Fed Decision, Putin Mobilizes, Home Sales - What's Moving Markets

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By Geoffrey Smith

Investing.com -- The Federal Reserve is set to raise U.S. interest rates again - but by how much? Vladimir Putin rattles the nuclear saber as he calls up 300,000 reservists for his war in Ukraine, causing the dollar and European gas prices to rise again. Existing home sales are due, and homebuilder Lennar reports quarterly earnings. In the U.K., Prime Minister Liz Truss prepares another energy relief package, and the U.S. government will publish its weekly oil inventories as fears for global oil demand grow. Here's what you need to know in financial markets on Wednesday, 21st September.

1. Decision Day at the Fed

The Federal Reserve is set to raise U.S. interest rates again, with the market split over whether to expect an increase of 75 basis points, as happened last time, or a full percentage point. Another upside surprise to U.S. inflation in August has inclined some analysts to the latter, although the consensus is still - just about - for 75.

Of more importance, arguably, will be the Fed's so-called 'dot-plot', which maps where the policymakers expect rates to be over the next couple of years. This should send a signal about how high the central bank thinks rates will have to rise, and how long they will have to stay high before victory over inflation can be declared. Short-term interest rate futures imply a peak next year of between 4.25% and 4.5%, i.e., around 2 percentage points higher than today.

The Fed's decision is due as usual at 14:00 ET (18:00 GMT), with chair Jerome Powell's press conference half an hour later.

2. Putin ups the ante with partial mobilization

Russian President Vladimir Putin surprised the West Wednesday by declaring a partial mobilization of the country's 2-million-strong military reserve and confirming his intention to annex those parts of Ukraine currently under Russian occupation.

Putin said the mobilization would be limited to those who have already served in the armed forces and who have relevant experience and training. Defense Minister Sergei Shoigu said in a subsequent televised address that it would only affect 300,000 people.

The move marks a massive shift for the Kremlin and could be seen as a response to recent defeats on the battlefield in Ukraine and signs that its leverage over European energy markets may be fading as European gas prices fall.

3. Stocks set to open higher; home sales data, Gap job cuts eyed

U.S. stock markets are set to open moderately higher despite the drama in Russia but are essentially in a holding pattern ahead of the Fed meeting later.

By 06:40 ET, Dow Jones futures were up 70 points, or 0.2%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were largely flat. The three benchmark cash indices had lost around 1% each on Tuesday in a bout of pre-Fed jitters.

Stocks likely to be in focus later include homebuilder Lennar (NYSE:LEN), which reports results on the same day that existing home sales data for August are due. General Mills (NYSE:GIS) is also due to report. Also in focus is Gap (NYSE:GPS), which is to cut 500 corporate jobs, according to a Wall Street Journal report.

4. U.K. energy bailout and Uniper nationalization

The U.K.'s new Prime Minister Liz Truss announced a relief package for businesses to help them with their energy bills over the coming winter. The package will cap electricity and gas prices at around half of the current spot market price for six months. A more selective relief scheme will then be applied thereafter.

The move, with an estimated cost of 40 billion pounds ($45.5 billion) is the second big fiscal package announced by Truss to deal with the energy crisis. The pound fell to a new 37-year low in response, spooked by data published earlier showing a big rise in public borrowing due to higher interest costs.

Europe’s energy crisis meanwhile claimed another victim in Germany, where the federal government agreed to nationalize Uniper (ETR:UN01), the country’s biggest gas supplier, whose finances have been ruined by the shut-off of Russian supplies.

Elsewhere, French Finance Minister Bruno Le Maire asked the EU to bring forward a planned loosening of state aid rules to help businesses get through the winter.

5. Oil surges on the Putin factor; EIA data awaited

Crude oil prices rose sharply as the market moved to price in a higher geopolitical risk premium after Putin’s speech.

By 06:40 ET, U.S. crude futures were up 2.4% at $85.95 a barrel, while Brent futures were up 2.3% at $92.74 a barrel.

Nuclear grandstanding aside, the big item of the day is U.S. inventory data for last week, where a 2.16 million barrel increase in crude stocks is expected. The American Petroleum Institute’s data, released on Tuesday, undershot expectations with a build of just over 1 million barrels.