Fed decision looms as oil slips below $108

Brent crude eased to $107.82 a barrel after an unexpected rise in US crude inventories, while US 10-year Treasury yields edged lower after moving above 5% a day earlier. Asian shares recovered modestly, with the Nikkei 225 higher and S&P 500 futures also gaining, while FTSE futures rose in early trading. Bitcoin and ether slipped after the US Senate voted against cryptocurrency legislation backed by President Trump.

Equities

The FTSE 100 fell 0.4% to 10,658.13 at Tuesday’s close, leaving the index around two-month lows. The FTSE 250 slipped 0.1% to 23,818.74, while the UK 30-year gilt yield reached 5.40%, its highest level since 1998.

Shell and BP shares rose on Tuesday as oil prices climbed following attacks on Saudi energy infrastructure. Banking stocks moved in the opposite direction, with HSBC closing 2.2% lower and Barclays falling 1.7%.

Wickes Group jumped 8.3% on Tuesday after the home improvement retailer reported strong third-quarter trading, helped by mid-single-digit growth in retail like-for-like revenue. Trustpilot sank 18.6% after the online reviews platform left its earnings outlook unchanged, disappointing investors.

In the US, the Dow Jones Industrial Average fell 0.63% to 52,093.11 at Tuesday’s close, while the S&P 500 dropped 0.45% to 7,585.73. The Nasdaq Composite declined 0.78% to 25,981.57 as all three major indices extended Monday’s losses.

Energy was the only major S&P 500 sector to benefit materially from the rise in crude prices, gaining 2.3% on Tuesday. The Philadelphia Semiconductor index recovered only slightly from Monday’s sharp fall, closing 0.4% higher.

Dave & Buster’s tumbled 19% on Tuesday after its second-quarter revenue missed expectations. Healthcare software company Waystar climbed 7.1% after Reuters reported that the business was exploring strategic options, including a potential sale.

Cryptocurrency-related stocks also fell sharply on Tuesday as bitcoin weakened and the US Senate failed to advance comprehensive cryptocurrency legislation. Coinbase dropped 10.1%, while Strategy fell 5.4%.

Oil’s rise remained an important feature of Tuesday’s session, with front-month West Texas Intermediate crude settling 4.4% higher and Brent gaining 2.9%. US Treasury yields also climbed, with the benchmark yield breaching 5% and reaching its highest level since 2007 ahead of Wednesday’s Federal Reserve interest-rate decision.

Forex & Commodities

The US dollar held near multi-week highs early on Wednesday ahead of the Federal Reserve’s interest-rate decision. The euro was at $1.155, while sterling traded at $1.348, close to Monday’s six-week low of $1.346.

The yen weakened to 155.4 per dollar early on Wednesday, touching a one-week low. The New Zealand dollar fell to a two-month low of $0.5737, while the Australian dollar was steady at $0.7129.

Traders are pricing an 80% chance of a Bank of Japan rate increase on Friday, with two 25-basis-point increases priced in by the end of January.

Markets are also pricing a roughly 90% chance of a 25-basis-point Federal Reserve increase later on Wednesday. Investors will watch Chair Kevin Warsh’s press conference for indications on whether further increases could follow.

For British readers, the Bank of England is expected to leave interest rates unchanged when policymakers meet on Thursday.

Spot gold rose 0.8% to $4,328 an ounce early on Wednesday as investors awaited the Fed decision. The metal was recovering after reaching a more than one-month low on Monday.

Oil prices fell on Wednesday morning after two sessions of gains. Brent crude dropped 0.67% to $107.5 a barrel, while US West Texas Intermediate declined 1.55% to $104.2.

Both benchmarks had settled more than $3 higher on Tuesday at their highest levels since May 19 after Saudi Arabia suspended loading at its Yanbu port and reduced shipments to Europe. Saudi Arabia was offering additional crude to Asian refiners on Wednesday through ship-to-ship transfers off Oman after attacks damaged its key pipeline to the Red Sea.