Fed Expected to Guide on US Rate Path Trajectory

CMC

Economic

Central Bank

Forex

Summary:

If the Fed is minded to deliver a rate cut in March, and temper rate expectations for this year, then today...

European markets underwent a broadly positive session yesterday with the CAC 40 setting a record high, while US markets finished the day mixed with the Nasdaq 100 sliding back, the S&P500 finishing flat, and the Dow finishing higher.

As we look towards today’s European market open the focus today will be on the spillover effects of last night’s quarterly earnings numbers from Microsoft and Alphabet, as well as the latest inflation numbers from France and Germany and today’s Fed rate decision.

Yesterday’s Q4 GDP numbers from Europe’s four biggest economies may have tempered some of the recent market enthusiasm that the ECB might be compelled to bring forward the prospect of a rate cut from the current consensus of June, given that better than expected data from Italy and Spain prevented the bloc from slipping into a technical recession.

We’ve also heard from several ECB policymakers in recent weeks that, particularly the likes of Joachim Nagel from the German Bundesbank as well as Robert Holzmann from the Austrian central bank who both pushed back on the idea of an early rate cut. There have also been some dovish voices like Mario Centeno of the Portuguese central bank who have argued that the ECB shouldn’t wait, but the consensus has been not to expect much before June.

This thinking might be shifting if yesterday’s comments from Joachim Nagel are any guide, when he indicated that he is convinced that the ECB has tamed the “greedy beast” of inflation. This softening of tone from one of the ECB’s most notable hawks could signal that an April rate cut from the ECB is becoming much more probable.

Today’s flash inflation numbers for January could reinforce this shift in thinking if as expected the big jump in the December numbers subsides when the latest French and German CPI numbers are released today.

French CPI is expected to slow from 4.1% to 3.6% in January with the month-on-month figure expected to decline by -0.1%.

German CPI is expected to slow from 3.8% to 3.2% with the month-on-month figure expected to decline by -0.2%.

Having seen the ECB keep rates on hold last week, today is the turn of the Federal Reserve where we could see the central bank look to put a pin in the idea that a March rate cut is coming. That’s not to say the Fed will rule the idea of rate cuts coming, simply that March is too soon for a data dependant central bank.

Since Powell’s December press conference when he admitted that the committee had discussed rate cuts only 2 weeks after dismissing the idea at the beginning of December markets have decided that March is a live meeting.

In December the FOMC returned the 2024 dots to 4.6% back to where they had been in September, while forecasting core PCE to decline to 2.4%. Having signalled the death of higher for longer the debate has now switched to when rate cuts are likely to begin, with the markets running away with the idea that we could see the first cut in March.

While several major banks have signalled that the Fed could well set the scene for just such a move at today’s meeting, the idea that the US economy needs a rate cut now comes across as fanciful when you compare its economy to that of Europe.

Last week it was revealed that the US economy grew at 3.3% in Q4, well above forecasts of 2%, with the US consumer still looking resilient. Yesterday consumer confidence rose to its highest level in 2 years while in December the number of job openings rose rebounded to a 3-month high.

Today’s ADP report is expected to show the US economy added another 150k jobs in January, slightly down from the 164 in December, with the FOMC likely to take note that while inflation has been slowing a resilient jobs market could prompt a rebound in wage growth, or at least create a floor for it.

As such it would be surprising if the Fed were to signal a cut in rates in March although they might well open the door to one on Q2, however they will also be keen to temper the markets idea that we could see as many as six, which was being priced earlier this month.

Bond markets have already tempered their enthusiasm for a March rate cut with 10-year yields back above 4% while 2-year yields have rebounded from lows of 4.12% earlier this month to be back above 4.3%.

If the Fed is minded to deliver a rate cut in March, and temper rate expectations for this year, then today is the perfect opportunity to signal its intention, or prick the markets enthusiasm once and for all.

EUR/USD – continues to look a little soft after slipping briefly below the 1.0800 area on Monday, raising the prospect that we could see a move towards the 1.0720 area. Resistance at the highs last week at 1.0930 and behind that at 1.1000.

GBP/USD – slipped briefly below the 50-day SMA yesterday but remains above support at the 1.2590 area. We need to get above 1.2800 to maintain upside momentum and target the 1.3000 area.

EUR/GBP – rallied to the 0.8570/80 area yesterday before slipping back. While below this resistance the risk remains for a move towards 0.8470. Above 0.8580 potentially targets the 0.8620 area.

USD/JPY – currently in a range between the recent highs at struggling to move back through the 148.70/80 area for the time being, with support at the 146.65 area which saw the US dollar rebound from last week. Above the 148.80 area potentially opens a move towards 150.00.

To stay updated on all economic events of today, please check out our Economic calendar

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Swissquote

Economic

Central Bank

The data flow since November has pointed in this direction, and today's CPI release seals the deal: the RBA will keep the cash rate on hold next week, and it is unlikely to raise rates further this cycle

At its previous forecast round in early November, the RBA was expecting both headline and trimmed mean inflation to be 4.5% over calendar 2023. The implied forecast for the quarter was around 1% in both cases. The actual result was 0.6% in the quarter and 4.1% over the year for headline CPI inflation and 0.8% and 4.2% for the bellwether trimmed mean measure.

The detail was slightly below our expectations, and noticeably below the RBA's. Domestic inflation is now clearly coming down. Market services inflation has dropped significantly. The monthly CPI indicator for December was distorted by base effects involving holiday travel, but measures excluding this are now running in the low 4% range and clearly heading down.

These inflation outcomes need to be seen in the context of the soft flow of data since November. In particular, the September quarter national accounts were noticeably weaker than the RBA expected. This cast doubt on the Board's assessment that domestic demand remained resilient. Subsequent data on retail spending and the labour market has only reinforced those doubts. The squeeze on household incomes from high inflation and a rising tax take, as well as higher interest rates, has continued. Consumer spending and sentiment are both soft; investment spending did not hold up as the RBA expected in the September quarter national accounts. As Westpac Economics colleague Senior Economist Andrew Hanlan noted earlier today, business investment is likely to stall this year.

Some of the upside risks the Board minutes had been calling out in recent months have not come to pass. The increase in housing prices, mentioned in the December 2023 minutes, is now losing steam, especially in Sydney and Melbourne. The concerns raised the same month that falling inflation would boost households' purchasing power – and so spending – have been ruled out by the subsequent release of the September quarter national accounts. That national accounts release also showed that the RBA's concerns about falling productivity had been somewhat overblown. As we had predicted ahead of the release, productivity ticked up in the September quarter and the history was revised up.

Despite this, the RBA and its Board have been sensitive to the risks that inflation would not come down as quickly as they want. In their November forecast round, they had pushed out their expectations for the date that inflation would return to target to end-2025, and they were clearly uncomfortable about this. They had also concluded that inflation was increasingly driven by domestic factors: a conclusion that, we believe, did not adequately allow for the effects of displaced demand on some prices – the “other fruit” problem. In the minutes following that meeting, the Board noted “lowering inflation from its current level would require growth in aggregate demand to remain subdued”. In our view, aggregate demand is already subdued and does not need further policy tightening to keep it there.

Another concern of the RBA Board was the possibility that inflation expectations could lift. While the usual measures of the expectations of consumers and market participants are a little higher than pre-pandemic, they are still well within the target range. In any case, the pre-pandemic period was characterized by inflation being below the target. Some increase from those levels is therefore entirely consistent with the RBA achieving its goals.

Given these concerns, the RBA Board therefore is unlikely to rule out further rate increases entirely in their post-meeting communication. But the case to raise rate from here is steadily losing traction. We expect that over coming months, further declines in inflation and soft outcomes in the real economy will give the Board enough confidence that inflation will return to target on the desired timetable. They will therefore have scope to reduce some of the current restrictiveness of policy. We continue to expect the first rate cut no earlier than September.

In articulating their decision, the Board will have the advantage that the Bank's forecast horizon will roll forward to mid-2026 this round. It is therefore entirely possible that the staff forecasts can now be shown with inflation ending the period at 2½%, the midpoint of the 2–3% target range. Specifying when inflation would reach that midpoint was one of the recommendations of the RBA Review.

Also changing following the RBA Review recommendations are some of the arrangements around the Board meeting itself and the release of the Statement on Monetary Policy (SMP). The meeting will now take place over two days. This will give the Board more time to discuss the outlook and risks, and the staff more time to present scenarios and other analysis that could not easily be fit into the agenda in the previous shorter-format meeting. It will allow also allow the Board to review both the media release and Overview of the SMP ahead of the policy announcement. The SMP can therefore now be released on the same day as the policy announcement. Along with the Governor's media conference the same afternoon, this will provide the RBA with more scope to explain its decision.

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Zi Cheng

Traders' Opinions

Commodity

The world's largest oil exporter, Saudi Arabia, has undergone a significant policy reversal by abandoning its plan to expand the kingdom's daily oil production capacity. On Tuesday, state-run Saudi Aramco announced that it had been instructed by the energy ministry to forgo the initiative to increase its maximum sustainable production capacity from 12 million barrels per day to 13 million b/d by 2027.

This multibillion-dollar investment program had distinguished the company from much of the industry, where spending on oil production is generally decreasing due to concerns about climate targets and future demand. Saudi Aramco, responsible for approximately 10% of the world's daily oil consumption of 100 million barrels, found itself at the forefront of this unexpected move.

The decision, made by the ministry of energy, was not prompted by any technical or operational issues within the company. It has been clarified that Saudi Aramco remains capable of resuming the investment program if requested. The ministry of energy, however, has not issued a statement or provided an explanation for this significant policy shift by the kingdom. Notably, Saudi Aramco's CEO, Amin Nasser, had been actively advocating for increased investment in oil production across the industry over the past two years.

In spite of production cuts, ongoing Middle East tensions, and the conflict in Ukraine, Brent crude oil was priced at approximately $80 per barrel on Tuesday. This aligns with the price levels seen in January 2022, preceding Russia's invasion of Ukraine in February of the same year.

The decision by Saudi Arabia to halt its expansion plan is perceived as a substantial reconsideration of strategy, and it is expected to have significant implications for Aramco's capital spending, the Gulf supply chain, and, notably, the oil policy of OPEC+. This insight was shared by Syme, indicating the far-reaching consequences of Saudi Arabia's strategic shift.

Certainly, recent events argue against a substantial investment in expanding oil production. Despite Saudi Aramco's investment of billions in capacity expansion, the company has struggled to reach its stated output capacity of approximately 12 million barrels per day. This is due to the Saudis, as leaders of the OPEC Plus producers group, intentionally limiting their output to around nine million barrels a day to bolster oil prices.

Despite this, Aramco has affirmed its commitment to certain ongoing plans aimed at increasing production to counterbalance the natural decline in existing oil fields. The underlying motive for the Saudi government's decision may be to enable Aramco to scale back its investment commitments, particularly at a time when heightened industry activity has led to increased costs for drilling and other services.

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Zi Cheng

Forex

Traders' Opinions

Economic

Fundamental Analysis

AUD/USD hasn't been moving too much from Tuesday and in fact the whole month as the DXY strength has been stabilising. However, this early morning, AUD weakened as a softer CPI data has been released from Australia.

Despite recent reports indicating potential additional stimulus measures by the People's Bank of China, PBoC, to support China's stock market and foster economic recovery post-pandemic, the Australian currency showcased resilience. However, the implementation of these efforts aimed at economic stimulation has been slower than initially anticipated. China has a very close relationship with Australia as China is Australia's biggest trading partner, China's economic fluctuations will directly affect Australia's economy as well.

Simultaneously, the expected decision by the Reserve Bank of Australia, RBA, to maintain its existing policy stance at the February 6 meeting is perceived as a factor limiting potential upward movements in the pair in the near term, likely leading to subdued trading in the short-term future.

Regarding the RBA, the recorded decrease in inflation metrics in December, coupled with the perceived tightness in the labor market, has solidified the consensus among market participants that the central bank will keep its current interest rates unchanged in the upcoming event.

Taking a broader look at central banks, the possibility of the Federal Reserve prolonging its ongoing restrictive stance longer than initially anticipated is expected to bolster additional gains in the US Dollar, acting as a drag for the AUD/USD in the interim.

Looking ahead, the Inflation Rate, scheduled for Wednesday, is anticipated to reveal a continued disinflationary trend in the domestic economy during the October–December period. Consensus expects a 0.8% QoQ increase in consumer prices, down from 1.2%, and a 4.3% YoY rise, down from 5.4%. These figures further support the perception that the RBA is likely to maintain its unchanged monetary policy at its upcoming gathering.

Technical Analysis

AUD/USD has been in a consolidation phase as we have the FED decision on interest rate and Non Farm Payroll coming up this week. Price always tends to slow down before these huge news events that could add extra volatility and volume into the markets. After the CPI release from Australia, AUD weakened as there is a possibility of ending the rate hikes which can stop increasing strength for the AUD. AUD/USD could be heading towwards the next support level priced at 0.65368.

Besides that, AUD/USD is forming Head & Shoulders chart pattern, I have circled the shoulders and the head in the chart attached below. However, it is too early to take the sell now as it is very important to monitor the price action at the neck line which I have drawn a rectangle box.

AUD/USD Lowers After Softer CPI Data Released_2

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TD Securities

Economic

Political

The U.S. election season is once again upon us and the runoff is set to feature two eerily familiar candidates — the incumbent President Biden and the challenger, former President Trump, who appears widely favored to lock up the Republican nomination. Despite the market's relative certainty about a Biden/Trump rematch, both candidates have potential stumbling blocks on the road to their respective party nominations.

Primary season is already underway with Trump winning the Iowa and New Hampshire primaries. There are still a wide number of primaries remaining, but by Super Tuesday, the candidate for each side should effectively be locked in.

Who could win the 2024 U.S. presidential election?

The coming election cycle will likely be one of the most interesting in recent memory as a highly polarized electorate takes to the polls on November 5.

Our current baseline scenario is that Donald Trump could win the presidency in 2024 and that Republicans might recapture the Senate. Control of the House remains very close, but currently we expect the Senate and House may be under split control. The Economic Implications Of A U.S. Presidential Rematch_1

The Economic Implications Of A U.S. Presidential Rematch_1

Source: RCP, TD Securities

What will markets focus on?

Markets always have a difficult time pricing in elections. Slim control over the Senate or House could undermine the winning administration's ability to implement policy. Historically, investors tend to ignore political risks until the last moment. This was the case in the 2016 election when markets swung wildly following the election of President Trump with equities initially selling off but subsequently rallying on expectations of tax cuts and more pro-business policies.

Source: TD Securities

While markets may struggle to price in the election results, we believe they will be focused on the following:

Tax/growth implications:

Trump's promise to make the 2017 tax cuts permanent would likely avoid a 2026 fiscal cliff and remain supportive for growth, leaving the corporate tax rate at 21%. Biden aims to increase the corporate tax rate to 28% and to increase capital gains and dividends taxes for wealthy individuals. He intends to tax long-term capital gains at ordinary tax rates for incomes above $1mn, impose a minimum effective tax rate of 20% on households with net wealth above $100mn, and increase the top individual income tax rate to 39.6%. However, deficits are likely to stay elevated as spending is likely to remain high.

Deficit implications:

In the absence of cuts to spending, Trump making his 2017 tax cuts permanent could sharply increase deficits and may trigger another round of cuts to the U.S. credit rating. Biden's plan would increase taxes on upper-income households which may marginally lower deficits, but any decline in deficits will likely be offset by additional spending. Both Trump and Biden would likely need to cut spending to help reduce deficits, but with just 15% of government spending currently classified as discretionary ex-defense, there is little room for Congress to meaningfully improve the U.S. fiscal trajectory. The Economic Implications Of A U.S. Presidential Rematch_3

The Economic Implications Of A U.S. Presidential Rematch_3

Regulatory implications:

The next administration will help steer the tone of key regulatory efforts. For markets, the Basel III endgame is likely to be key. A Biden re-election would provide regulators with sufficient time to finish the Basel III endgame regulations, increasing costs for banks. A Trump victory, on the other hand, would likely delay the endgame and likely lower its ultimate impact on banks. Note that Trump has said little about his regulatory stance, and in a recent report, our colleagues at the TD Cowen Washington Research Group suggest that his appointment for Treasury secretary will likely have wide latitude over such decisions.

Geopolitics still in focus:

The Biden administration has worked to stabilize US-China relations as military communications have resumed between the two countries. Still, tensions between China and Taiwan persist following the election of the Democratic Progressive Party's Lai Ching-te, potentially continuing to strain U.S.-China relations. Trump's relationship with China was also contentious and included multiple rounds of trade disputes leading to the implementation of new tariffs, suggesting more of the same if he is re-elected. Aid to Ukraine and Israel is also on the docket, with Biden supporting more aid while Republicans would likely look to slash spending.

Tariffs:

While Biden has maintained some of the policies and tariffs implemented by Trump, another Trump administration would likely see a further escalation of trade wars. Trump has proposed a 10% tariff on foreign goods to help boost U.S. manufacturing.

Deficits set to remain elevated, and election poses upside risks

Elections ultimately bring lots of moving parts for markets, but from a fundamental standpoint, we believe markets would be impacted in the following ways:

From a longer-term rate perspective, we view the fair value of 10y Treasuries at around 3.5%. However, a sharp upswing in deficits and softer economic landing could ultimately keep rates elevated. Near term, while higher deficits are a risk, are looking for rates to move lower in 2024 amid Fed rate cuts starting in May, with 10s ending the year at 3%.

Large deficits have historically been positively correlated with tighter swap spreads, as high issuance of Treasuries has typically left them trading cheaper relative to swaps. We generally expect swap spreads to trough in H1 and widen in H2 2024, but expectations of sustained higher deficits could slow any widening in spreads.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Commodity

China's imports of unwrought aluminium more than doubled year-on-year in 2023 and were the second highest annual total since the start of the century.

Primary metal imports surged to 1.54 million metric tons from 668,000 tons in 2022, but fell just short of the record 1.58 tally accumulated over 2021.

The big difference between the 2021 and 2023 peaks was the composition of the inbound shipments.

Russian metal accounted for just 18% of 2021 volumes, a ratio that jumped to 76% last year as penal import duties in the U.S. and self-sanctioning in parts of Europe disrupted previous Russian trade patterns.

Russia and China are becoming increasingly dependent on each other in the aluminium market.

But can China, the world's largest aluminium producer, keep soaking up what others do not want? The London Metal Exchange (LME) can only hope so.

Mutual dependence

Indian-brand aluminium accounted for the lion's share of 2021's bumper imports. Volumes of 855,000 tons accounted for more than half of total inbound shipments.

Chinese imports of Russian-brand aluminium, by contrast, totalled a relatively modest 291,000 tons in what was the last full year of trade before the February 2022 invasion of Ukraine.

Flows of Russian material rose to 462,000 tons in 2022 and then leapt to 1.18 million tons last year. Imports of Indian metal dropped to just 98,000 tons over the same time-frame.

Russia has also been exporting more unwrought aluminium alloy to China. While total Chinese alloy imports slid by 11% last year relative to 2022, imports of Russian material rose by 11% to 63,000 tons. Last year's tally was nearly double that of 2021.

Some of the metal moving from Russia to China has been smelted from Chinese alumina, the intermediate product between bauxite and refined metal in the production chain.

Russian aluminium giant Rusal lost access to its Ukrainian refinery and its joint venture Australian plant shortly after the launch of Vladimir Putin's "special military operation".

The company has become increasingly reliant on Chinese supply, cementing the dependency with the purchase last October of a 30% stake in Hebei Wenfeng New Materials, which operates a recently built alumina refinery with annual capacity of 4.8 million tons.

Just as Rusal metal dominates China's imports of primary aluminium, the company also accounts for a large part of China's alumina exports.

Shipments to Russia came to 1.12 million tons last year, representing 88% of total export flows. The two countries' alumina trade amounted to a paltry 1,747 tons in 2021.

Indeed, without the Russian connection it's doubtful China would be exporting much alumina at all, given recent signs of stress in that part of its production sector.

Market Of Last Resort

China is absorbing Russian metal that would otherwise be piling up in Western warehouses.

The London Metal Exchange (LME), which has historically been the market of last resort for unsold metal, is already sitting on high stocks of Russian material.

There were 338,375 tons of Russian aluminium on LME warrant at the end of December, amounting to 90% of total registered inventory.

The high ratio has re-ignited the simmering dispute over whether the exchange should suspend Russian brands rather than tweaking its delivery rules to allow for unilateral government sanctions such as the U.S. import duties.

Quite evidently, the LME's dilemma would be much more acute were not around a quarter of Rusal's production heading to China.

New normal?

Is this Sino-Russian trade the new normal? It looks likely, as long as China can keep absorbing such large inflows of primary metal.

China accounted for 59% of global aluminium production last year, but output growth has slowed from the double-digit pace of the 2000s to 4% in 2021 and 2022 and just 3% last year.

Annual production capacity has crept close to the government's cap of 45 million tonnes, meaning few new smelters are being built, and run-rates have been regularly impacted by a lack of hydro power in drought-hit provinces such as Yunnan.

Meanwhile consumption from energy transition sectors seems to be robust, in part thanks to strong exports of new-energy technology such as solar panels.

There is no evidence of any massive surplus in the mainland market. Stocks registered with the Shanghai Futures Exchange stand at a modest 101,537 tons.

Exports of semi-fabricated products, historically a tell-tale sign of a domestic market glut, fell by 12% last year relative to 2022.

It is of course possible that part of what was "imported" last year is now sitting in a Chinese bonded warehouse.

The official customs statistics do not differentiate between metal imported for a Chinese consumer and metal going into long-term storage to be used as collateral.

Either way, however, it's good news for the LME and for the Western market as a whole.

Trading Russian metal is becoming more difficult as Western policymakers turn the sanctions screws. Britain has banned its citizens from physically dealing in Russian metal, which is a big headache for an exchange based in London.

There are also growing calls for the European Union to ratchet up the economic pressure on Russia by extending sanctions on Russian aluminium from specialised products to primary metal.

It looks as if Russian aluminium, which has so far avoided a blanket sanction ban, is going to be ever more difficult a sell to Western users.

It's not just Rusal that will be hoping Chinese consumers don't lose their appetite for imported aluminium.

Source: Reuters

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Devin

Economic

Wednesday will bring prompt tests of the just-released International Monetary Fund upgrades of U.S. and Chinese growth outlooks that could should set the tone for markets, starting with Asia on Wednesday.

The IMF on Tuesday adjusted its forecast for 2024 global growth upward amid a stabilized inflation outlook, and said a "soft landing" was in sight. While IMF's World Economic Outlook may not be the biggest market mover, it threw down a marker for the two most important economies, raising the GDP growth rate outlook for China to 4.6% from 4.1% and the U.S. to 2.1% from 1.5%. China PMIs, U.S. Fed Statement Will Test Growth Outlooks_1

China PMIs, U.S. Fed Statement Will Test Growth Outlooks_1

Chinese official manufacturing PMIs for January on Wednesday will give insight as to how on-target the IMF might be, and can help set the tone for local stock markets and beyond. In December the purchasing manager's index fell to 49.0 from 49.4, below the 50.0 expansion/contraction threshold.

Industrial output reports are also due from Japan and South Korea.

Earlier in Asia, regional shares slumped amid deepening worries about the Chinese real-estate sector after developer group China Evergrande was ordered to be liquidated on Monday.

China and Hong Kong stocks dragged MSCI's broadest index of Asia-Pacific shares outside Japan down about 0.9%. Japan's Nikkei was up 0.11%, set for a nearly 8% gain for the month.

Speaking of soft landings, in the run up to the two-day Federal Open Market Committee meeting that kicked off Tuesday Fed policy makers have made clear they will not jeopardize one by easing too soon or too aggressively, even if inflation is showing signs of coming down. This leaves global traders on tenterhooks ahead of Wednesday's FOMC statement, and, perhaps more importantly, the question and answer session with chair Jerome Powell afterward. China PMIs, U.S. Fed Statement Will Test Growth Outlooks_2

China PMIs, U.S. Fed Statement Will Test Growth Outlooks_2

The S&P 500 struggled to stay above water Tuesday but did manage to eke out another in a series of record highs, while Treasury yields slipped and the dollar was near flat.

Fed funds futures markets indicate a near zero probability of a cut this month and in recent days have priced the easing cycle starting at the May meeting, instead of March as previously favored. At their December meeting policy makers penciled in 75 basis point of cuts this year. That median projection would be a less aggressive loosening than the market expects from the current policy rate of 5.25%-5.50%, where it has been since July.

Meanwhile the U.S. labor market looks tight, based on Labor Department job openings data released Tuesday. While the ADP employment report comes out Wednesday the main event is the January nonfarm payrolls release on Friday, which will inform the Fed's deliberations in March as to whether markets are in for a U.S. soft landing, no landing, or, least likely from current indications, a hard one.

"For a March cut to happen you'd have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it's hard to have a high degree of confidence that they will see the need to cut," said Frank Rybinski, head of macro strategy at Aegon Asset Management.

Here are key developments that could provide more direction to markets on Wednesday:

-- South Korea Industrial Output - December

-- Japan Industrial Output - December

-- China Manufacturing PMI - January

-- Australia CPI - December

-- U.S. ADP employment - January

-- U.S. FOMC policy statement

To stay updated on all economic events of today, please check out our Economic calendar

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