European futures edge higher

US stock indices were a touch lower across the board on Tuesday, wrapping up a subdued session despite retail sales data surprising to the upside. The weakness was broad but contained, with sentiment cautious as traders shifted focus to the Federal Reserve’s policy announcement later today. The Dow lost 0.3%, while the S&P 500, NASDAQ and Russell 2000 all ended around 0.1% lower.

Source: TN Trader

US stock index futures were little changed overnight, but with a slightly lower bias, reflecting calm before a possible storm. Investors appeared reluctant to take on fresh exposure ahead of the Fed’s rate call and updated policy outlook. On the other hand, there was no significant evidence of any profit-taking, despite the major indices holding near record highs, and uncertainty over the Fed’s rate-cutting path for this year and beyond.

The CME’s FedWatch Tool continues to calculate a 96% probability of a 25-basis-point rate cut this evening. Traders also remain attentive to potential dissents, with two policymakers having broken ranks at July’s meeting, raising the risk of division once again. But close attention will also be paid to the FOMC’s quarterly Summary of Economic Projections (SEP). This shows how individual FOMC members anticipate GDP, unemployment, inflation and the Fed Funds rate behaving for the rest of this year, and beyond.

As far as the latter is concerned, analysts will focus on the FOMC’s infamous “Dot Plot” and how this may have changed since the last SEP back in June. Finally, Fed Chair Jerome Powell will hold his usual press conference half an hour after the rate decision, FOMC statement and SEP are released.

It seems quite likely that he will be quizzed about threats to the US central bank’s independence, given the Trump administration's attack on the institution and its individual members.

Asian Pacific stock indices closed mixed this morning as traders looked toward the Fed’s decision later this evening. Hong Kong’s Hang Seng outperformed the other indices, ending the session 1.8% higher. The tech sector was particularly strong, fuelled by a14% surge in Baidu after the company announced the successful completion of a 4.4-billion-yuan offshore bond sale due in 2029.

Japan’s Nikkei 225 ended down 0.3% after briefly breaking above the 45,000 milestone for the second session in a row. Export data added to the cautious tone, with August shipments falling 0.1% year-on-year, a smaller drop than the 1.9% forecast, but still marking another negative month as US tariffs weigh on demand. Australia’s ASX 200 fell 0.7%, with broad weakness across sectors, while the Shanghai Composite added 0.3%.

FX markets were relatively quiet this morning, as traders had no wish to get over their skis ahead of tonight’s Fed meeting. The US dollar steadied after recent weakness, which began last Thursday and took a sharp leg lower yesterday. But it looked as if the overnight theme was one of softness in the euro rather than dollar strength. Yesterday, the EUR/USD hit a fresh four-year high as it closed in on 1.1900. But it looks as if traders are trimming their long euro positions a touch ahead of the Fed’s rate decision.

Source: TN Trader

The Dollar Index hit a ten-week low yesterday, just above 96.00. Traders will pay close attention to the FOMC’s quarterly Summary of Economic Projections (SEP), which will be released alongside the Fed’s rate decision and statement.

The SEP should provide some insight into where individual FOMC members see the Fed Funds going for the rest of this year, and beyond. Should their projections prove more dovish than anticipated, bearing in mind that the market expects 75-basis points of rate cuts this year, then the dollar could come under additional pressure. If their projections prove more hawkish, then the greenback has the potential to recover following a dismal performance in the year so far.

Gold was sharply lower in early trade this morning, having broken above $3,700 yesterday to post a fresh all-time high. Gold has gained around 11% over the past month as investors up their allocation to precious metals. At the beginning of this month, it surged above its previous all-time high of $3,500 from back in April, and since then, it hasn’t looked back. But the daily MACD is looking quite stretched to the upside, even though it is not as overbought as it was back in April.

Source: TN Trader

Gold may need to pull back a touch from current levels, or at least consolidate for a period, to once again reset the MACD. Silver also fell sharply this morning, with its own daily MACD indicating that the metal is more overbought than at any time since May 2024.

Source: TN Trader

Oil prices pulled back overnight after staging a strong rally on Tuesday. Crude prices were little changed in early trade yesterday, but they began to rally as European markets got going and carried on rising through to the early evening.  Front-month WTI broke back above $64 per barrel to hit its best levels in a fortnight.

Source: TN Trader

Traders continue to be wary of any supply outages that may occur now that Ukraine is actively targeting Russia’s energy infrastructure with ordinance that can reach deep into Russian territory. Today’s retracement could reflect positioning ahead of the delayed weekly inventory report, which is expected to show another build in US stockpiles. But in the bigger picture, the global market remains well supplied, while demand growth continues to slow.

Natural gas prices extended their recovery. The market has now logged a two-day rally, but momentum remains fragile as bulls and bears battle for control. Gas prices fell sharply last week, yet they remain well above their August lows, with gas having rallied around 45% over the last three weeks.

Cryptocurrency markets showed little clear direction overnight. Bitcoin hovered below $117,000 and was relatively steady after recent moves higher. Bitcoin has staged a decent recovery so far this month, having added around 6%. The daily MACD has turned sharply higher and is now back above the neutral level. This suggests that upside momentum is growing. However, as with other financial markets, traders are likely to sit on their hands today ahead of tonight’s Fed announcement.

Volatility levels remain relatively restrained, although the VIX has picked up significantly this week. But, as with everything else, this reflects increased caution as market participants await guidance from the Federal Reserve’s FOMC concerning the likely future direction of interest rates for this year and beyond. The VIX suggests some confidence in near-term stability. But with traders lightly positioned, volatility could pick up sharply if the Fed surprises markets.

Financial markets are all in ‘pause mode’ as attention shifts squarely to the Federal Reserve this evening. A 25-basis-point rate cut is already priced in, but Jerome Powell’s commentary and the updated FOMC projections will be key to near-term direction.

The dollar holds steady but appears vulnerable if the Fed leans dovish, while gold could benefit from any weakness in the greenback. For now, expect light trade through the day, with the real action reserved for Powell and the Fed later tonight.