Liquidity Re-emerges, S&P 500 Relinquishes Overnight Gains

Liquidity Re-emerges, S&P 500 Relinquishes Overnight Gains

Also 2-year T-note, gold, natural gas and Canadian dollar futures 

  1. S&P 500 e-mini futures (/ES): +0.11% 

  2. Two-year T-note futures (/ZT): -0.02% 

  3. Gold futures (/GC): +1.42% 

  4. Natural gas futures (/NG): +3.86% 

  5. Canadian dollar futures (/6C): -0.09% 

The long holiday weekend coincided with a speech from Fed Chair Jerome Powell and the release of the February U.S. PCE index on Friday, opening gaps in markets at the open at the start of the week.

But the gains seen in U.S. equity markets have faded overnight, and the turn into the more liquid U.S. trading hours (Europe is closed for Easter Monday) has seen U.S. Treasury yields spike higher across the curve.

The growing belief that the Fed may not cut rates in June but also refrain from hiking rates in the face of emerging inflation pressures is pushing down U.S. real yields, a likely catalyst behind the push higher by gold prices to another all-time high.

Symbol: Equities 

Daily Change 

/ESM4 

+0.11% 

/NQM4 

+0.18% 

/RTYM4 

+0.34% 

/YMM4 

+0.01% 

Reasons for bullishness

The bull case for stocks remained intact after Friday’s U.S. inflation data underpinned the view that the Federal Reserve will be able to cut interest rates later this year. S&P 500 futures (/ESM4) rose about 0.11% Monday morning following the extended holiday weekend.

Event risk for today includes the Institute of Supply Management’s manufacturing purchasing managers’ index (PMI) for March, which is expected to cross the wires at 48.4.

Strategy: (46DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 5050 p 

Short 5100 p 

Short 5500 c 

Long 5550 c 

57% 

+700 

-1800 

Short Strangle 

Short 5100 p 

Short 5500 c 

64% 

+2487.50 

Short Put Vertical 

Long 5050 p 

Short 5100 p 

82% 

+312.50 

-2187.50 

/ESM4

Symbol: Bonds 

Daily Change 

/ZTM4 

-0.02% 

/ZFM4 

-0.14% 

/ZNM4 

-0.28% 

/ZBM4 

-0.88% 

/UBM4 

-1.36% 

T-note futures move sideways

The rate-sensitive two-year T-note futures (/ZTM4) is little changed this morning as the middle and long ends of the curve fall.

On Friday, Jerome Powell balanced his comments toward rate cuts, saying that the Fed will remain data dependent. The Fed chair will speak again on Wednesday, which will come after a set of U.S. PMI readings that could inform his view further. The Treasury will auction 13- and 26-week bills today. 

Strategy (53DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 101.25 p 

Short 101.5 p 

Short 103 c 

Long 103.25 c 

48% 

+125 

-375 

Short Strangle 

Short 101.5 p 

Short 103 c 

53% 

+296.88 

Short Put Vertical 

Long 101.25 p 

Short 101.5 p 

97% 

+62.50 

-437.50 

/ZTM4

Symbol: Metals 

Daily Change 

/GCM4 

+1.42% 

/SIK4 

+1.70% 

/HGK4 

+1.41% 

A new high for gold

Gold prices rose to hit another all-time high Monday morning despite a stronger dollar and higher U.S. yields.

The prospect for stronger global growth and easing inflation is helping the precious metal, especially with equity investors starting to worry about lofty valuations. However, demand in India, one of the world’s strongest markets for jewelry gold, is expected to fall over the short term amid record soaring prices. That could pose a headwind to gold futures (/GCM4), which are up nearly 2% to trade at 2277.60 this morning.  

Strategy (57DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 2125 p 

Short 2150 p 

Short 2400 c 

Long 2425 c 

64% 

+620 

-1880 

Short Strangle 

Short 2150 p 

Short 2400 c 

71% 

+2680 

Short Put Vertical 

Long 2125 p 

Short 2150 p 

85% 

+270 

-2230 

/GCM4

Symbol: Energy 

Daily Change 

/CLK4 

+0.13% 

/HOK4 

-0.87% 

/NGK4 

+3.86% 

/RBK4 

-0.91% 

Natural gas soars

Natural gas prices (/NGK4) rose nearly 4% on Monday morning. The commodity is coming off levels near three-year lows as some tailwinds from production cuts help keep volatility in the short-term outlook.

While U.S. producers have pulled back production amid low prices, the demand side, including exports, continue to tilt bearish as we head into the injection season. Moreover, producers seem ready to bring production back quickly when prices do rise, which could keep the market from trending higher.  

Strategy (57DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 1.6 p 

Short 1.65 p 

Short 2.45 c 

Long 2.5 c 

63% 

+150 

-350 

Short Strangle 

Short 1.65 p 

Short 2.45 c 

71% 

+880 

Short Put Vertical 

Long 1.6 p 

Short 1.65 p 

82% 

+70 

-430 

/NGK4

Symbol: FX 

Daily Change 

/6AM4 

+0.01% 

/6BM4 

-0.10% 

/6CM4 

-0.09% 

/6EM4 

-0.06% 

/6JM4 

-0.07% 

The Loonie looks good

The Canadian dollar (/6CM4) doesn’t look like it will end its slump any time soon.

The Bank of Canada (BOC) expected to cut rates as soon as June due to the country’s relatively tepid growth compared to the United States and its overabundance of debt-linked to mortgages.

The chance for the BOC to front-run the Fed in cutting rates is acting as a headwind to the Canadian dollar and even high oil prices have been little help to the Loonie. Canada’s February trade balance and March jobs data is due later this week.  

Strategy (32DTE, ATM) 

Strikes 

POP 

Max Profit 

Max Loss 

Iron Condor  

Long 0.725 p 

Short 0.73 p 

Short 0.75 c 

Long 0.755 c 

66% 

+120 

-380 

Short Strangle 

Short 0.73 p 

Short 0.75 c 

70% 

+220 

Short Put Vertical 

Long 0.725 p 

Short 0.73 p 

88% 

+70 

-430 

/6CM4

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

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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