Fed day

The Federal Reserve is widely expected to reduce interest rates by a quarter percentage point for a second straight meeting amid  slowing global growth on the heels of President Donald Trump’s trade war. Markets have priced in nearly one percentage point of easing over the next year despite mixed monetary signals. Chairman Jerome Powell’s post-decision press conference will offer clues into the Fed’s thinking. The decision will set the stage for policy announcements from Bank of Japan, Bank Indonesia and Bank of England due Thursday.

Repo rescue

Fed officials are set to inject another $75 billion of cash to the market Wednesday morning after funding shortages drove the rate on one-day loans backed by Treasury bonds — known as repurchase agreements, or repos —  to as high as 10%.  The first cash infusion in more than a decade came Tuesday as an overnight liquidity squeeze threatened everything from Treasury bond trading to lending to companies and consumers. It’s a structural money problem that’s hard to ignore. While the spike wasn’t evidence of any broader crisis, it highlighted how the Fed was losing control over short-term lending, one of its key tools for implementing monetary policy.

It wasn’t me

Iran sent the U.S. a note denying it had a role in attacks on Saudi oil facilities and warning that it would respond to any action against it. Saudi Arabia’s defense ministry said it will present evidence of involvement by the Islamic Republic at a news conference Wednesday, while Iranian President Hassan Rouhani insisted that the attack was a “warning and a lesson” from Yemeni rebels. Meanwhile, U.S. Secretary of State Michael Pompeo is due to hold talks in the kingdom on Wednesday –  and it isn’t obvious how the U.S. can effectively retaliate against a country that is already under maximum economic sanctions.  Further complicating the U.S. position is the potential loss of a key ally in Israel as Benjamin Netanyahu’s hold on power looks increasingly precarious.

Markets

Overnight, the MSCI Asia Pacific Index slipped 0.12% and Japan’s Topix index closed 0.49% lower. In Europe, the Stoxx 600 Index was 0.6% higher at 6:18 a.m. Eastern Time after closing marginally lower on Tuesday. S&P 500 futures signaled a small drop at the open, the 10-year Treasury yield was 1.77% and gold was flat. Oil stabilized on signs Saudi Arabia is quickly restoring production following a debilitating weekend attack.

Coming up…

It’s the second of three days of hearings on the legality of Prime Minister Boris Johnson’s decision to suspend Parliament and whatever the outcome the risk of a no-deal Brexit remains high. Updates are due on U.S. mortgage applications and housing starts.