- US futures waver ahead of today's FOMC decision
- Any Fed yield curve management as spreads widen may push equities from extreme levels.
- Dollar selloff resumes follows falling yields, as demand increases for longer-dated bonds.
Key Events
US contracts for the S&P 500, Dow Jones, NASDAQ and Russell 2000 wobbled on Wednesday, along with European shares after an uneven Asian session, as markets await today's Federal Reserve policy decision and press conference.
The dollar returned to a selloff, following yields lower. Gold and the yen extended advances.
Global Financial Affairs
The Fed’s infinite QE stance, together with much better than expected recent economic data have been driving US indices, as well as futures, higher. It's likely the Fed will redouble its dovish rhetoric during today's FOMC press conference, in an effort to boost the reopening US economy. On the other hand, that would exacerbate a steepening 3-year:10-year yield curve, something Morgan Stanley is betting on.
Futures on the SPX are stabilzing as of time of writing, after the underlying index on Tuesday fell back into negative territory for the year.
Yesterday, we noted that the contracts might be developing an H&S top on the hourly chart. That remains in play.
The Stoxx Europe 600 Index pared earlier gains, with automobile makers and bank firms driving the move. Asia was mixed, with South Korea’s KOSPI producing a modest advance, (+0.3%), while China’s Shanghai Composite lagged, (-0.4%).
Yields, including for the US 10-year Treasury fell for a third day.
Chatter that the Fed may seek yield curve control over the 5- and 30-year Treasury spread is growing; it's nearing its highest levels since 2016, which would weigh on stocks.
The dollar fell for a third day, dropping for nine out of 10 days, ahead of the Fed decision.
Gold climbed for the third day, on dollar weakness.
Technically, the precious metal bounced off the support of a H&S continuation pattern and a symmetrical triangle, while it is seen to expand the latter.
Oil struggled and was forced lower, after yesterday finding its footing following the first decline for the commodity in a seven-day rally.
Yesterday’s bullish hammer is no longer meaningful following a single day selloff. However, it still reveals demand sufficient to keep the price above $37, at least until the pattern completes a bullish pennant. If no upside breakout above $40 occurs, prices will likely follow weakening momentum lower.
Up Ahead
- The next Fed policy decision will be released later today. Expectations are the central bank will leave rates steady, and above zero.
- US weekly Initial Jobless Claims will be reported on Thursday. It's anticipated to come in at 1,550K claims filed.
Market Moves
Stocks
- The Stoxx Europe 600 Index gained 0.7%.
- Futures on the S&P 500 rose 0.5%.
- The MSCI Asia Pacific Index climbed 0.3%.
Currencies
- The Dollar Index fell 0.4%.
- The euro rose 0.1% to buy $1.1351.
- The yen was trading at 107.40 per dollar, up 0.3%.
- The offshore yuan held at 7.0695 per dollar, up 0.1%.
Bonds
- The yield on 10-year Treasuries dipped one basis point to 0.82%.
- Germany’s 10-year yield was little changed at -0.31%.
Commodities
- West Texas Intermediate crude dropped 1.8% to $38.21 a barrel.
- Gold was at $1,718.54 an ounce, up 0.2%.