The Tuesday Market Minute
- Global stocks edge lower, pulling U.S. equity futures modestly into the red, as investors factor in the impact from yesterday's near-record crude surge and prep for the start of the Fed's September rate decision.
- Crude pares gains after the biggest spike in U.S. oil prices in more than a decade as President Trump dials back rhetoric that had suggested the potential for military conflict in the Gulf region.
- CME Group futures suggest a sharp drop in Fed rate cut odds, but market still expects a 25 basis point reduction tomorrow in Washington as Trump continues to pile pressure on Chairman Jerome Powell.
- Pound holds gains in London as U.K. Supreme Court hears legal challenge to Prime Minister Boris Johnson's suspension of Parliament.
- Wall Street futures suggest modestly opening bell declines for the the Dow ahead of Redbook retail sales data at 8:55 am Eastern time and industrial production figures for the month of August at 9:15 am Eastern time.
Global stocks edged lower again Tuesday, following one of the biggest single-day surges in oil prices on record, as investors adopted a cautious stance on risk ahead of the Federal Reserve's two-day rate-setting meeting and the start of formal U.S.-China trade talks later this week.
Investors pared some of yesterday's near-record rise in oil prices in overnight dealing, taking Brent and WTI crude modestly lower as President Donald Trump dialed back some of his early rhetoric regarding a U.S. military response to the weekend's drone attacks on two Saudi oil fields, which have been linked to the Iranian government.
"We have a lot of options but I'm not looking at options right now," Trump told reporters in Washington Monday. "We want to find definitively who did this" adding "I'm somebody that would like not to have war."
Equity market sentiment, however, remains affected by both the specter of conflict in the Gulf region, slowing growth in most major economies outside of the United States and uncertainty on trade as negotiators from Washington and Beijing prepare to meet later this week for talks that will pave the way towards higher-level negotiations next month.
With those factors in place, and a Fed meeting that starts later today in Washington, investors appeared happy to park cash in safe-haven assets while they awaited signalling from Chairman Jerome Powell as to how the central bank will blend those conditions into its forward rate guidance.
U.S. equity futures reflected that caution Tuesday, with contracts tied to the Dow Jones Industrial Average indicating an 81 point opening bell decline and those linked to the S&P 500 suggesting a 6 point pullback for the broader benchmark.
Brent crude contracts for November delivery, which soared 14.6% yesterday -- the most in more than three decades -- fell $1.08 lower to $ $67.94 per barrel in early European trading, but were still marked at a four-month high.
WTI contracts for October, which are more tightly linked with U.S. gasoline prices, pared some of yesterday's 14.7% advance, the most since December 2008, and were marked 94 cents lower at $61.96 per barrel.
The CME Group's FedWatch tool, which attempts to assign a tradeable probability to near-term rate moves, is only pricing in a 65.8% chance of a 25 basis point rate cut tomorrow in Washington, but that figure likely under-estimates the market's actual expectation, given that yesterday's commodity market turmoil likely caused one-time movements in money markets that influenced the FedWatch calculations.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.11% higher at 98.72, while benchmark 10-year Treasury notes were little changed from yesterday's levels at 1.83%.
European stocks were also drifting lower at the start of trading Tuesday, with investors eyeing both developments in the Saudi oil drama while keeping close tabs on market moves heading into the start of the Fed's two-day policy meeting.
The Stoxx 600, the region's broadest measure of share prices, as marked 0.5% lower by mid-day trading in Frankfurt, with oil and gas stocks still leading the gaining sectors, while Britain's FTSE 100 edged 0.07% higher in London.
Overnight in Asia, Japan's Nikkei 225 resumed trading after a national holiday on Monday, with the benchmark rising 0.06% by the close of the session amid comments from President Trump that the two countries had agreed a comprehensive trade agreement - although Tokyo played-down the pact, saying key differences on auto and agricultural tariffs remain outstanding.
The region-wide MSCI ex-Japan index, however, fell 0.8% as Hong Kong's Hang Seng index slumped 1.4% following a credit downgrade for the city from Moody's Investors Service and China's Shanghai Composite slumped 1.4% as investors continued to price in the impact of surging crude prices on the world's second largest economy.