London morning: Wall Street closes higher, Nikkei 225 up 1.08% ahead of Fed decision

US equities closed higher on Tuesday, with the S&P 500 at 7722.6 and the Nasdaq 100 at 29651.44. Asian trading followed a similar pattern on Wednesday, as the Nikkei 225 gained 1.08%.

What happened

The S&P 500 finished the Oct. 27 session at 7722.6, up 45.83 points, or 0.60%, from a previous close of 7676.77. The reading was taken at the 16:00 New York close.

The Nasdaq 100 posted a larger percentage change. It ended at 29651.44, up 378.04 points, or 1.29%, from a previous close of 29273.4. The technology-heavy index therefore gained about twice the percentage of the broader S&P 500 over the same session.

In Asia, the Nikkei 225 stood at 63954.19 as of 15:25 in Tokyo on Oct. 28. That is 685.82 points, or 1.08%, above the previous close of 63268.37. The Japanese benchmark thus moved in the same direction as the two US indices.

Currency and cross-market picture

EUR/USD stood at 1.1122 at 08:00 UTC on Wednesday, which is also 08:00 in London. The pair was down 0.0009, or 0.08%, from the previous close of 1.1131. The move is small, and the euro sits close to where it ended the prior session.

For this morning, the market data cover three equity benchmarks and one currency pair. They do not include European index futures, government bond yields or commodity prices, so this report does not describe those markets. The picture for the London open rests on the US close, the Tokyo session and the currency level.

The Italian Stock Exchange opens its session at 09:00 Rome time and runs until 17:30 Rome time. That schedule means the main US policy event of the day falls after the Italian market has closed.

The calendar for the day

The most important event is the Federal Reserve interest rate decision. It is scheduled for 18:00 UTC. The estimate is 4%, against a previous reading of 4%.

The FOMC statement follows at the same time, at 18:00 UTC. The Fed press conference starts at 18:30 UTC. Together, the decision, the statement and the press conference form the main block of US policy communication on the day.

Earlier, at 12:30 UTC, the US releases its Goods Trade Balance for September. The estimate is -130 B, and the previous figure was -132.1 B. The actual figure has not been published yet.

Background and previous values

The Goods Trade Balance measures the gap between US exports and imports of physical products. A negative number means imports exceed exports. The previous reading of -132.1 B is the reference point for the new September figure, which will be published at 12:30 UTC.

The Fed rate decision has a previous reading of 4%. The calendar lists 4% for the new decision as well. The FOMC statement and the press conference carry no figures on the calendar, because they are communications and not data releases.

On the price side, the previous closes give the starting levels for the day. The S&P 500 closed the prior session at 7676.77 and the Nasdaq 100 at 29273.4. The Nikkei 225 closed the prior Tokyo session at 63268.37, and EUR/USD closed at 1.1131.

The three equity indices all moved up by more than half a percent. The S&P 500 gained 0.60%, the Nikkei 225 gained 1.08% and the Nasdaq 100 gained 1.29%. The only instrument in the pack that moved lower is EUR/USD, with a change of -0.08%.

Why it matters

The Federal Reserve sets the policy rate for the world's largest economy, and its decisions affect the cost of dollar funding in markets worldwide. The decision is due at 18:00 UTC, after the Italian cash equity session has finished at 17:30 Rome time. Participants in London and across Europe therefore work through the morning with the outcome still unknown.

The US equity gains on Tuesday came before the decision, as did the Nikkei 225 advance in Tokyo. The Nasdaq 100 rose 1.29% and the S&P 500 rose 0.60%, while the Nikkei 225 rose 1.08%. Those moves set the starting point for Wednesday.

The trade balance release adds a second US reading ahead of the decision. It is published at 12:30 UTC, when European trading is already under way. The estimate of -130 B and the previous figure of -132.1 B give the reference points for that release.

The EUR/USD rate is a direct channel for US policy news, because the dollar side of the pair reacts to US rate decisions. The 0.08% decline leaves the pair at 1.1122 before the statement. The press conference at 18:30 UTC may add detail on the Fed's reasoning, which the written statement may not supply.

What to watch next

The first data point is the US Goods Trade Balance at 12:30 UTC. The estimate is -130 B, and the previous reading was -132.1 B. The actual figure is not yet available.

The main event follows at 18:00 UTC with the Fed rate decision. The estimate stands at 4%, equal to the previous level of 4%. The FOMC statement is released at the same time, and the press conference starts at 18:30 UTC.

After the announcements, attention turns to how US indices and EUR/USD trade once the decision is known, and to the Asian session on Thursday. The closing levels in this report, from the S&P 500 at 7722.6 to the Nasdaq 100 at 29651.44, and the EUR/USD level of 1.1122 at 08:00 UTC, are the starting points for that session.

The Italian Stock Exchange session, from 09:00 to 17:30 Rome time, will run its course before any of the Fed announcements. The Nikkei 225 level of 63954.19 and the previous close of 63268.37 will also serve as reference points when Tokyo reopens.