The Wednesday Market Minute

  • U.S. stock futures suggest a firmer open Wall Street following comments from Treasury Secretary Steve Mnuchin that said a U.S.-China trade deal was "90% complete".
  • Investors are also trimming bets on a major interest rate move in July after a series of speeches from Federal Reserve officials that downplayed a 50 basis point rate cut, lifting the U.S. dollar from three-month lows and easing gold from six-year highs.
  • Global oil prices surge as investors react to a much bigger-than-expected U.S. crude build-up and worrying rhetoric between Washington and Tehran.
  • Wall Street futures suggest solid opening bell gains the three major benchmarks following the bullish Mnuchin assessment and stronger-than-expected earnings from Micron Technology.

Market Snapshot

U.S. stocks are set for a firmer open Wednesday, thanks to a bullish assessment of U.S.-China trade talks from Treasury Secretary Steven Mnuchin and stronger-than-expected tech earnings, although gains are being tempered by a series of comments from the Federal Reserve trimmed hopes of a big July rate cut.

Mnuchin told CNBC in a Wednesday interview in the Gulf state of Bahrain that a U.S.-China trade deal was "90%" complete, a grade he has used to describe progress several times in the past, adding, "I think there's a path to complete this" when President's Donald Trump and Xi Jinping meet later this week at the G20 Summit in Japan.

"The message we want to hear is that they want to come back to the table and continue because I think there is a good outcome for their economy and the U.S. economy to get balanced trade and to continue to build on this relationship." Mnuchin said.

The comments added an immediate boost to U.S. equity futures, with contracts tied to the Dow Jones Industrial Average suggesting a 112 point gain and those linked to the S&P 500 indicating a 12 point advance for the broader benchmark.  

U.S. stocks were given a further boost from stronger-than-expected third quarter earnings from semiconductor maker Micron Technology  (MU - Get Report) , which also said it had resumed shipments to China-backed Huawei Technologies and stuck to its forecast of a second half rebound in the memory chip market, sending its shares nearly 9% higher in pre-market trading.

The looks to help bump the tech-focused Nasdaq Composite index into a 58-point gain, according to early equity futures prices.

European stocks, which were modestly weaker at the start of trading, jumped to session highs following the Mnuchin interview, with the Stoxx 600 benchmark risking 0.18% and Britain's FTSE 100 notching a 0.13% advance.

Mnuchin's comments offset a tepid start to Wall Street futures trading, and a weaker European open, as investors digested less-than-dovish messages from a host of Federal Reserve speakers yesterday, including Chairman Jerome Powell, who told a Council on Foreign Relations event in New York Tuesday that the central bank was "insulated" from political and market pressures as it debated its next move on interest rates, adding he and his Open Markets Committee colleagues were "grappling" with the varying uncertainties surrounding growth, inflation and global trade.

"The Fed is insulated from short-term political pressures -what is often referred to as our 'independence," Powell said. ""The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation."

Powell's remarks were preceded by comments from St. Louis Fed President James Bullard, the most dovish of the FOMC's voting members, who told Bloomberg Television that a 50 basis point rate cut it July would likely be "overdone" given the underlying strength of the U.S. economy.

Collectively, the Fed's Tuesday messaging cast doubt on a major rate move when the central bank meets next on July 30 and July 31, with CME Group futures prices now suggesting a 27% chance of a 50 point reduction, down form 42% earlier this week. A 25 basis point cut, which would pull the Fed Funds target rate to a range of 2% to 2.25%, is now fully-priced-in for the July meeting.

With the Fed attempting to manage expectations on rates, and U.S. officials downplaying expectations for this weekend's G20 Summit meeting between President Donald Trump and Xi Jinping in Osaka, investors were once again left to favor safer assets over risk, even as the dollar bounced from a three-month low and oil shot up after a bigger-than-expected build in U.S. crude inventories.

The American Petroleum Institute said Tuesday that U.S. crude stocks rose 7.5 million barrels over the week ending on June 21, far exceeding the market's expectation of a 2.2 million decline, sending global oil prices to fresh one-month highs as investors also priced in the risk of an escalating conflict between Washington and Tehran as the two nations traded threats and insults following last week's downing of an unmanned U.S. military drone and the late-hour cancellation of a Trump-ordered airstrike.

Brent crude contracts for August delivery, the global benchmark, were seen 83 cents higher from their Tuesday close in New York and changing hands at $65.88 per barrel in early European trading. WTI contracts for the same month, which are more tightly linked to U.S. gas prices, were marked $1.03 higher at $58.86 per barrel.

Overnight in Asia, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.4% higher from yesterday's three-month low as traders reacted to the Fed's pushback on rates, while benchmark 10-year Treasury notes hovered around the 2% threshold ahead of two major 5-year and 7-year bond auctions later this week.

Asia region-wide MSCI ex-Japan index was marked 0.1% lower heading into the final hours of trading, while a still-firm yen, which is holding near a six-month high against the dollar, kept the Nikkei 225 from climbing into the green as it closed 0.51% lower at 21,086.59 points.

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