Investing.com -- It's Fed day, in more than just the usual way. The central bank is also due to carry out some fine-tuning of a money-market that has gone haywire in the last couple of days due to a complex interplay of short- and long-term factors. And oil prices are settling back at lower levels after Saudi Arabia promised the world that it would be back to normal by the end of the month. Here's what you need to know in financial markets on Wednesday, 18th September.
1. Fed to join the global easing party?
The Federal Reserve is still – just about – expected to cut interest rates by 25 basis points at its regular policy meeting which concludes later. As always, the policy statement will come at 2 PM ET, with Chairman Jerome Powell’s press conference following at 2.30 PM.
Expectations of a cut have faded in recent days after some strong U.S. data but the majority of market participants still expect action. According to Investing.com’s Fed rate monitor tool, the implied chance of a cut has fallen to barely 55% from nearly 100% as recently as the start of last week.
The Fed isn’t the only central bank meeting. Brazil’s central bank will also make its monetary policy announcement later in the day. Central banks from Frankfurt to India, Russia, China and Turkey have all dramatically loosened monetary policy in recent weeks to counter a global slowdown.
2. Feathers fly in the money market
The Fed’s rate decision is likely to be overshadowed by some extraordinary turbulence in the short-term money market over the last couple of days, which has seen overnight rates spike far higher than the targeted range of 2% to 2.25%.
Analysts blame a combination of short-term and structural factors for the volatility: demand for cash as spiked as companies prepare to meet their quarterly tax bills (the deadline for which was Sept. 15), while a freshly-settled auction of Treasuries has left the market short of cash at the same time.
However, some point to the fact that regulation introduced after the financial crisis has made it harder for banks to manage such liquidity risks, and made it harder for the Fed to judge the level of overall liquidity needed by the financial system.
The Fed is carrying out a second day of overnight “repos” today, to help bring short-term rates back to the target range.
3. Stocks set to open lower
U.S. stock indexes will be in holding mode until the Fed’s decision but look set to open a touch lower in the meantime.
By 6 AM ET, Dow futures were down 27 points or 0.1%, while S&P 500 futures were also down 0.1% and Nasdaq 100 futures were down 0.2%.
The two traditional indices are still within touching distance of new all-time highs, although the appetite for making new records may have weakened overnight after FedEx (NYSE:FDX) reported a drop in profit in its fiscal first quarter and said full-year earnings would fall much more steeply than initially forecast. It blamed its rift with Amazon (NASDAQ:AMZN) and the global economic slowdown. Adobe (NASDAQ:ADBE) shares also fell in after-hours trading after the software company issued weak guidance for the year.
4. Oil retreats as Saudi says there'll be nothing to see here by month-end
Oil prices have stabilized at lower levels overnight after Saudi Arabia said it will restore lost production by the end of September. Energy Minister Prince Abdulaziz bin Salman also said it has managed to restore supplies to customers to the levels they were at before the weekend attacks on its facilities by drawing from its inventories.
By 6 AM ET, WTI futures, the U.S. crude benchmark, were at $58.59 a barrel, down 0.9% from late Tuesday and down over $4 from the peak that they hit in the immediate aftermath of the attacks. The international benchmark Brent was down 0.9% at $63.98 a barrel.
While the supply situation in the Gulf will hog the limelight for the near future, U.S. government data on crude stocks are also due today, at 10:30 AM ET. The American Petroleum Institute’s figures released on Tuesday suggested a surprise 592,000 barrel increase in inventories. The market is expecting a net drawdown of 2.5 million barrels.
5. Housing market update
Away from the Fed, there will also be updates on the housing market in the form of building permit and housing starts data at 8:30 AM ET.
They come hot on the heels of another rise in the NAHB housing market index to its highest since October last year, a development helped by the recent drop in bond yields that has dragged down refinancing rates.