S&P 500 Pushes Higher Ahead of FOMC Meeting

Also 10-year T-note, gold, natural gas, and British pound futures

1. S&P 500 E-mini futures (/ES): +0.20%
2. 10-year T-note futures (/ZN): +0.28%
3. Gold futures (/GC): +0.28%
4. Natural gas futures (/NG): -0.39%
5. British pound futures (/6B): -0.21%

U.S. equity markets are working on their fifth consecutive day of gains but are running into their most meaningful hurdle of the week and perhaps the remainder of the year, the December Federal Open Market Committee (FOMC) meeting.

The Fed will release a summary of economic projections (SEP) at 2 p.m. Eastern Time/1 p.m. Central time and Fed Chair Jerome Powell will open his press conference at 2:30 p.m. ET/1:30. p.m. CT. The key focal point for traders: When will the rate cuts begin? Markets are currently discounting five 25-bps rate cuts in 2024, while the FOMC’s prior forecast indicated only two 25-bps rate cuts. This dissonance needs to be resolved to keep equities and bonds pointed higher into year-end; otherwise, a snapback in yields could cause trouble in the coming days.

Markets inch higher

Markets are moving cautiously higher ahead of today’s interest rate decision, said to be the most important of the year.

S&P 500 futures (/ESH4) are about 0.2% higher ahead of the opening bell as traders sit and wait for today’s decision, which will include updated economic projections and the “dot-plot,” which outlines members’ rate outlooks. While the Fed likely won’t declare a premature victory, it could move itself to align more closely with dovish market expectations, something that may help the market to rally. Or it could be a sell-the-fact moment. Either way, today should provide a major signal for the market.

T-note futures move higher

10-year T-note futures (/ZNH4) are moving higher, indicating that the market expects some good news from the Federal Reserve and its projections, which are due for an update today. The so-called “dot-plot” is in focus as traders look to assess the Fed’s “higher for longer” narrative. Will Jerome Powell push back against the dovish pricing in rate markets, or will he align the Fed’s outlook more closely with the market?

Gold moves off recent lows

Gold prices (/GCG4) are inching higher after hitting four-week lows earlier this week. The market awaits today’s interest rate decision from the Federal Reserve, which includes new rate projections for next year. That should influence where gold prices and other precious metals go next.

Natural gas moves lower

A so-far extremely mild winter season has driven natural gas prices (/NGF4) sharply lower over the past several weeks and the commodity is now trading near its lowest since June. Weather models for the next several weeks continue to show milder-than-average weather, which should keep price capped, although traders may be ready to pounce on the commodity at the next sign of a cold shift, given the recent selloff.

Holding pattern for the pound

The British pound is in a holding pattern over the last several days ahead of Thursday’s rate decision from the Bank of England (BoE).

Traders expect the BoE to hold steady at this meeting with the focus on when markets can expect the first rate cut. Inflation in the U.K. is at a two-year low, although it remains 4.6% higher from a year ago. The Monetary Policy Committee (MPC) may push back against dovish bets in the market, but with wage growth declining, it’s only a matter of time before we see a rate cut.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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

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