Europe Flat As Oil Drags, FOMC Decision Eyed

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Includes: ADRU, BNO, CHN, CN, CXSE, DBEU, DBEZ, DBO, DNO, DTO, DWTI, EEA, EPV, EURL, EZU, FCA, FEEU, FEP, FEU, FEUZ, FEZ, FIEU, FXI, FXP, GCH, GXC, HEDJ, HEGE, HEZU, HFEZ, HFXE, HGEU, IEUR, IEV, JFC, MCHI, OIL, OLEM, OLO, PGJ, RINF, SBEU, SCO, SZO, TDF, UCO, UPV, USL, USO, UWTI, VGK, XPP, YANG, YAO, YINN, YXI
by: Craig Erlam

European futures are currently trading relatively flat ahead of the open on Wednesday, with small losses in Brent crude weighing early in the session. Meanwhile, another volatile session in China overnight and the prospect of surging volatility around tonight's FOMC decision is also likely to prompt some caution during trading today.

Movements in oil were the key driver of a number of markets on Tuesday, most notably equity indices and commodity currencies which tracked its moves very closely. With oil showing signs of coming off its lows, at least in the short term, there is the potential for a broader correction in these in the coming days, following what has been a rough start to the year.

Of course, with the latest monetary policy decision from the Federal Reserve coming this evening, there's likely to be more than one major factor driving these markets today so the tight correlation that we saw between them on Tuesday may weaken a little. The Fed still remains a key player in financial markets and any indication that the rate tightening cycle is going to be slower could have a significant impact. That said, the market has never really bought into the idea of four rate hikes this year so it will be interesting to see exactly how big an impact an acknowledgement on this from the Fed would actually have.

As is so often the case, it's been a volatile session in China overnight, with the final hour of trading not disappointing. Having been down as much as 4% on the day early in the afternoon session, the index bounced back and is now only marginally lower on the day. While the losses didn't appear to be weighing to heavily on sentiment in Europe, as they didn't on Tuesday, I'm sure the lack of another day of substantial losses will provide some relief.

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