S&P 500 Awaits Fed’s First Rate Cut in Four Years

Also, 30-year T-bond, gold, crude oil and British pound futures

1. S&P 500 E-mini futures (/ES): +0.17% 

2. 30-year T-note futures (/ZB): -0.44% 

3. Gold futures (/GC): +0.44% 

4. Crude oil futures (/CL): -0.8% 

5. British pound futures (/6B): +0.66% 

Rates markets have shifted to price in a 50-basis-point (bps) rate cut by the Federal Reserve today. It’s around a 65% chance, per Fed funds futures and three-month secured overnight financing rate (SOFR) futures. The U.S equity markets have pressed higher as the prospect of looser monetary policy alongside a still-growing U.S. economy may prove re-inflationary. Bond yields are higher across the board as traders discount the likelihood of a more dovish than already priced-in decision by the Federal Open Market Committee (FOMC). Elsewhere, a weaker U.S. dollar is helping to prop up precious metals, while a lack of immediate retaliation from Hezbollah following Israel’s pager attack yesterday has knocked back oil prices. 

S&P 500 futures rose this morning as traders prepared for the Fed’s interest rate decision. United States Steel (X) rose nearly 5% after the U.S. government’s Committee on Foreign Invesetment approved a request for Nippon Steel’s bid for the company to be pushed beyond the election, according to a Reuters report. Both presidential candidates have publicly criticized the deal. Nippon’s executives have made concessions, including a promise the company’s operations would continue to be run by Americans, but that has so far not assuaged concerned parties.  

30-year T-bond futures (/ZBZ4) moved slightly higher this morning. The Fed decisions is, of course, going to be the biggest highlight of the week for bond yields. Economic news has been rather good lately, tempering the case for a larger rate cut, which would be 50 basis points. Housing starts data showed this morning that the pace of building in August rose faster than expected.  

Gold futures (/GCZ4) is retracing some of its losses from yesterday as the dollar falls this morning. Precious metals traders have been optimistic about gold’s path higher, especially after putting in fresh all-time highs earlier this week. At these levels, the biggest headwind for the metal is likely the inclination for some traders to take profits as it cuts into new territory. Today’s Fed decision will play a key role in the direction of the metal over the short term.  

Crude oil prices (/CLX4) trimmed some of this week’s gains this morning, falling about 0.8% ahead of the New York open. Yesterday, the American Petroleum Institute (API) reported a nearly 2 million barrel build in crude oil inventories for the week ending Sept. 13. That reversed a trend of falling inventories over the previous three consecutive weeks. Geopolitical fears may likewise be playing a role in the wake of Israel’s pager attack against Hezbollah.

While the Fed is in the spotlight for what should be a 50bps rate cut today (if traders are correct), little attention has been paid to the Bank of England (BOE) and its policy meeting tomorrow. The British pound (/6BZ4) has been quietly at the top of the foreign exchange (FX) leaderboard in recent days as, unlike the Fed, the BOE’s rate cut cycle isn’t expected to continue in earnest following the August U.K. inflation report released today.  

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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