ES→SPX ≈ 3pts! Here comes the interest rates!

Discussion in 'Index Futures' started by tommcginnis, Nov 3, 2017.

  1. tommcginnis



    SPX 2639.75
    ES 2640.50

    The ES future is $0.75 ABOVE the market.

    Two calendar weeks to go.
    Ain't never seen that.
    #21     Dec 5, 2017
  2. tommcginnis


    AND NOW?!?!?

    SPX 2656.00
    ESMar 2659.00
    discount -$3.00

    That is not dividend payments. My original thesis (is that this is a capitalization of interest rate expectations over the next months) holds up some better -- but a quarter-point?? A half?!?
    Earnings doesn't do it either, as that should be in the current price, not the future.
    What about U.S. taxation?!? Again, how does that not get exactly, evenly shared between the future contract and the current pricing?

    Whacky. I've only seen (+)7-8 SPX points in a decade or so of comparison. (I'd love to see some exact numbers, just to see how closely my memory comports with reality...)
    Last edited: Dec 11, 2017
    #22     Dec 11, 2017
  3. Here4money


    How could this be?....50% of ET posters (or 100% of my ignore list) tell me the FED and it's influence on borrowing rates has no effect on the economy.
    #23     Dec 11, 2017
  4. maxinger


    this is very common actually.

    we call the 'normal' curve.
    ie futures with longer expiration date has higher price.
    the opposite is 'inverted' curve.
    at times we do see combination of normal and inverted curve.

    see this:
    ES Z17 - 2662
    ES H18 - 2665
    ES Z18 - 2671
    #24     Dec 11, 2017
  5. tommcginnis


    No, it's most certainly not common for the SPX/ES.
    As noted above, the average turnover saw ~ minus 7-8 pts with a new front month.
    For the S&P right now, at 2663.5, the ES Mar'18 contract was ~ 3.25 pts higher throughout the day -- not at 2655, but 2666. There's a positive 3 pts.

    To flip backwardation to contango, the fundamental equations for future contracts must have their parameters flipped, from positive to negative. This is big news, that until today (on CNBC) I had not heard anyone discussing. (It's been developing for weeks -- funky things from Labor Day on -- 3 months??) I severely doubt that dividends (and holding costs) have changed much, but boyyyyyy that parameter on interest rates has moved.

    (And so we're back to my original thesis. Sheeesh. :cool: )
    #25     Dec 13, 2017
  6. Confused by the OP.

    Do you mean time value of money and opportunity cost of the cash?

    When holding a futures position, in lieu of a debit cash position in the S&P like SPY, the positive cash position by holding futures allows you to earn a risk free rate with the cash at hand, which is marked to the fed funds rate. So, if the fed raises rates, presumably the cash holder in the futures contract gets more risk free interest return on that cash than before. This ought to reflect in the pricing of the derivatives contract. As such, the futures contract should be priced lower than spot in the cash market, due to interest returns when holding futures and keeping all the cash, and priced lower still when the fed raises rates. So, because the negative spread between futures and cash market is increasing, you're saying the market is pricing in high odds of interest increase as time goes on (isolating it to interest effects)?

    Is that what you meant by the OP?
    Last edited: Dec 16, 2017
    #26     Dec 16, 2017
  7. tommcginnis


    Our futures had been in backwardation for a long time -- this move to contango got my attention.

    Less than figuring out the structural equation changes needed to see such results, I was just trying to identify the current, real-world changes going on.

    There are some markets out there that have never seen a flip. (I did a Google tour last week?? And one of the best issue *summaries* was of the Nifty -- so not immediately relevant to US markets vis-a-vis the Fed.)

    Lastly (although, still 'surprisingly' to me), the popular press (by which I mean, CNBC and Yahoo!Finance [yukyukyuk, sure]) were seeming to catch up to this in commentary both on-air and in print.

    What *I* would really like to see, is the front-month difference to fair value, over a goodly chunk of time -- like, 1960→2017. I know it's got to be out there -- I bet it would inform the conversations nicely.
    #27     Dec 17, 2017
  8. tommcginnis


    I saw the ES 6pts above the SPX earlier this week -- now it's about 0.30 pts above, and has been that way all morning.

    Never seen this. Don't have an explanation for the flopitude. Front-month for a fresh ES future should be about 7pts below at the start (*now* for Mar18).

    Woof! The ES is 2684.25; the SPX is 2684.00. A quarter-point.

    "Stay tuned!" is all I can say..... :cool:
    #28     Dec 28, 2017
  9. tommcginnis


    SPX 2684.40
    ES 2684.38.

    The ES has now flashed a return below the SPX. (Meh. It was about 2 minutes. Then it was gone. Now, it's back (2¢!). Now, it's gone. [Fascinating, right?])

    I have a very straw, Straw Man that says "Yes, this is interest rates" but that the compounding/twisting thing here is now *tax* rates, too. So, call it *effective* interest rates.

    I guess that's why it pays to keep yer eyes open.....

    Ooop. ES now 9¢ below the SPX. H'ain't seen that inna while.
    #29     Dec 28, 2017