S&P 500 Resumes Trading as Oil Surge Continues

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

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

2. 10-year T-note futures (/ZN): -0.42% 

3. Gold futures (/GC): +0.3% 

4. Crude oil futures (/CL): +0.86% 

5. British pound futures (/6B): -0.06% 

Trading has resumed after the mid-week holiday and it’s more of the same for U.S. equity markets, with the S&P 500 (/ESM4) and Nasdaq 100 (/NQM4) setting fresh intraday all-time highs overnight. Bond yields are rising, however, as crude oil prices (/CLQ4) continue to surge; oil is up over 12% from its June low. Precious metals are continuing to climb from support. In foreign-exchange (FX) markets, the Swiss National Bank levied a surprise 25-basis-point (bps) rate cut, while the Bank of England refrained from slashing its main rate.  

U.S. equity futures climbed this morning as trading resumed following a U.S. holiday on Wednesday when markets were closed. S&P 500 contracts (/ESU4) were up 0.03%, hovering near its all-time high. The move follows overnight strength in European equity markets where fears around French elections have started to cool following signs that investors still have an appetite for bonds there. 

Bond futures are lower across the board as traders are becoming increasingly sensitive to the sharp rebound in oil prices over the course of June. Weaker than expected weekly U.S. jobless claims and disappointing housing data released this morning initially prompted a rebound in 10-year Treasuries (/ZNU4) and 30-year Treasuries (/ZBU4), but attention quickly returned to energy markets. The Treasury is holding a five-year TIPS auction later today that could indirectly impacts 5s (/ZFU4). 

The rally in crude oil prices seems connected to the perceived rising tensions between Israel and a slew of regional adversaries (Hamas, Hezbollah, the Houthis and puppet-master Iran), which is reigniting “the war trade” as seen in recent months: when oil rallies, precious metals rally. Both gold (/GCQ4) and silver prices (/SIN4) are continuing to rally off of their respective support levels near 2300 and 29. 

Crude oil prices (/CLQ4) are starting to become a catalyst for pain in other corners of the market, and the next leg higher on the other side of the mid-week trading reprieve underscores how strong short-term momentum is at the moment. Part of the move may be catalyzed by market structure: Entering this week, CTA short positioning in oil was in the 100th percentile. Short covering may be driving the move, and may continue to drive the rally. 

British pound futures (/6BU4) fell after the Bank of England (BOE) left interest rates unchanged at its June policy meeting. Governor Andrew Bailey said most members are walking the line on rate cuts, which pushed money markets to price in a cut at the August meeting in addition to a second cut later this year. The announcement pushed Gilt yields lower, which weighed on the currency.  

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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