Where we are: S&P 500 futures are trading at 7194.75, up 0.72% and challenging the 7200.50 overnight high. The cash index closed Friday at 7165.10 and is trading slightly below that, suggesting futures are leading the charge. The overnight range has been fairly contained, but this latest leg higher suggests a breakout attempt is underway, targeting fresh all-time highs.
What’s driving it: The primary driver remains optimism around potential US-Iran de-escalation, initially spurred by reported talks mediated by Pakistan. The move is reinforced by strong earnings reports from industrials this week, with 19 of 23 S&P 500 industrial firms beating EPS estimates. Falling US 2Y yields (-5.9bp to 3.785%) further support risk assets, likely fueled by expectations of future Fed easing.
- “President Trump announced a three-week ceasefire extension between Israel and Lebanon” – adding to the risk-on sentiment.
- US 2Y yield breaking below 3.80%, extending the downside move from Friday’s close.
- Net non-commercial positioning is modestly short at -109,957 contracts, leaving room for further upside on short covering.
NY session focus: Focus remains on whether the risk bid can sustain into the NY session. Watch the 7200 level on the S&P futures; a clean break could trigger a rapid move higher. The Nasdaq’s outperformance should be monitored, as any weakness there could signal a broader pullback. Keep an eye on Trump’s speech at 17:00 London time for any geopolitical curveballs. The trade that’s working is long S&P 500, short US treasuries. The pain trade is a sudden re-escalation of geopolitical tensions, triggering a flight to safety.