The Wednesday Market Minute

  • U.S. equity futures edge higher ahead of today's Fed policy decision, with investors pricing in a 24.2% chance of a rate cut and President Donald Trump renewing his criticism of Chairman Jerome Powell.
  • Asia stocks rally to five-week highs on hopes of a breakthrough in U.S.-China trade talks and bets on support from global central banks following a dovish turn from ECB President Mario Draghi.
  • Global oil prices build gains on demand hopes from a U.S.-China trade pact, with upside support from a planned extension of production cuts from OPEC when it meets next month in Vienna.
  • Wall Street futures suggest modest opening bell gains for the three major benchmarks, which rallied to the highest levels since early May yesterday, ahead of the Fed rate decision at 2:00 pm Eastern Time and Chairman Powell's press conference 30 minutes later.

Market Snapshot

U.S. equity futures edged higher again Wednesday, following yesterday's rally on Wall Street that lifted benchmarks to early May peaks, as investors bet on twin support for stocks from global central bank easing and fruitful U.S.-China trade talks.

With the Federal Reserve set to reveal the result of its two-day policy meeting in Washington amid pressure from President Donald Trump to 'level the playing field' in global commerce with lower interest rates, and European Central Bank President Mario Draghi pledging to re-start the Bank's €2.6 trillion bond buying program if growth and inflation continue to slow, investors have driven global stocks to multi-week highs while simultaneously driving bond yields to multi-year lows.

President Trump's announcement of a meeting with President Xi Jingping later this month at the G20 Summit in Osaka, which was subsequently confirmed by Chinese state media, gave markets and extra leg-up Tuesday and powered Asia markets in the overnight session, lifting the MSCI ex-Japan benchmark 1.73% to a five-week high and boosting the Nikkei 225 with a similar percentage gain.

"I think the meeting might very well go well, and frankly our people are starting to deal as of tomorrow. The teams are starting to deal," Trump told reporters at the White House yesterday. "So we'll see. China would like to make a deal. We'd like to make a deal, but it has to be a good deal for everybody."

Early indications from U.S. equity futures suggest further, albeit modest, gains on Wall Street today head of the Fed rate decision at 2:00 pm Eastern time, with contracts tied to the Dow Jones Industrial Average indicating a 40 point bump, following yesterday's 353 point surge. Contracts linked to the broader S&P 500, which has gained more than 6% so far this month, are guiding to a 3.5 point gain at the start of trading.

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Benchmark 10-year bond yields were marked at 2.08% through the overnight session, as investors took cash from fixed income markets in the wake of the President's Tweet on a meeting with Xi, while CME Group futures prices suggest a 19.7% chance of a rate cut from the Fed later today in Washington.

Today's decision, however, will be eyed not only for its impact on markets at the broader economy, but also for its effect on the future of Jerome Powell, following a report from Bloomberg News that President Trump sought legal advice as to how -- or if -- he could demote the Fed Chairman he has so often criticized.

"Let's see what he does," was all Trump would say when asked at the White House yesterday if he would still wants to demote the Fed Chair he appointed only last year. 

European stocks were modestly lower in Frankfurt, with the Stoxx 600 edging 0.04% into the red following yesterday's rally, while benchmarks around the region flitted in and out of positive territory in what is likely to be a cautious day for European markets ahead of the Fed decision, which will come long after the close of trading.

Global oil markets reversed gains in the early European session, following a near 4% rally on Tuesday driven by hopes of a breakthrough in U.S.-China trade talks and escalating military tensions in the Gulf region following the planned deployment of at least 1,000 U.S. troops and Iran's indication that it will breach prior commitments on uranium enrichment.

Brent crude contracts for August delivery, the global benchmark, were seen 38 cents lower from their Tuesday close in New York and changing hands at $61.76 per barrel in early European trading, while WTI contracts for July, which are more tightly linked to U.S. gas prices, were marked 8 cents lower at $53.82 per barrel.

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