The main event of the day on Wednesday, of course, is the Federal Reserve’s policy meeting, where the U.S. central bank will announce its latest interest rate decision and unveil its new forecasts, and Chair Jerome Powell will hold a press conference.
The Fed will almost certainly keep rates on hold at 5.25% to 5.50%. Rates futures markets are pricing in a 30% likelihood of a quarter point hike in November or 40% chance it will be in December.
Leaving aside the Fed’s updated Summary of Economic Projections, the current momentum in oil prices and bond yields in itself might be enough to keep the Fed on track to raise rates again this year.
Oil is punching higher on a daily basis and getting closer to $100 a barrel. U.S. bond yields are unsurprisingly refusing to come down – the two-year and 10-year yields clocked their highest closes on Tuesday since 2007, with the two-year yield drifting further above 5.00%.
Stocks and risk assets are feeling the pinch. World stocks fell for a third consecutive day on Tuesday and the three main indexes on Wall Street ended in the red, despite clawing back steeper losses earlier in the day.
Asian markets won’t get to react to the Fed until Thursday, so any direction on Wednesday could come from events locally.