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The Wednesday Market Minute

  • Global stocks edge cautiously higher ahead of today's Fed rate decision, with investors expecting a fourth 2018 rate hike followed by a pause in the bank's tightening cycle as the world economy slows.
  • Oil steadies steady after yesterday's 7% wipeout for U.S. crude, but slumping prices suggest investors are bearish on the global economy heading into 2019.
  • The U.S. dollar softens, while bond yields hold at multi-month lows, as investors trim bets for 2019 rate hikes and eye slowing export signals from key Asia economies.
  • U.S. stocks set to open modestly higher, with Dow futures indicating a 100 point opening bell gain, ahead of November mortgage data at 7:00 am eastern time.

Market Snapshot

Global stocks edged higher Wednesday, while bond yields held near multi-month lows and oil prices continued to face downside pressures as investors prepped for today's Federal Reserve rate decision amidst increasing concerns of a global economic slowdown.

The Fed is widely expected to lift the range of its key FedFunds rate by 25 basis points to 2.25% to 2.5%, according to CME Group futures prices, but may drop its reference to the need for "further gradual rate increases" in 2019 as it monitors data both at home and aboard. 

"We expect (Fed Chairman Jerome Powell) to emphasize that the Fed has no pre-set policy course and that the incoming data are now all-important," said Ian Shepherdson of Pantheon Economics, who expects a 25 basis point rate hike at 2pm eastern time today. "And he likely will remind markets that every meeting next year will be accompanied by a press conference, which investors on this occasion will interpret as a signal that a March rate hike is now far from certain." 

"If markets believe all meetings are in play, the Fed will have more flexibility to wait for a bit more data before hiking, without risking the convulsions that could be triggered under the current regime, where no one seriously thinks an intra-quarter hike is likely," he added.

That data might be influenced, or at least guided, by the fact that global crude prices have slumped more than 35% over the past three months as investor react to both a glut in supply, helped by record U.S. production, and slowing demand from key economies such as China and Japan.

The slump, which topped 7% for WTI crude yesterday as oil fell to the lowest levels since August 2017, pulled government bond yields lower in both the U.S. an Europe, and clipped gains this morning for the U.S dollar index, which fell 0.3% to 93.83 as benchmark 10-year note yields held at around 2.82% 

Global fund mangers appear to echo that view, with the world's biggest money managers piling cash into government bonds and the U.S. dollar at a record clip this month, according to Bank of America Merrill Lynch's benchmark survey, which showed the 243 investors who control around $700 billion in assets are the most bearish on the global economy since the global financial crisis.

Against that defensive backdrop, early indications from U.S. equity futures suggest a modestly positive to the trading day on Wall Street, with contracts tied to the Dow Jones Industrial Average indicating a 107 point gain and those linked to the S&P 500 guiding to a 9 point bump for the broader benchmark.

Stocks in Asia and Europe had a similarly cautious tone, with the MSCI Asia ex-Japan index rising 0.6% and the Stoxx 600 edging 0.05% to the upside, with gains in both markets capped by stronger local currencies thanks to the overnight fade in the U.S. dollar.

European markets were also supported by news that Italy has secured a budget deal with the European Union that could allow it to avoid censure for spending plans that will add billions to the country's already-staggering debt pile that has topped 132% of GDP in the region's third largest economy

Global crude prices were also getting some support for the weaker dollar, with investors using the downdraft to snap up cheap crude contracts following yesterday's blowout that was driven in part by Energy Information Administration data that suggested U.S. shale output will top 8 million barrels per day by the end of the year.

Brent crude contracts for February delivery, the global benchmark, were marked $33 cents higher from their Tuesday close in New York and changing hands at $56.59 per barrel while WTI contracts for the same month, which are more tightly liked to U.S gas prices, were 14 cents higher at $46.75 per barrel.

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