LDN - Business

Marketmind: Fed vigil sees oil recoil and UK surprise

[September 20, 2023] A look at the day ahead in U.S. and global markets by Mike Dolan

If the Federal Reserve was looking for some last minute clarity on the inflation picture before announcing its latest policy decision on Wednesday, it will be sorely disappointed.

This week's inflation readouts from across the G7 are - like so much else - sending mixed signals. Canada's consumer prices raced ahead at an unexpectedly brisk clip last month, but outlier Britain got a positive surprise as inflation there fell back in August.

Soundings on the U.S. housing market were just as equivocal. Starts swooned last month, but building permits - which many see as a better gauge of future activity - beat forecasts and pushed higher.

And just as some fretted that another mini oil shock was in store after crude prices hit 2023 highs this week, energy futures turned tail and recoiled sharply over the past 24 hours ahead of this meeting - calming the bond market horses at least.

Without any obvious news trigger, U.S. crude has dropped more than 4% - almost $4 per barrel - from Tuesday's high, perhaps revealing some speculative element to recent moves on top of tightening supply.

In the background, the People's Bank of China held its main policy interest rates unchanged as it assesses signs of some turn in this year's economic funk.

Markets remain largely in a holding pattern ahead of the Fed decision, where another pause in the 18-month rate hike campaign is now widely expected and investors will instead focus on policymakers' updated quarterly economic and rate projections.

But oil's retreat and the British inflation news made for a positive tilt.

Although Asia bourses were in the red earlier, European stocks pushed higher and Wall St futures were positive ahead of the open too. UK midcaps, jumping 1.2% after the inflation news, were the main outperformers.

Relief in the oil market pulled two-year Treasury yields back about 5 basis points from two-month highs at 5.12%.

But British government bonds beat the pack and two-year gilt yields dropped almost 15bps to 4.85% - their lowest for more than a month. That sent the pound to its lowest against the dollar since May.

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The U.S. Federal Reserve building in Washington, D.C./File Photo

Although most economists had expected the Bank of England to raise rates one last time to 5.5% on Thursday, the inflation surprise will sow doubts about that and stir talk of a pause alongside the Fed.

The dollar was more mixed elsewhere, gaining against the yen and yuan ahead of Friday's Bank of Japan policy decision and after the PBOC stood pat today - but it fell back against the euro.

In corporate news, the buzz around a revival of IPOs on Wall Street this week seemed to fade a bit.

Shares of grocery delivery app Instacart fell 5% to $32.05 premarket on Wednesday - just 7% above Tuesday's IPO price of $30 and wiping out most of the initial 43% surge.

Investors had been hoping the strong reception to Instacart and Arm Holdings would see a burst of new equity offerings. But Arm, which debuted last week, was also down 1.5% premarket on Wednesday after three straight days of declines

In Europe, shares of Just Eat Takeaway jumped nearly 6% after a federal judge said its U.S. unit Grubhub and other food delivery groups can now sue New York City over a law capping how much it can charge restaurants for delivering meals.

Key developments that should provide more direction to U.S. markets later on Wednesday:

* U.S. Federal Reserve policy decision, new economic projections and press conference. Bank of Canada meeting minutes

* U.S. corporate earnings: General Mills, FedEx

* United Nations General Assembly continues in New York

(Editing by Toby Chopra)

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