U.S. Opening Bell: Global Markets Await Fed Next Steps; Commodities Slide

Key Financials

US investors kept futures on the Dow, S&P, NASDAQ and Russell 2000 as well as Treasuries in a holding pattern on Wednesday ahead of the Federal Reserve's policy decision at 2pm EDT. Markets seem to be expecting the Fed to outline plans to slow down its quantitative easing program. In Europe markets were also wavering around their opening levels.

Commodities were under pressure, particularly copper, which has hit an eight-week low.

Global Financial Affairs

Oil companies on the STOXX 600 Index were slightly higher due to the stronger oil price, however the sector failed to drive the index significantly higher as markets were treading water ahead of the Fed announcement, which is pivotal to market sentiment. If European markets close the day higher, the pan-European benchmark will post a new record close while extending its winning streak to its longest in three-and-a-half years.

Earlier, Asian markets were mixed amid thin trading. Japan’s Nikkei 225 retreated 0.5% despite data showing the trade surplus of the world’s third largest economy surged 49.6% annually. Still, the surplus disappointed analysts who were expecting a higher number to show a strong recovery from the global pandemic.

South Korea’s KOSPI was up 0.6%, hitting its third consecutive record close—and the fifth consecutive daily advance—amid rising demand for blue-chip stocks, supported by improved industrial output there.

On Tuesday, US shares fell from all-time highs after retail sales were lower than expected, while at the same time producer prices edged higher, which further weighed on consumer demand. The S&P 500 Index upended a three-day straight advance, as real estate and technology shares dragged on the benchmark. Conversely, an oil rally boosted Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).

The 10-year Treasury yield remained below the 1.5% level.

Rates may be developing a rising flag following the preceding sharp 3-day drop. The flag would provide Treasury bulls the momentum needed to push yields below the current, tempered falling channel, as the 50 DMA crosses below the 100 DMA.

The dollar fell ahead of the Fed’s policy decision, which will likely affect the currency.

We had allowed the possibility that the current range is a rising flag, but considering the short preceding move of a mere three-day decline, compared to the body’s length, which was nearly a month long, we no longer think so. We might be witnessing the development of a rounding bottom, which was our first instinct.

The pattern would confirm the base of the wedge and its implied target. Perhaps, a breakout of the massive falling wedge since the 2020 high will continue its interrupted rally.

Gold rose on dollar weakness.

The price capped a three-day selloff, which brought it below its uptrend line. The rebound is keeping the yellow metal above the 200 DMA, whose downside breakout would complete a top.

Bitcoin edged lower.

Technically, the price is between the support of a small bottom and the potential resistance of the extended neckline of a H&S top.

Oil extended an advance to the highest levels since 2018 on a tightening market. However, the rally appears to be weakening.

The price developed a shooting doji star, having gapped up following a relatively long candle, opening up the potential for an Evening Star. We have been waiting for a pullback following the upside breakout of a bullish triangle.

In other commodity news, China came down hard on commodity speculators, after the demand in the Asian nation was already on the decline, provoking a selloff in the likes of copper.

The red metal reversed a potentially bullish wedge, turning into a H&S top, which would retest its uptrend line.

Up Ahead

• US Treasury Secretary Janet Yellen testifies before a House panel Thursday on the federal budget.
• On Thursday Switzerland and Norway announce interest rate decisions.
• The Bank of Japan’s monetary policy decision is on Friday.

Market Moves

Stocks

• Futures on the S&P 500 Index were little changed.
• The FTSE 100 Index was little changed.
• The STOXX 600 Index increased 0.1%.
• The MSCI Asia Pacific Index declined 0.3%.
• The MSCI Emerging Markets Index dipped 0.5%.

Currencies

• The Dollar Index dipped 0.1%.
• The British pound jumped 0.2% to $1.4116.
• The euro was little changed at $1.213.
• The onshore yuan slid 0.1% to 6.398 per dollar.
• The Japanese yen fell 0.1% to 109.94 per dollar.

Bonds

• The yield on two-year Treasuries gained less than one basis point to 0.17%.
• Britain’s 10-year yield slid t to 0.75%.
• Germany’s 10-year yield sank one basis point to -0.24%.
• Japan’s 10-year yield fell to at 0.0471%.

Commodities

• West Texas Intermediate crude gained 0.4% to $72.42 a barrel.
• Brent crude increased 0.4% to $74.29 a barrel.
• Gold strengthened 0.1% to $1,860.28 an ounce.