Risk Off Ahead of Fed

Posted on

Euro lower on ECB comments
Stocks retreat
Nikkei 0.315 DAX -1.38%
UST 10Y 1.03
Oil $52.8
Gold $1840/oz.
BTCUSD $3122/oz.

Asia and the EU
No Data

North America
USD FOMC 14:00

Equities started to sell off ahead of the North American open despite blockbuster earnings by Microsoft which suggested that the tech leaders continue to see growth despite the pandemic. In FX euro sold off on exchange rate comments by the ECB and the overall tone of the markets was decidedly risk off ahead of the FOMC meeting later today.

Stock index futures turned read with S&P 500 down nearly 1% as profit taking kicked in. One side story that may have triggered liquidation flows was a report by CNBC that Melvin Capital – a multibillion dollar hedge fund- closed out its short of Gamestop which has become a massive short squeeze play with the stock rocketing 500% in 5 days.

The battle between the professional hedge funds and the Robinhood retail traders which have been pushing the stock higher through Reddit’s wallstreetbets channel has subsumed markets for the past few days and Melvin Captital’s capitulation may have marked a short term speculative peak. The price action in Gamestop as well as other highly volatile stocks like Beyond Meat may provide the tone for the rest of the day – until FOMC takes center stage.

The Fed is not expected to make any changes to policy with Chair Powell likely reiterating that policy will remain accommodative but as always traders will look around the edges for any signs of possible tightening either in the rhetoric or in the dot plot. Several FOMC members have hinted that monetary policy may need to be curbed a bit from its record expansionary pace and markets will look for any hints in the shift of stance of US policy makers.

Boris Schlossberg
Managing Director

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