S&P 500 Starts December Trading Near All-Time Highs

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

1. S&P 500 E-mini futures (/ES): -0.01% 
2. 10-year T-note futures (/ZN): -0.24% 
3. Gold futures (/GC): -0.4% 
4. Crude oil futures (/CL): +1.18% 
5. Japanese yen futures (/6J): -0.22% 

The final month of the year has begun, and with it the S&P 500 is entering the final stretch trading near all-time highs. U.S. equity markets are seeing a shift back to the Magnificent Seven stocks, however, and breadth is weaker at the open. Bonds are down across the curve despite a bump higher in the odds of a Federal Reserve interest rate relative to this time last week (62.2% vs. 52.3%). Metals, both base and precious, are marginally weaker across the board, even as the U.S. dollar has surged against all of its major counterparts on the other side of the holiday weekend. 

The S&P 500 (/ESZ4) ended November on a strong note and is looking to close out the year with a gain of at least 24% for the third time in four years. Breadth is weaker after the open, however, because traders are rotating away from domestic small caps in favor of multinational mega cap tech names. Volatility remains low across the board, with the spot VIX holding below 15.  

U.S. Treasuries continue to seesaw between influences: On one end, there are the latest appointments for the incoming Trump administration and their implications on fiscal policy; on the other, there’s the U.S. economic data as it pertains to the Fed’s rate cut path. Catalysts are aplenty over the coming days, from significant data releases—Job Openings and Labor Turnover Survey (JOLTs), ISM services purchasing managers’ index (PMI), jobless claims and nonfarm payrolls (NFPs)—to Fed speakers (including Fed Chair Jerome Powell himself). The Treasury auction calendar is light over the coming days. 

Geopolitical deleveraging and a stronger U.S. dollar may headwinds for metals broadly speaking at the start of December. Gold prices (/GCG5) are proving most feeble, even with a meaningful rally off the morning lows. Volatility continues to contract, which in context of recent price action, may prove to be a bearish omen. 

Improving two-week temperature forecasts for the lower 48 states are proving to be a formidable headwind for natural gas prices (/NGF5) at the start of the month; roughly 65% of the American population is set to have “near normal” or “above” temperatures through mid-December. Elsewhere, crude oil prices (/CLF5) are a touch stronger today as the Israel/Hezbollah ceasefire is proving shaky, while the echoes of the Syrian Civil War are introducing a new variable to an already-caustic Middle Eastern theater. 

The slump in bonds today is helping translate to a stronger U.S. dollar. To little surprise, higher yields plus stronger oil prices are proving to be headwinds for the Japanese yen (/6JZ4). But the story of the day may ultimately be what’s happening to the euro (/6EZ4), as a parliamentary procedure to force a budget vote may ultimately result in a no confidence vote that takes down the French Prime Minister Michel Barnier-led government—which would make it the shortest-lived government in the Fifth Republic's history . Look no further than French OAT-German Bund spreads, which have widened to levels last seen during the Eurozone debt crisis.

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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