MARKET WRAPS

Watch For:

Eurozone industrial production; U.K. PPI, CPI; trading updates for Bollore, Barratt Redrow, Babcock International

Opening Call:

European stock futures were higher after Asia stocks traded mixed. U.S. Treasury yields fell, the dollar rose. Gold rose and oil fell.

Equities:

European equity futures rose, with the Federal Reserve expected to hike interest rates, more pain for stocks could be ahead.

"On the one hand, we still have a relatively resilient labor backdrop, so consumers are benefiting from income growth month to month... but I don't want to discount the weakness associated with a potential hawkish turn by the Fed, higher rates at the long end and higher gas prices," said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.

"To me, that all adds up to headwinds for risk assets-not necessarily winds that are strong enough to end the bull market, but certainly strong enough to engineer a bigger wave of volatility."

Forex:

The U.S. dollar strengthened, as the currency tracked U.S. Treasury yields.

Bonds sold off as investors faced uncertainty regarding government debt, inflation and increasing debt supply. The Fed is expected to raise rates, while great weight is put on post-meeting communication.

"A higher dot plot and clear willingness to tighten again would support the dollar, while a cautious signal, or a 'dovish hike' market read could trigger a reversal," said Convera's Kevin Ford.

Bonds:

The yield on U.S. Treasurys were higher. Treasury yields, which rise when bond prices fall, typically move with investors' expectations for the short-term rates set by the Fed--but what that means for the 10-year Treasury now is unclear.

Generally, expectations for higher rates will push up yields on even longer-term bonds. But not always.

They might stay the same or even decline if investors think those rates will slow the economy or curb inflation. Right now, investors already expect the Fed to raise rates on Wednesday, and interest-rate futures show a good chance of at least three more hikes by the end of next July.

That is already a steep enough path that some investors believe that a further step-up in rate expectations could at least contain the selloff in longer-term bonds.

"Fed hikes should slow the run-up in 10-year Treasury yields by reinforcing the Fed's determination to get inflation back down to target and by pumping the brakes on the economy," said Don Ellenberger, head of multisector strategies at Federated Hermès.

Energy:

Oil prices fell, but remains above $100 a barrel as the Middle East conflict continued o squeeze supply.

A particularly strong combination of geopolitical risks and physical supply disruptions continues to support crude oil, said Antonio Di Giacomo of XS.com.

The bias for prices could remain bullish as long as Brent remains around $109 a barrel and WTI above $106 a barrel, he said.

An extended period of supply disruptions could raise transportation, production, and fuel costs, further complicating the Federal Reserve's monetary policy outlook, the analyst added.

Metals:

Gold prices were higher, as expectations of central bank tightening to fight inflation dimmed the appeal of nonyielding assets.

Surging global bond yields are overwhelming the inflation-hedge narrative, said YCC Capital, noting gold's next test will be the Fed's decision.

Technical indicators suggest momentum may still be tilted down, and gold could retest $4,200, said Trade Nation's David Morrison--But much depends on what happens to the dollar in the coming days.

"Given the Fed Chair's dislike of forward guidance, it is possible, even if unlikely, that investors get wrong-footed this time," Morrison said.

Copper rose as traders focused on the Fed's policy decision, which could lead to a slight decrease in trading activity, Baocheng Futures analysts said.

A Fed rate hike is almost a certainty, potentially resulting in a stronger dollar--a stronger greenback weakens the appeal of dollar-denominated commodities such as copper, they noted.

TODAY'S TOP HEADLINES

What Comes Next, Now that the 10-Year Treasury Yield Has Crossed 5%?

The bond market reached a tipping point this week when the 10-year U.S. Treasury yield touched 5%: Either the key benchmark has reached its ceiling, or it is just getting started with a new era of higher borrowing costs.

The 10-year yield helps set rates on everything from mortgages to corporate loans, and its recent rise has added to the list of challenges confronting the economy and the stock market. Before this week, it had only touched 5% once since the 2008 financial crisis, during a single trading session in 2023. But it did so again Monday and touched a new 19-year high on Tuesday, sending major stock indexes lower for the second straight session.

Elon Musk Trains His Political Chaos Machine on the U.K.

LONDON-On the eve of becoming the world's first trillionaire, Elon Musk was fixated on political turmoil an ocean away from SpaceX headquarters.

In one X post, he called the mayor of Belfast a "betrayer of her people." In another, he called a British political leader "a scumbag and a traitor."

OpenAI Considers Pre-IPO Funding Round at More Than $1.2 Trillion Valuation

OpenAI has held early discussions with investors about a new funding round that could value it at more than $1.2 trillion on the heels of the release of its latest cutting-edge model, according to a person familiar with the matter.

The ChatGPT developer was valued at $852 billion in March after completing a $122 billion financing from investors including Amazon, Nvidia and SoftBank. If completed, the new round would precede the company's highly anticipated initial public offering, now expected next year.

Apple Finally Built a Smarter Siri. It Still Hasn't Caught Up in the AI Race.

Finally there is a Siri that works like ChatGPT. The problem for Apple is that the goal posts have already moved.

The highlight of Apple's new smartphone software, released Monday, is a redesigned Siri that works like ChatGPT, Claude and other chatbots. It can have a conversation, draft an email, search through texts and photos, and respond to complex search queries.

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Expected Major Events for Wednesday 06:00/UK: Aug Producer Price Index

06:00/SWE: Aug Labour Force Survey

07:00/CZE: Aug PPI

07:00/SVK: Jul New orders in industry

08:00/ITA: Aug CPI

08:30/UK: Jun Card Spending statistics

08:30/UK: Aug CPI

08:30/UK: Jul UK House Price Index

09:00/EU: Jul Industrial Production

09:00/EU: 2Q Labour Cost Index

10:00/IRL: Jul Goods Exports and Imports

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