S&P 500 Futures Remain Lower Ahead of May FOMC Meeting

Also, 10-year T-note, copper, crude oil, and Japanese yen futures 

1. S&P 500 E-mini futures (/ES): -0.22% 

2. 10-year T-note futures (/ZN): +0.16% 

3. Copper futures (/HG): -0.93% 

4. Crude oil futures (/CL): -1.76% 

5. Japanese yen futures (/6J): -0.13% 

The start of May continues the stretch of important earnings releases and macro events from the end of April. The latest obstacle for markets to overcome will be the May Federal Open Market Committee (FOMC) meeting.

Fed policymakers spent the days before the communications blackout window softening the ground for a more hawkish tone. The markets heard that and are pricing in just 25 basis points (bps) worth of cuts through the end of 2024, far removed from the nearly seven cuts discounted at the start of the year.

Nevertheless, VIX1D has its highest opening print on a FOMC meeting day since May 2023 suggesting that traders believe the tone and tenor of Fed Chair Jerome Powell’s press conference will be a significant turning point. 

Traders are waiting for today’s Federal Reserve rate decision as equity futures move slightly lower Wednesday morning.

S&P 500 moves down

The S&P 500 futures (/ESM4) traded 0.2% lower ahead of the opening bell. Amazon (AMZN) is trading higher in pre-market after posting impressive earnings beat after the bell yesterday, but chipmaker Advanced Micro Devices (AMD) is down about 6%. Pfizer (PFE) lifted its profit forecast this morning, boosting the stock by about 2.5%. After today’s Fed meeting the focus will shift to Apple (AAPL) earnings due out tomorrow afternoon.  

Bond yields drop

Bond yields are down across the curve, although Treasuries remain near November lows following a recalibration on Fed rate cut bets.

Currently, the market is pricing in just a single cut this year and traders are closely watching rate bets today, which could swing around when the Fed releases its decision and during chairman Jerome Powell’s speech. Seventeen-week bills are scheduled for an auction today, although it's unlikely to affect the Treasury market.  

Copper prices down

Copper prices (/HGN4) fell nearly 1% to extend Tuesday’s decline as the recent optimism surrounding Chinese demand softens.

While factory activity in the world’s second-largest economy picked up in April, the seasonal demand bump for copper hasn’t materialized in the country as smelters face inflated costs. Smelters and fabricators are having trouble passing on those costs, which has dented the premiums paid on imported copper in Shanghai.

Now, spot prices in China are trading at a discount to the futures market, indicating that short-term weakness in the physical market will continue. That is a bearish picture for the red metal, at least in the short term.  

Crude oil dips below $80

Crude oil prices (/CLM4) pulled back toward $80 per barrel to extend recent weakness in the commodity. A U.S. government report showed that production increased to 13.15 million barrels per day in February.

The American Petroleum Institute (API) said, in a separate report, that U.S. inventory for crude oil rose by 4.9 million barrels for the week ending April 26.

Meanwhile, ceasefire talks between negotiators in Egypt are expected to resume shortly, boosting optimism that tensions in the Middle East may soon calm. That could be threatened if the Israeli government pushes forward with a plan to assault the city of Rafah in Gaza’s south.

The main route that those tensions are impacting oil prices is in the Suez Canal, where rebels continue to attack maritime traffic. 

Japanese yen futures (/6JM4) moved lower as traders looked ahead toward the Fed’s decision.

If the yield premium in U.S. bonds continues to outpace Japanese bonds, the currency will likely remain under pressure and promote more speculators to bet against the currency. However, the trade comes with risks following this week’s intervention by Japanese authorities.

The Bank of Japan’s monetary policy meeting minutes are due to release tonight. 

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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