All eyes are on the Fed and what guidance it offers on additional rate cuts this year, with a 25bps cut to the main fed funds rate all but assured.

As detailed in our preview, the Fed is highly likely to cut interest rates by 25bps. The question facing the market is how many more there are to come. Are we at the end of the mid-cycle adjustment, or the early stages of a full-blown easing path? Will we get yet another flip-flop? Traders are increasingly less confident in the number of cuts the FOMC will carry out this year. A hawkish cut is a firm possibility, albeit the median projected fed funds rate from the dot plot should come down a touch.

Oil has dropped sharply after Saudi Arabia said oil supply was up and running again. Whilst WTI fell about 5% on this development, prices remain elevated largely because of an increase in geopolitical risk premium. WTI was last holding at $59, off the bottom of this week’s range, with the lows around $58.25, and still well north of Fridays close at $54.85. Markets are still attaching a decent risk premium following the attacks.

In FX, the pound was bid and euro slightly higher versus the dollar. GBPUSD has firmed around the 1.2450 level and pushed on up to threaten 1.2520, where’s it encountered resistance and come back 50 or so pips to trade a whisker around 1.2470 again. We now look for a sustained breach of the 1.2520 level to maintain momentum and take out the next bastion at 1.2550, however we may likely see some consolidation now around 1.25 first. This whole region offers a big test for bulls as the pair exits the bottom formation. Juncker today saying that no deal remains a real risk but is hopeful of a deal – same old.

After a flat and indecisive day on Tuesday, European markets are looking for direction and probably cannot be expected put on fireworks given we have the Fed this evening. The FTSE 100 was a touch higher while the DAX was flat.

Asia was mixed. Overnight data showed Japan’s exports tumbled 8.2% in August, the ninth straight decline, although the number was not quite as bad as feared. Imports slid 12%. Global trade is crumbling as the tariff  war between the US and China tumbled on.

Wall St eked out a small gain, with the S&P 500 recovering the 3,000 level. FedEx was disappointing as slowing global trade hit earnings and forced the company to lower its full year guidance.

Equities

The takeover of Cobham by Advent is now in doubt, with the British government intervening on national security grounds. This was always a risk as regulators and politicians are more sensitive to foreign takeovers, although we thought that the message from the government until now was that it was quite relaxed about this one. However, an intervention notice on the grounds of national security has been issued and the CMA will investigate, with findings to come by Oct 29^th. Shares though are down just a fraction, with COB slipping 0.9% to £1.59, still well north of the pre-bid price and suggesting that the market does not think the government will block. I think the risk of the government preventing this deal going through is higher than the market is indicating. Shares may be exposed.

Time for a Kingfisher version of Brexit? It’s a huge task for incoming CEO Thierry Garnier as he tries to overhaul Kingfishers fortunes. Profits slipped 12.5% and it was just more of the same in terms of the split as France and B&Q were the main culprits for the malaise that left group LFL sales -1.8%. A retreat from European ambitions may not be a bad idea – it’s already exited Germany and France is the major drag. Sometimes you just have to leave your European friends behind…Pressure on management to come up with a new plan is mounting and this could well include a look at breaking up this company into smaller parts. Sometimes you are not greater than the sum of your parts.

UK sales -0.7% reflected softness at B&Q and offset to some extent by continued good progress at Screwfix. Screwfix total sales were up 10% while LFLs were up at a decent clip of 5%. B&Q is a bit disappointing after in May signalling that LFLs there had risen 2.8% thanks to a strong performance from weather-related items UK profits slipped 1.7%.

France is the real rotten apple making the whole bunch bad. Both Castorama and Brico Depot registered sales drops of more than 4% on a total and like for like basis. Profits slumped over 12%. Time to offload France. Elsewhere, Romania and Poland are solid. Russia and Iberia were soft, Germany exited. KGF shares fell 1% in early trade as a result.