S&P 500 Dips Ahead of January FOMC Meeting

Also 10-year T-note, gold, crude oil and euro futures

1. S&P 500 e-mini futures (/ES): -0.52%
2. 10-year T-note futures (/ZN): +0.34%
3. Gold futures (/GC): +0.46%
4. Crude oil futures (/CL): -0.71%
5. Euro futures (/6E): +0.14%

Will the January Federal Open Market Committee (FOMC) meeting upset the apple cart? Will Fed Chair Jerome Powell rekindle expectations of a March rate cut? Assets across the board hang in the balance, as traders await the Fed rate decision at 2 p.m. Eastern Time / 1 p.m. Central Time this afternoon.

U.S. equity indexes are mixed following disappointing earnings results from major tech companies, while the details of the Treasury’s Quarterly Refunding Announcement (QRA) did little to prevent bonds from continuing their upward trek across the curve. A softer U.S. dollar is helping prop up precious metals ahead of what will be a busy second half of the trading week.

Mixed earnings from Microsoft (MSFT) and Google (GOOGL) after the closing bell on Tuesday pushed U.S. equity index futures lower heading into Wednesday. The tech-heavy Nasdaq 100 (/NQH4) is down more than 1%, while the S&P 500 (/ESH4) is down over 0.5%.

Traders don’t seem to be overly concerned about the FOMC meeting today: 26 points, or +/-0.51%, is priced into 0DTE /ES options.

Bond yields fall

Yields along the curve are moving lower ahead of today’s interest rate decision from the Federal Reserve. This decision doesn’t come with updated economic projections or the so-called “dot plot,” so traders will be analyzing Fed Chair Jerome Powell’s speech closely.

10-year T-note futures (/ZNH4) are up about +0.3% and at a two-week high. Today’s rate decision and speech from Powell will likely dictate the direction of yields. The Treasury QRA details did little to upset the bond market earlier this morning.

Gold moves higher

The pullback in U.S. Treasury yields and the U.S. dollar is affording some breathing room for the metals on Wednesday.

Gold prices (/GCJ4) are leading higher as they make another attempt to break the downtrend from the December and January swing highs (chart below). A breakout in /GCJ4 may trigger a move towards 2100 in the coming sessions. The balance of the week will produce considerable event risk for the metals.

Crude oil drops

Crude oil prices (/CLH4) fell Wednesday morning after China released data on its manufacturing sector, which showed a fourth straight month of contraction in January.

Meanwhile, Iranian-linked militia groups are reportedly suspending military operations ahead of an expected U.S. response to last week’s deadly attack. The U.S. Energy Information Administration (EIA) will release inventory data for the week ending Jan. 26 later today.

Euro futures rise

Euro futures (/6EH4) are trading higher despite a pullback in yields across Europe overnight.

Rate traders are pricing in a rate cut from the European Central Bank as soon as April in the wake of the German inflation data released this morning. Today’s FOMC decision will help /6EH4 with its next directional cue after the recent sell-off and uptick in volatility.

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

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