S&P 500 Returns to Weekly Gains after PCE as Holiday Weekend Looms

Also 30-year T-Bond, Gold, Crude Oil, and Japanese Yen Futures 

1. S&P 500 E-mini futures (/ES): +0.4% 

2. 30-year T-Bond futures (/ZB): 0% 

3. Gold futures (/GC): -0.48% 

4. Crude Oil futures (/CL): -2.19% 

5. Japanese Yen futures (/6J): -0.5% 

The final week of summer is ending, and U.S. equity markets are attempting to wrap up the week near their August highs. The July U.S. personal consumption expenditures (PCE) index came in a touch softer than anticipated on the year-over-year readings, while the monthly rates were on the screws. Bonds are mixed across the curve as the odds of a Federal Reserve interest rate cut for the remainder of the year are unchanged. Elsewhere, continued U.S. dollar strength may be harming commodities, but not as much as the announcement from OPEC+ that the pre-scheduled boost in oil production would proceed as planned in October. 

U.S. equity markets are trading higher into the end of the week, retracing losses that accumulated rapidly yesterday in late trading. Economic data in recent days have suggested the U.S. economy is slowing, but still growing enough to keep intact the ‘soft landing’ narrative. Measures of volatility have come down across the board, with the spot VIX flirting with a break below 15 and the near-term volatility futures (/VX) curve back in contango.  

Bonds are barely changed today following the release of the July U.S. PCE index, even as the Fed’s preferred gauge of inflation came in at or below expectations. The lack of reaction across the curve suggests near-term rate cut odds are fully saturated. With four cuts discounted through the end of 2024, the question is whether or not the Fed will start its rate cut cycle in September with either a 25-basis-point (bps) or 50-bps rate cut; today’s data favors a 25-bps rate cut. 

The rejuvenated U.S. dollar has been a headwind for commodities in recent days, and the broad sweep of this week has seen both higher yields and a stronger greenback to the detriment of precious metals. If not a negative, the combined forces have certainly by an albatross of sorts that have slowed price gains. Nevertheless, gold prices (/GCZ4) were able to notch a fresh all-time closing high yesterday. September is usually a bad month for precious metals, it should be noted. 

OPEC+ announced today it would indeed proceed with a planned production boost in October. Given the volatility in oil markets in recent months, largely centered around geopolitical concerns in the Middle East, there had been some speculation that OPEC+ would delay its production increase to provide stability to markets. Nevertheless, the confirmation of the production boost is contributing to another session of back-and-forth action in crude oil prices (/CLZ4).

The Japanese yen (/6JU4) is checking in on Friday as the worst performing major currency, although it doesn’t hold that title for the past week; that goes to the euro (/6EU4). The U.S. dollar rebound is gathering pace vs. the two largest components of the Dollar Index ($DXY), reinforcing the view that a near-term USD bottom has been achieved. Technically, /6EU4 broke its near-monthlong trend of closing above its one-week moving average, suggesting that upside momentum is finished near-term.

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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