Morning Bid: Warsh on collision course with Trump administration

A look at the day ahead in European and global markets from Gregor Stuart Hunter

Federal Reserve Chair Kevin Warsh is likely to come out of Wednesday's policy decision bruised one way or another. If he stands pat, markets may revolt. If he pulls the trigger on a rate hike, the White House almost certainly will.

The Federal Open Market Committee has backed itself into a corner ahead of its meeting, with inflation still running above target, oil prices firmly above $100 per barrel and traders pricing a 93% chance of a rate hike - though the likely path of U.S. interest rates into next year is an open question.

A hike carries its own risks. President Donald Trump has repeatedly pushed for lower borrowing costs and last month, he even threatened to cut off trade with countries running surpluses against the U.S. if the Fed failed to lower rates. Whether this is all bluster remains anyone's guess.

Still, there has been some reprieve for markets on Wednesday - the yield on the U.S. 10-year Treasury bond has nudged lower after breaking above the 5% mark a day earlier. Oil prices also stepped back, with an unexpected rise in U.S. crude inventories taking some heat out of the rally. Brent crude slipped 0.9% to $107.82 a barrel.

But with other major central banks, including the Bank of Japan, also poised to tighten policy this week, investor confidence is proving skittish.

Stocks managed a cautious rebound after several false starts. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6%, the Nikkei 225 added 0.4% and U.S. S&P 500 e-minis were up 0.2%.

The tentative optimism carried into Europe, with the pan-region Euro Stoxx 50 futures, German DAX futures, and FTSE futures all up 0.3% in early trading.

Elsewhere, digital assets extended losses after the U.S. Senate voted on Tuesday against comprehensive cryptocurrency legislation backed by Trump. Bitcoin slid 0.1% to $75,816.24, while ether slipped 0.2% to $2,403.27.

Key developments that could influence markets on Wednesday:

Company announcements:

Barratt Redrow, Babcock International Group, Lennar Corp

Economic events:

UK: CPI, RPI and PPI for August

Euro Zone: Industrial production for July and labour costs for Q2

Debt auctions:

Germany: 21-year and 30-year government debt

(Reporting by Gregor Stuart HunterEditing by Shri Navaratnam)