• The U.S. Federal Reserve is widely expected to raise its benchmark interest rate this week due to a tightening labor market and may also provide more detail on its plans to shrink the mammoth bond portfolio it amassed to nurse the economic recovery.
The central bank is scheduled to release its decision at 2 p.m EDT (1800 GMT) on Wednesday at the conclusion of its two-day policy meeting. Fed Chair Janet Yellen is due to hold a press conference at 2:30 pm EDT (1830 GMT).
"The expectation of a rate hike...is widely held, and has been reinforced by the most recent round of Fed communications," said Michael Feroli, an economist with J.P. Morgan.
Economists polled by Reuters overwhelmingly see the Fed raising its benchmark rate to a target range of 1.00 to 1.25 percent this week.
Markets are, however, increasingly anxious for the Fed to give a clearer steer on the timing and details of its previously announced plan to reduce this year its $4.2 trillion portfolio of Treasury debt and mortgage-backed securities, most of which were purchased in the wake of the financial crisis to help keep rates low and bolster the economy.
• A few brief excerpts from a Goldman Sachs research note: Another rate increase from the FOMC next week is now extremely likely
The unemployment rate has fallen 0.4pp since the March meeting and our current activity indicator and real GDP estimates signal that above-trend output growth will produce further labor market improvement. But the year-over-year core PCE inflation is now 0.2pp lower than at the March meeting.
The statement will likely characterize economic activity as picking up but recognize that inflation slowed since earlier this year
The press conference should provide some clarity on whether the next tightening step after June will be balance sheet normalization or a third funds rate hike.
• The European Central Bank has switched 500 million euros worth of its U.S. dollar reserves to yuan, reflecting the increased use of the Chinese currency and Beijing's importance as one of the euro area's largest trading partners, it said on Tuesday.
• China's factory output grew 6.5 percent in May from a year earlier, slightly better than expectations along with retail sales that rose a more than seen 10.7 percent, but January to May fixed-asset investment grew 8.6 percent—less than forecast.
• The FOMC is expected to raise rate at their meeting next week. Here are a few brief excerpts from a Merrill Lynch preview:
We expect a number of changes to the projections. ... There will be particular interest in the outlook for inflation – we expect the median forecast for core PCE inflation to shift down to 1.7% for this year but think that the median will stay at 2.0% for 2018.
We expect the press conference to be focused on balance sheet normalization. Chair Yellen is likely to be asked about the specifics of the balance sheet policy and to elaborate on the potential timing of implementation. ... We also expect Yellen to note that the recent weak data on inflation is likely transitory, but she may provide some hints that she has become a bit more concerned.
• The Bank of Japan is set to keep monetary settings unchanged on Friday and reassure markets it will lag way behind the Federal Reserve in dialing back its massive stimulus program, with inflation stubbornly low despite a strengthening economy.
• Growth in oil supply next year is expected to outpace an anticipated pick-up in demand that will push global consumption above 100 million barrels per day (bpd) for the first time, the International Energy Agency said on Wednesday.
The Paris-based IEA said production outside the Organization of the Petroleum Exporting Countries would grow twice as quickly in 2018 as it will do this year, when OPEC and 11 partner nations have restrained output.
• Oil prices fell on Wednesday after data showed a build in U.S. crude stocks and OPEC reported a rise in its production despite its pledge to cut back on output.
Brent crude futures LCOc1 were at $48.41 per barrel at 0652 GMT, down 31 cents, or 0.6 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $46.10 per barrel, down 36 cents, or 0.8 percent.
Reference: Reuters
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