Where we are: The S&P 500 futures are currently trading at 7405.75, up 0.92% on the day, pushing into fresh all-time highs with an intraday range of 7338.00-7412.00. This compares to a cash close yesterday of 7337.10, with futures holding gains through the European morning despite a mixed showing from cash indices.
What’s driving it: The rally is fueled by a continued bid in risk assets, predicated on strong earnings from AI and cloud-related companies, with Akamai the latest to post impressive growth numbers in its cloud infrastructure business. The prospect of robust growth appears to be overshadowing concerns about persistent inflation and potential Fed tightening, although the tape is notably sensitive to the 08:30 ET labour-market data. Real yields are trending lower, underpinning gold and, by extension, the broader risk-on sentiment.
- The 10-year breakeven inflation rate has edged up to 2.45%, potentially influencing the Fed’s thinking, and reinforcing the importance of today’s data.
- The 2s10s spread remains inverted at 0.49%, a signal that some see as cautioning against an overly aggressive Fed, despite inflationary pressures.
- Net non-commercial positioning in S&P 500 futures remains modestly short at -100,522 contracts, but has increased by 9,435 contracts week-on-week, suggesting short covering that could fuel further upside.
NY session focus: All eyes are on the 08:30 ET release of Average Hourly Earnings and Non-Farm Employment Change, followed by the Unemployment Rate. Better-than-expected data, particularly on the wage front, would likely reinforce hawkish Fed rhetoric and could trigger a pullback in equities towards the 7350 level. Conversely, a soft print would likely send the S&P higher. Key levels to watch are 7420 as resistance, and 7380 as initial support. The current trade is long tech, but that is at risk if yields spike on strong data. The pain trade is a sustained break above 7420, forcing shorts to cover aggressively into the weekend.