Stocks Steady as Fed Meeting Looms; Latest Brexit Twist Checks Risk Appetite

The Tuesday Market Minute

  • Global stocks were little-changed in overnight trading as investors kept risk appetite in check ahead of the start of this month's Fed meeting in Washington.
  • CME Group futures contracts suggest no change in rates from the Fed this week, but price in a 30% chance of a rate cut by January 2019.
  • Britain's Brexit saga took another twist yesterday after a ruling from the Parliamentary speaker said Prime Minister May can't bring her twice-defeated Brexit deal to lawmakers without substantial changes to its text.
  • Global oil prices edged higher again Tuesday after OPEC scraped its April meeting, raising the prospect of extending production cuts into the second half of the year.
  • Dow futures suggest a 125-point opening bell gain ahead of factory orders data at 10:00 am Eastern Time and third quarter earnings from FedEx after the bell.

Market Snapshot

Global stocks steadied overnight, while the dollar slipped to fresh two-week lows and Treasury yields fell, as investors kept risk appetite in check ahead of the start of today's two-day Fed meeting and amid yet another twist in Britain's two year Brexit drama.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked at a two week low of 96.44 in early European trading amid increasing speculation that that Fed will signal just a single rate hike this year while slowing the pace of bond sales from its $3.8 trillion balance sheet. 

The CME Group's FedWatch tool is pricing in a 98.7% probability of no rate hike from Chairman Jerome Powell and his FOMC colleagues tomorrow in Washington, but indicates at least a 30% chance of a rate cut -- from the current range of 2.25% to 2.5% -- by January of 2020. 

With the Fed decision looming and few headlines to guide investors on progress in U.S.-China trade talks, Asia markets were muted overnight, with little changes posted in either Japan's Nikkei 225, which slipped 0.08%, or the region-wide MSCI benchmark, which gave back 0.03%.

U.S. equity futures, however, were showing modest strength heading into the opening bell, with contracts tied to the Dow Jones Industrial Average indicating a 125 point gain while those linked to the S&P 500 suggest a 13.5 point advance for the broader benchmark.

European stocks were also muted at the start of trading in both London and Frankfurt, with much of the investor focus centered on the last twist in Britain's Brexit saga, which came last night from House Speaker John Bercow, who ruled that Prime Minister Theresa May can't bring her twice-defeated Withdrawal Agreement to Parliament for a third vote without substantial changes to its text.

Those changes are likely impossible, however, as the EU has said it will no longer negotiate with the Prime Minister over the final days heading into the March 29 deadline and May has yet to win over recalcitrant member of her own party for an agreement they feel keeps Britain too closely tied to Brussels.

The ruling means May must either ask for a delay of Britain's Brexit deadline from Brussels later this week, or bring a different motion to Parliament -- and win a majority in the House of Commons -- in order for the U.K. to leave the European Union later this month. It also dramatically increases the chances of Britain leaving with EU without a bespoke agreement.

Europe's Stoxx 600 benchmark rose 0.74% higher by mid-day of trading in Frankfurt to the highest level since October 3, while Britain's FTSE 100 was marked 0.54% to the upside as the pound inched ahead to 1.3280 against the U.S. dollar.  

Global oil prices pushed to fresh 2019 highs overnight after OPEC members scrapped a planned April meeting in favor of a larger gathering in June in order to assess the impact of their agreed production cuts which, along with allies such as Russia, are taking 1.2 million barrels from the market each day.

Record U.S. production, which the Energy Department pegs at around 12 million barrels per day, has kept a cap on gains, but oil has nonetheless surged nearly 40% since hitting a multi-year low on Christmas Eve.

Brent crude contracts for May delivery, the global benchmark for oil prices, were marked 56 cents higher from their Monday close and changing hands at $68.10 per barrel while WTI contracts for April delivery, which are more tightly linked to U.S. gasoline prices, were seen 40 cents higher at $59.49 per barrel, which is still the highest level since November 12.

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