US and European stock market futures are trading with a lot of cautions as investors pay close attention fo the upcoming Fed meeting and earnings released from Alphabet and Microsoft. Oil prices are coming off their three months high while gold traders are very much on the edge ahead of the Fed meeting.
US Stock Market
Fear of inflation and concerns about economic weakness come to mind when one looks at the most important economic event that will unfold today. Traders are expecting plenty of fireworks on the back of these events, while policymakers are very much on the edge, and they are bound to maintain their rhetoric if they want to tame inflation.
US Stock futures
The Federal Reserve Bank will announce the most important decision about their monetary policy, which will not only impact the fixed income market but also equities, forex, and cryptos. The Fed will announce its monetary policy decision at 7 p.m. today, and it is widely anticipated that the Fed will increase the interest rate by another 25 basis points.
Market Expectations
When it comes to the Fed meeting today, what matters most is the commentary from the Fed, not so much the actual decision. But that is only if the Fed increases the interest rate by 25 basis points. Anything more than that or keeping the interest rate unchanged will change the game all together, and those events are bound to bring massive volatility.
But let’s go back to the base case scenario under which the Fed increases the rate by 25 basis points and leaves the hawkish tilt in its commentary, which means the Fed indicates that there may be one more interest rate hike and their decision to increase the rate remains economic data dependent. Market players are unlikely to buy that, as they know that the Fed may be done for this year and the US economy has reached its peak interest rate cycle. Such a scenario would take the wind out of the dollar index, and it would be highly bullish for the overall sentiment in the market. Having said this, it is important to keep in mind that sentiment in the market is also closely driven by earnings.
Last night, the earnings results from the two mega tech giants, Google and Microsoft, brought traders back on their toes; the results from Alphabet were widely applauded while Microsoft failed to impress. As for Snapchat, its earnings report continued to be disappointing, and the stock price plunged.
Going into the markets today, it is highly likely that traders will continue to pay attention to earnings from Microsoft, where cloud computing numbers, staff reductions, and reductions in R&D have sent signals of pessimism. However, it is also a matter of filtering noise, and that means paying attention to its newly developed revenue stream, which is your AI and Bing’s AI search engine. Softness in the cloud business and other adverse data points were mainly due to the slowdown in economic activity, which will improve in the coming quarters.
In addition, traders are also going to shift their focus to two other tech giants: Amazon and Apple. Amazon will report its numbers today, while Apple’s progress will come to light tomorrow. Both of the earnings are related to consumer spending and economic activity, and there is a strong possibility that we may see weakness across their numbers.
Oil Prices
Oil prices had a really nice and decent run if you look at the price action for the past four days, and today we do see some profit taking among traders. The reason that we have seen prices retracing from their three-month highs is mainly due to US crude stockpiles, while US government data on crude inventory is due later today.
Oil price chart
The fact about supply is that traders know that it is unlikely to take us to a place where we will see another supply glut—oil suppliers are playing an active role and oil demand is improving. Nonetheless, it is pretty much a given that the days of oil prices trading above the $100 level are certainly gone, but there are strong chances that the WTI may break above the $80 mark if the current momentum in the prices continues.
The Fed’s monetary policy meeting today will be an important factor to pay attention to when it comes to the arguments of economic weakness or recovery, and an outcome that sends more dovish signals is more likely to help oil prices.
Gold Prices
Gold prices are going to be highly interesting, as it will be mainly about the movement in the dollar index. Traders expect that the dollar index could take another nose dive as the inflation reading continues to show improvement, which means there are more odds stacked in favour of a higher gold price. However, we all know the sticky nature of inflation and also the fact that most of the dramatic moves that were going to happen have already happened, and now the progress is more likely to be a gradual one.
