Last checked at 
* A look at the day ahead from EMEA deputy markets editor
Sujata
Rao. The views expressed are her own.
Sept 18 - Saudi oil output is said to be returning to
normal by the end of the month end, so the market mood improved
a like gold and bonds. U.S. shares closed higher, with the S&P
500 just 1% off record highs. However, tensions in the Middle
East are still running high, and things are not quite back to
normal yet. Bond yields are flat to lower on the day and stock
markets in Europe are opening lower after a similarly weak
session in Japan.
U.S. futures are also lower before an event-packed day. The
Federal Reserve will almost certainly announce a quarter-point
rate cut at 1800 GMT. But what markets really want to see is
whether it's a hawkish cut or a dovish one. Will the Fed signal
it is embarking on a cycle of sharp rate cuts, or is it going to
proceed on a data-by-data basis? The latter may disappoint
markets, which have already scaled back the likelihood of a
25-basis-point cut today to 65%; a week back it was all but
baked in, according to CME Group’s Fedwatch tool. U.S.
industrial production for August released yesterday was better
than expected, suggesting the U.S. economy isn’t in dire shape
by any means.
But Fed policy has come more into focus after this week’s
sudden leap in U.S. funding costs. The overnight repo rate rose
as high as 10%, forcing the New York Fed to do a $75 billion
repo auction, its first in over a decade. The clear signs of
stress may prompt the Fed to resume its balance sheet expansion.
The funding rates are back at zero, but another repo auction is
due later today. U.S. Treasury yields are lower today, off
Friday's 1.908%, the highest in a month and a half. The dollar
remains strong, near a seven-week high versus the yen, and a
hawkish Fed cut push it higher. Among other central banks,
Indonesia's is expected to cut rates later in the day,
continuing the story of rate cuts across emerging markets.
Safe-haven asset prices, while off recent highs, continue to
be underpinned by events in the Middle East. A U.S. official
told Reuters the weekend attacks on Saudi oil operations had
originated in southwestern Iran. Israel’s election may be
inconclusive, suggesting the end of Prime Minister Benjamin
Netanyahu’s decade in power. Israeli stocks were down but the
shekel remained unchanged.
In the UK, the Supreme Court continues its hearing today on
the legality of Prime Minister Boris Johnson's suspension of
parliament. Sterling gained yesterday towards $1.25 as investors
trimmed short positions on the pound, after Johnson’s lawyer
told the court that he could recall parliament earlier than
scheduled if the court rules against him. UK inflation data are
due later in the day, but with all eyes on the hearings, the
reports may not move markets too much.
Stocks in Europe have opened weaker before the Fed's
interest rate decision. In corporate news, FedEx's
profit warning overnight citing trade war is likely to cast a
shadow on European logistics companies. FedEx shares tumbled 10%
in U.S. extended trading. Its European rival Deutsche Post
is sliding 3.2% in early Frankfurt trade. DSV
, Kuehne & Nagel, Royal Mail, PostNL
and other European mail-delivery companies are also
expected to come under pressure.
Apple component suppliers could rally following
their Asian peers as news on strong pre-orders for the latest
iteration of iPhone. AMS, STMicro, Infineon
and Dialog Semi are some names to watch out
for.
Luxury stocks, mainly Swatch and Richemont,
are expected to slide after a bearish note by UBS. Moncler
is seen sliding 2% after its CEO said he is cautious
on sales due to Hong Kong unrest.
Italian toll road operator Atlantia's CEO resigned
as the company moved to deal with the fallout from a deadly
bridge collapse last year.
In the UK, Cobham shares are seen opening 3%-5% lower as the
UK CMA's intervention in Advent’s merger proposal raises worries
of possible rejection. Traders called B&Q owner Kingfisher
shares -2% after weak sales and a cautious outlook.
Emerging-market stocks were up 0.3%, with Chinese stocks up
a similar amount on expectations of lower borrowing costs at
home and in the United States, with improving trade relations
between Beijing and Washington aiding risk appetite.
MSCI's emerging market currency index is back in positive
territory, with Turkey's lira up 0.3% after a Turkish regulator
on Tuesday ordered banks to write off $8.1 billion of loans by
year's end and set aside loss reserves in one of the clearest
signs of efforts to clean up its economy. South Africa's rand is
up ahead of the release on Wednesday of August inflation and
retail sales data.
The Taiwanese dollar, Indonesian rupiah and Thai baht are
among emerging Asian currencies leading gains against the
dollar.
Market-sensitive events/data diary for WEDNESDAY
Indonesia central bank policy decision
Japan sells 20-year government bonds
Europe corp events: European July car registrations, Kingfisher
earnings
Italy July industrial orders, trade balance
Germany sells 30-year government bonds
UK Aug inflation
EZ Aug inflation
European Central Bank Vice President de Guindos speaks in Madrid
GCC conference in Riyadh
SAfrica Aug inflation, July retail sales
Russia Aug jobless, retail sales, wages
US Aug housing starts, permits
Canada Aug inflation
Brazil central bank policy decision
UN General Assembly in NYC
US Federal Reserve policy decision, with press conference by Fed
chief Powell
(Editing by Larry King)
