Opening Bell: U.S. Futures Trapped In Tight Range Ahead Of Fed Rate Verdict

Key Events

Futures on the S&P 500, Dow and NASDAQ 100 and shares in Europe traded in a narrow range this morning, intermittently slipping into the red ahead of a key Fed policy decision investors have been counting on to prop up equity prices.

The STOXX 600 rebalanced yesterday's 1.7% surge, with real estate offsetting an advance by banks. The pan-European index sealed its biggest leap since January on Tuesday after ECB President Mario Draghi signaled the central bank stands ready to unleash as much easing as needed should inflation remain subdued.

Earlier, Asian shares climbed to a five-week high—with the MSCI Asia Pacific Index excluding Japan climbing 1.5%—both on signs of softening U.S.-China trade negotiations and speculation the Fed would follow the ECB’s readiness to cut rates in today’s policy meeting statement, a move that may already be priced into markets.

On the flipside, if the Fed doesn’t open the door to policy easing, equities, which have recently edged up to record levels, are likely to sell off, while the dollar and yields could get a boost at the expense of gold, the euro and the yen.

Hong Kong’s Hang Seng in particular enjoyed its best single session of the year, jumping nearly 2.56% after protestors opposing a now-suspended extradition bill sealed another victory, exposing China’s weakness ahead of Chinese President Xi Jinping's meeting with U.S. President Donald Trump at the G20 meeting next week.

Global Financial Affairs

Trump’s tweet that he will sit down with Xi at the Osaka summit sent U.S. shares near record levels. The rally built on mounting optimism from rate cut bulls, who got a helping hand from Draghi yesterday.

However, stocks later pared gains as reports emerged that Trump sought legal advice on demoting Fed Chair Jerome Powell in February, re-igniting the thorny issue of the central bank's independence from the White House's sphere of competence.

The tech-heavy NASDAQ Composite (1.39%) outperformed as FAANG stocks led the broader rally. The Dow Jones Industrial Average (+1.35%) ranked as second best performer after the news Trump will meet Xi at the G20 summit—a development that benefits multinationals counting on smooth trade relationships to sustain their business growth.

For the same reason, Industrials (+1.90%) outperformed on the S&P 500, which overall climbed 0.97%. Technology (+1.79%) also pulled prices higher, while defensive stocks in Consumer Staples (-0.58%) and Utilities (-0.41%) slid lower.

Meanwhile, the yield on 10-year Treasurys rebounded but remained below 2.1%, trading near the lowest level since September 2018 after flirting with the key 2.00 level on Tuesday, as the expected inevitability of a Fed rate cut spurred demand for government bonds. A further drop would push yields toward the lowest level since 2016.

Once again, gold has been uncharacteristically moving in tandem with the dollar. Both are paring recent gains. The two would normally tend to show an inverse relationship. The outlook for lower interest rates should lower the value of the greenback and thereby boost the yellow metal. However, the USD strengthening could be on the growing demand for Treasurys by foreign investors.

WTI was seen mildly lower as OPEC oil producers inch closer to a meeting, where Iran may seek to play on new-found advantages to fortify its role. Meanwhile, a new rocket attack to the headquarters of several foreign oil firms in Basra, Iraq, kept the market under pressure. The strike, which comes hot on the heels of Trump's commitment of additional troops to the region, has yet to boost prices: the torturously anticipated Fed policy decision is keeping investors in limbo across the board.

Overall, oil prices have been feeling the pressure of an outlook of lowered demand amid a global economic contraction. Technically, the price found resistance by the neckline of a potential small double-bottom.

Up Ahead

• The Federal Reserve, the Bank of Japan and the Bank of England all set monetary policy this week, along with central banks in Norway, Brazil, Taiwan and Indonesia.
• The Fed monetary policy decision and press conference is due on Wednesday. Officials are expected to debate a rate cut to shelter the U.S. economy from the downward effects of escalating global trade disputes.
• Final U.K. May CPI data is due on Wednesday.
• U.K. retail sales are set for release on Thursday.

Market Moves

Stocks

• Hong Kong’s Hang Seng Index leaped 2.56% on the biggest climb in more than six months.
• The MSCI Emerging Market Index climbed 1.3%, the highest in six weeks on the largest advance in more than a week.

Currencies

• The {{|Dollar Index}} dropped less than 0.05%
• The Japanese yen gained 0.1% to 108.30 per dollar.
• The euro rose less than 0.05%.
• The Turkish lira fell 0.4%.
• The South Korean Won gained 0.8% to 1,176.00 per dollar, the strongest in six weeks.

Bonds

• The yield on 10-year Treasurys slid two basis points to 2.07%.
• Britain’s 10-year yield climbed one basis point to 0.819%.
• Japan’s 10-year yield slipped two basis points to -0.139%.
  

Commodities

• Gold fell 0.1% to $1,345.24 an ounce.
• West Texas Intermediate crude climbed 0.1% to $53.98 a barrel.
• Iron ore increased 1.6%.