point is the continued shift in flows in foreign exchange (FX) markets, which have increasingly abandoned the carry trade in all its forms in favor of relative safe havens like the Japanese yen (/6JU4) and the U.S. dollar ($DXY). That the Australian dollar (/6AU4), crude oil (/CLQ4) and copper prices (/HGU4) are pressing their weekly lows underscores the aforementioned points about China becoming a greater source of concern for traders in recent sessions. 

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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