S&P 500 Points Lower Ahead of Fed Decision Day

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

1. S&P 500 E-mini futures (/ES): -0.24% 

2. 10-year T-note futures (/ZN): +0.23% 

3. Copper futures (/HG): -1.32% 

4. Crude oil futures (/CL): +0.28% 

5. Japanese yen futures (/6J): -0.99% 

U.S. equity futures pointed to a lower open this morning as traders braced for tomorrow’s Federal Reserve interest rate decision, which will come with an updated set of economic and inflation projections as well as the so-called “dot plot” rate forecasts.

Housing starts for February rose the most from the month before since May at 10.7% and nearly matched the 1.6 million from December, signaling renewed appetite for mortgages.

Treasuries along the short end of the curve rose after a week of heavy selling. The rate-sensitive two-year yield is trading at 4.7%, the highest mark since late February, reflecting the hawkish repricing in bonds. While markets have already priced in a more hawkish outlook on rates, traders may continue to de-risk today. 

S&P 500 futures fell 0.24% and although traders are being cautious ahead of Fed Chair Jerome Powell’s rate announcement, trouble in the chip sector is dragging sentiment down.

Super Micro Computer (SMCI)—one of the hottest AI stocks of the year—is down over 10% in pre-market trading after announcing a plan to raise equity through a stock offering.

While it makes sense for SMCI to raise equity with shares up massively over the past few months, it is a discouraging development for investors who would rather not be diluted.

That, along with tomorrow’s Fed decision, may keep bulls at bay for now.  

The 10-year T-note futures (/ZNM4) rose after setting a fresh multi-month low yesterday and is on track to break a six-day losing streak.

Have bond bears priced in the Fed’s next move, or will Powell and the updated summary of economic projections (SEP) drive bond prices lower yet?

If you think the Fed will remain committed to rate cuts this year, then getting long bonds here may yield some reward, although it’s a risky move. The Treasury will auction 52-week bills today.  

Copper bulls took a breather on Tuesday after bidding prices up to the highest level since April. Prices (/HGK4) rose nearly 6% last week—the largest percent gain since January 2023.

Seasonally, this is a time of strong demand for the industrial metal, with China typically boosting demand following the Lunar New Year holiday.

However, stocks in China are already above trend for this time of year and we’ll have to see economic indicators out of the country accelerate in the coming months to support further upside for copper.  

Crude oil prices (/CLJ4) are steady this morning as energy traders also wait for the signal from the Fed announcement. Still, oil is at four-month highs as OPEC production cuts and a resilient U.S. economy balance the market to the upside.

Recent attacks on Russian oil refiners are also supporting the bull case, although Russian exports are still expected to increase over the coming months.

The American Petroleum Institute (API) will report inventory data later today.  

 

The Bank of Japan (BOJ) ended its nearly decade-long era of negative interest rates overnight, with the bank’s board voting seven-two to raise rates by 10 basis points. The bank also ended the yield curve control mechanism, although the bank will still purchase bonds along the long end of the curve.

However, yen bulls clearly wanted a clearer signal that policy will continue to tighten, something Gov. Kazuo Ueda didn’t give.  

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

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