Where we are: S&P 500 futures are trading near 5,450, a level that sits just above Friday’s US cash close. Overnight action saw a sharp move higher on the back of geopolitical de-escalation news, pushing us well off Thursday’s lows. We’re currently consolidating this move, awaiting the 08:30 ET data print to set the tone for the New York session.
What’s driving it: The primary driver remains the shifting geopolitical landscape, specifically the reported US-Iran interim deal and the reopening of the Strait of Hormuz. This has significantly eased energy price concerns, a key inflation worry for the Fed. Domestically, the Fed’s hawkish tilt, with half of officials signaling a potential rate hike this year, continues to underpin a cautious approach, evidenced by the rising US 2Y yields and real yields. The VIX’s significant jump yesterday, however, suggests underlying market nervousness despite the headline news.
- The reported US-Iran deal and Strait of Hormuz reopening are providing a significant risk-on impulse.
- US 2Y yields are up 15bp on the week to 4.2%, reflecting ongoing hawkish Fed expectations.
- Speculative positioning shows a crowded short in S&P 500 futures, with net non-commercials at -194,554 contracts, creating potential for a short-covering rally on positive surprises.
NY session focus: All eyes are on the 08:30 ET US data releases, particularly any inflation prints or employment figures that could sway Fed expectations. We’re watching for a sustained break above 5,475 in futures, which would signal further upside driven by short covering. Conversely, a failure to hold 5,420 could signal a capitulation of the overnight gains. The pain trade here is a sharp reversal lower, catching the speculative longs that have piled into this rally.