S&P 500 Higher After ADP Report, Ahead of FOMC

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

1. S&P 500 E-mini futures (/ES): +0.01%
2. 10-year T-note futures (/ZN): +0.03%
3. Gold futures (/GC): +0.02
4. Crude oil (/CL): +2.67%
5. British pound futures (/6B): -0.27%

Yesterday’s quiet session spilled over into today—no surprise for tenured traders who typically sit on their hands in the run-up to a Federal Reserve rate decision.

Options markets indicate a rather quiet afternoon as well, with less than a +/-0.8% move priced into the S&P 500 (/ESZ3) 0DTE contract. Elsewhere, geopolitical risk premium appears to be creeping back into energy markets, with crude oil (/CLZ3) tacking on over 2.5% through the session thus far.

The dollar moves slightly higher

Traders appear willing to take on some risk this morning as the Federal Reserve’s rate decision approaches. The dollar is slightly lower and bond traders are digesting refunding plans from the Treasury, which is pressuring yields and clearing the path for higher equity prices. S&P 500 futures (/ESZ3) rose about 0.3% ahead of the opening bell. November is typically one of the strongest months for stocks, but today’s policy announcement will dictate sentiment for now.

Private payrolls growth weaker than expected

After trading lower overnight, U.S. bond futures turned higher this morning after the release of the October U.S. ADP employment change report, which showed weaker-than-expected private payrolls growth last month. But attention is quickly shifting to today’s November Federal Open Market Committee (FOMC) meeting, where the Fed was expected to signal the rate hike cycle is finished. The 2s10s spread (the difference between the 10-year yield and the two-year yield) was last seen at -19.5 basis points (bps).

Gold and oil

Gold futures (/GCZ3) are moderating after two days of losses as Treasuries move higher after the Department of the Treasury announced plans to borrow less in the coming quarters. Precious metals were likely to remain in a holding pattern until the Fed announces its policy decision today.

Crude oil prices (/CLZ3) are up nearly 3%, or $2.25 per barrel this morning, reversing the previous two days of price action. Yesterday, the American Petroleum Institute (API) reported a crude build of 1.3 million barrels for the week ending Oct. 31, but distillates and gasoline stocks were down 2.4 million and 357,000 barrels, respectively.

That suggests a rebound in fuel demand, which could translate to crude draws in the coming weeks and put the focus back on a tightly supplied market. The Energy Information Administration (EIA) will report its own numbers today.

Bank of England to make rate decision tomorrow

British pound futures (/6BZ3) moved lower this morning ahead of tomorrow’s rate announcement from the Bank of England (BoE). Rate traders are pricing in a second consecutive hold for tomorrow’s meeting with around a 90% probability.

As with the Fed, traders are shifting their focus from the possibility of more rate hikes to gauging how long rates will remain high. Inflation in the United Kingdom remains stubbornly high, more so than in its major peers, with inflation clocking in at 6.7% year-over-year for September. Other signs that the Monetary Policy Committee (MPC) is looking at, including PMI figures, suggest a grim economic outlook. This puts the BoE in a tough position as it aims to support economic growth but also to crush inflation.

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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