E-mini S&P 500 (ES) futures

E-mini S&P 500 (ES) Futures Fall as Post-Fed Optimism Fades

  • The ES fell around 0.6% in premarket as Fed’s rate hike impact weighed on the index.
  • Fed’s Powell announced that he would not consider a 75-bps rate hike in the next meeting.
  • Covid-19 restrictions in China keep global stocks under pressure.

The E-mini S&P 500 (ES) futures fell 0.6% in premarket trading. On Wednesday, the Federal Open Market Committee hiked interest rates by 50 basis points (bps), setting the stage for aggressive rate hikes to combat inflationary pressures.

Stocks rose following the announcement that the Fed would not consider a massive 75 basis point rate hike. Still, some optimism has begun to wane amid expectations that interest rates will need to rise rapidly to prevent further inflation spikes affecting economic growth.

Fed’s rate hike

Many economists now expect the Fed to increase rates above a neutral estimate of about 2.5% by this year to curb inflation. Bloomberg economists believe the balance sheet will return to pre-pandemic levels by 2024. However, Ipek Ozkardeskaya, the senior analyst at Swissquote Bank, said that we will still only be half a year behind pre-crisis levels.

She said that the Fed still has room to become more hawkish, adding that hawkishness will depend on how inflation develops.

Some of the initial excitement that drove the DJIA up 2.8% on Thursday has faded as investors reflect. A stronger dollar will also pressure US exports, as investors are increasingly concerned that higher interest rates will dampen economic growth.

Geoffrey Halley, the senior market analyst for the Asia Pacific at OANDA, noted that yesterday was an opportunity for the market to “sell the rumor, buy the facts.”

Powell has not specifically ruled out a 0.75 percent rate hike next month, citing the need to be “flexible,” Powell said.

There were also signs of supply chain problems elsewhere that affected sentiment.

Halley said that the Caixin Services PMI for April showed the second-largest decline because of China’s Covid-0 policy.

Impact of Covid

He said that the zero Covid-19 policy continues to pressure the domestic economy and exacerbate international supply chain issues as China tightens Covid-19 restrictions in Beijing and elsewhere.

E-mini S&P 500 (ES) futures technical analysis:

E-mini S&P 500 (ES) futures 4-hour chart
E-mini S&P 500 (ES) futures 4-hour chart

The E-mini S&P 500 (ES) futures price rallied but could not manage to surpass the 100-period SMA on the 4-hour chart. If the bearish momentum prevails, the index can fall towards the 50-period SMA near the 4211 area. However, staying above the 20-period SMA around 4190 may help the buyers. The volume for the recent bars remains relatively low. It shows that the downside will be limited.