Dovish Spells or Hawkish Surprises? FOMC Prep for ES, NQ, GC

Let’s start with the biggest event this week. Unless, of course, some unexpected headline swoops in and steals the spotlight — because markets love a good plot twist.

Emotions are running high, and volatility is flying around like confetti at a surprise party nobody asked for. But don’t worry, Chair Powell might just play the role of the calm voice in the chaos.
Markets are pricing in a 25 bps rate cut by the Fed this week. Interestingly, the future path of rate cut expectations has been in the doldrums. Is it a bird or a plane? No, it’s Superman. Likewise here, is it 1 cut or 2 cuts? No, it’s 3 cuts priced at this moment until the end of 2025.

Excuse the humor, but what fun is it if you cannot entertain yourself while analyzing the complexities of markets day in and day out. Execution is boring; risk management is much like dementors sucking out life force when risk is not respected. And analyzing and preparation is where the creativity and fun is.
And as Kurt Angle would say, it is “True”.

Index futures including ES futures and NQ futures have all climbed steadily higher since September 2 low. Markets are turning higher in anticipation of a new bull run.

Gold futures are rallying, currently trading above $3700. Since the Jackson Hole dovish pivot, gold has not looked back and has rocketed higher above major resistance.

Our focus is on the Fed meeting. All eyes will be on the forward guidance; risks to inflation, risks for the labor market and FED’s SEP (Summary of Economic Projections). This also includes GDP forecasts and the most anticipated Dot Plot.

Which of the two mandates will the Fed prioritize, labor market weakness or sticky inflation? The interesting thing to note is that despite sticky inflation, markets are anticipating 3 cuts of 25 bps for each of the meetings this year.

Thus far, as we have previously mentioned, the Fed will likely be moving away from their 2% inflation target to an average inflation target in the range of 2% to 3%.

This also implies that real rates i.e., nominal less inflation are going to fall sharply lower.
Given this, we anticipate gold to continue higher as the US Dollar's purchasing power erodes away, with mounting debt, higher inflation and falling real yields.

The real question we should be asking is:

What if the meeting outcome is hawkish with the Fed delivering just 1 cut in the September meeting and staying on hold for the remainder of the year?

What other risks are there that could pull stocks and indexes lower? And bonds higher?

Tariffs at this point seem like an old talk unless something reinvigorates and puts them on the front and center of market worries.

Based on these thoughts, here are our scenarios:

Base Case:
25 bps cuts and dovish guidance but iterates meeting by meeting approach.

ES & NQ:
Data dependent Fed, that is likely behind the curve and markets may translate this as Fed too slow to react to emerging risks, risks of recession goes higher. In this case, although stocks may push higher with rates coming down initially, in our view, much of this is priced in and this may be ‘sell the fact moment’.

Portfolio adjustment: Sell index futures, Buy Gold and Bonds.

Ultra-Dovish:
Fed’s dot plot confirms 2 additional rate cuts of 25 bps for Oct and Dec meeting and further 4 cuts till end of 2026 to bring terminal rate lower to 250-275.
USD weakens further, real rates sink, reinforcing gold bid.

Portfolio adjustment: Buy everything. Buy the dip.

Hawkish Surprise

Only 25 bps in September, then pause
ES & NQ:
• Sharp pullback as equities reprice for tighter liquidity.
• ES could retrace recent gains, downside risk toward 4,900–5,000 zone.
• NQ likely hit harder due to tech sensitivity to discount rate.

GC:
• Short-term correction as USD firms and yields spike.
• However, downside may be limited if market shifts focus back to debt & long-term inflation risks.

Risk-Off External Shock- Geopolitical event, tariffs
ES & NQ:
• Drop as risk sentiment sours; defensives outperform growth.
• Bonds rally, yields fall, curve steepens if Fed cut expectations accelerate.

GC:
• Strong safe-haven bid, spikes higher regardless of Fed stance.

Comment with your thoughts and let us know how you see the markets shaping up this week