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The Wednesday Market Minute

  • Global stocks edge higher, with markets in Europe and the U.S primed for modest opening bell gains, although renewed political headline risks keeps investors cautious.
  • Reports that Italy will seek a lower budget deficit target have boosted the euro, while infighting among Conservative lawmakers in Britain over Brexit pushes pound to three-week lows.
  • U.S. dollar and Treasury yields remain elevated after Fed Chairman Powell praises "remarkably positive" domestic economy.
  • U.S. equity futures suggests a record open for the Dow, which is set to add 125 points to yesterday's record high close of 26,773.94 points.

Market Snapshot

The Dow is set for a record high open Wednesday even as global markets remain sensitive to political headline risk as investors keep a keen eye on developments in Italy's budget crisis and the fate of the newly re-vamped trade agreement between the U.S., Canada and Mexico.

Those concerns, however, were mitigated by a glowing assessment of the U.S. economy from Federal Reserve Chairman Jerome Powell, who told the National Association for Business Economics that the domestic outlook as "remarkably positive" thanks in part to the "historically rare" combination of low unemployment and tepid inflation.

"This forecast is not too good to be true," Powell insisted, but is rather a "testament to the fact that we remain in extraordinary times. These developments amount to a better world for households and businesses which no longer experience or even fear the scourge of high and volatile inflation."

The comments came prior to today's reading of private sector job creation from payroll group ADP, which came in at 230,000 for September, the strongest in seven months and ahead of tomorrow's official employment report from the Commerce Department.

Early indications from U.S. equity futures were broadly positive, with contracts tied to the Dow Jones Industrial Average I:DJI indicating a 130 point opening bell gain following yesterday's record high close of 26,773.94 points, while those linked to the S&P 500 undefined indicate an 11.75 point bump for the broader benchmark, which ended fractionally lower yesterday at 2,923.43 points. Nasdaq Composite I:IXIC futures were marked 35 points higher.

Chicago Fed President Charles Evans was slightly more cautious in remarks to an audience in London, noting that "achieving our maximum employment and inflation mandates might require some long periods of strong monetary policy accommodation."

Powell's remarks, however, kept U.S. Treasury bond yields at the higher end of their recent trading range, with 10-year notes marked at 3.082% in overnight deal, although the U.S. dollar index firmed to 95.54 even as the euro booked solid gains, rising to 1.1550, amid reports that Italy's coalition government will reduce its budget deficit targets over its three-year horizon.

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Italian media reports suggest the government will still pursue a 2.4% budget deficit for 2019, a figure that will add billions to the country's €2.3 trillion debt load, but trim that target to 2.2% and 2% respectively over the following two years.

The reports eased pressure on Italian government bond yields, which fell sharply against their German counterparts, and supported stocks in Asia, which traded little changed from their Tuesday close as markets in China remain closed for the Golden Week holiday celebrations.

Japan's Nikkei 225, which has been hovering at 27-year highs for the past three sessions, slipped 0.66% to close at 21,110.96 points amid some speculation that President Donald Trump could target the country in his next trade war salvo.

European stocks were modestly higher in the opening hour of trading, with the Stoxx Europe 600 gaining 0.2% by mid-day in Frankfurt on news of the budget relief from Rome and Italy's FTSE MIB rising 0.55% by late morning in Milan.

U.K. stocks were solid, as well, with the FTSE 100 rising 0.6% as the pound slipped to a session low of 1.2970 during a keynote speech from Prime Minister Theresa May at her Conservative Party conference that has been beset by infighting over the nature of Britain's exit from the European Union next year.

Aston Martin shares were a notable early mover in London trading, rising modestly from their IPO price of £19 per share on the first day of trading to change hands at £19.14 each before fading to £18.36 in a move that values the luxury British carmaker -- which earned global fame form its placement in the James Bond film franchise -- at around £4.2 billion ($5.5 billion).

Tesco Plc  (TSCDY) shares were also active, falling more than 8% after Britain's biggest food retailer missed its first half profit forecast, despite improving domestic performance, as its eastern European and Asia divisions slumped.

Global crude prices remained close to their recent four-year highs overnight, as a stronger U.S dollar provided held back gains and data showing a jump in U.S. crude inventories failed to offset the impending impact of next month's sanctions on the sale of Iranian oil. 

The American Petroleum Institute said U.S. inventories rose 907,000 barrels last week, passing the 400 million barrel market, amid an ongoing surge in domestic output, which the Energy Information Administration estimates at 11.1 million barrels per day.

Brent crude prices for December delivery, the global benchmark, were seen 15 cents higher from their Tuesday close in New York and trading at $84.95 per barrel. WTI contracts for November delivery, which are more tightly linked to U.S. gasoline prices, were marked 13 cents lower at $75.36 per barrel.