Hike Day, and the Two-Year Wants More

The Fed decides at 2:00, and the hike is already paid for. CME FedWatch has a quarter point to 3.75-4.00% at roughly 92%, against 33% a month ago, and it would be the first hike since July 2023. The ten-year touched 5.04% Tuesday, the highest since 2007, and sits around 5% this morning. Retail sales lands at 8:30, expected +0.9% after July's drop, with the statement, the projections and Warsh's press conference all in the afternoon. SPX closed 7,585.73, down 0.45%, with the Dow off 328 points and the Nasdaq down 0.78% on fresh worry over AI spending. Premarket 7,602, up 16.

The quarter point is not the question, because the two-year already says it will not be enough. At roughly 4.65% it sits more than 60 basis points over the 4.00% top the hike would set, a market leaning toward a second move before the first one lands. That makes the dot plot and Warsh the event, and a hold the real shock, because the long end is demanding this hike. Oil is no help. Saudi Arabia has cancelled some September cargoes to Europe with the East-West line still shut and no restart date, and crude is lower this morning only on a US stock build.

Premarket 7,602 sits two points over the flip at 7,600, positive gamma but only just, with prior demand 7,598 on the same number. The profile re-armed overhead: negative to positive is now roughly even, against seven to one Tuesday. Positives run from 7,605 into the call wall at 7,675 with another +3,000 above it, so the wall is a doorway. The odd strike is 7,625, the largest node anywhere at -1,391, sitting inside that positive run under prior demand 7,631, which makes it a pocket to get through rather than a ceiling. Below 7,600 every strike is negative to 7,450, close to -9,600 in all, and Tuesday showed how fast that goes: the high was 7,617, 7,598 went, and the low printed 7,573 before a close at 7,586.

The lean is long while 7,598 holds, and the buy is a backtest of 7,598, not a chase into 7,625 ahead of the statement. The 7,625 to 7,633 band is the first thing that has to clear, with the 8-week EMA at 7,633 on top of it, and through it positive gamma runs clean to 7,675. A close under 7,598 turns the lean short, with negative gamma all the way to 7,576.