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MARKETS

Wednesday presents a busy, potentially massively volatile, and market-moving session with the FOMC meeting and the U.S. refunding on tap. 

With the Treasury Department's consistent efforts to push down yields evident in its quarterly refunding announcements, investors will focus on whether the Treasury refunding estimates will be adjusted lower based on the recent forthcoming supply alterations published on Monday. 

As for the FOMC meeting, while the Fed is not anticipated to endorse a rate cut in March, the primary question surrounds whether such early rate cut discussions are being entertained, which should be the primary market-moving focal point during the press conference. Indeed, it's poised to be a blockbuster day as Chair Powell has the potential to endorse or push back current market bullish dynamics and ebullient investor sentiment.

Are you kidding me? With two super high-risk, potentially hugely market-moving events, it will be a hair-raising Wicked Wednesday, so buckle in. 

Regarding market performance, stock indexes experienced a mixed day, with the Nasdaq Composite declining by 0.8%, partially offsetting the previous day's substantial gains. The S&P 500 concluded the day with a modest decline of 0.1%. However, the Dow Jones Industrial Average registered an uptick of 0.4%, equivalent to 134 points. These movements indicate a varied trading session characterized by fluctuations across different equity market segments. 

As we transition into Aisa trading, investors remain attentive to the forthcoming guidance from the Federal Reserve as they navigate evolving market conditions and anticipate potential shifts in monetary policy.

THE HOUSE OF SAUD

Saudi Arabia's decision to abandon plans to increase its oil production capacity to 13 million barrels per day (mb/d) by 2027 carries significant implications for global oil markets. Still, the full extent of these implications remains uncertain.

The recent directive, announced through a concise press release, represents a notable reversal compared to the rhetoric espoused by CEO Amin Nasser in March 2020. At that time, the plan to increase the Kingdom's maximum sustainable capacity was revealed amid a short-lived and highly ill-timed price war with Russia. Nasser's declaration nearly four years ago emphasized Aramco's commitment to exerting maximum effort to boost capacity as swiftly as possible.

The proposed increase would have marked the first capacity expansion in at least a decade, albeit at a considerable expense. Saudi Arabia faces deficits projected through 2026 as Mohammed bin Salman pursues ambitious spending across various sectors in what many think are flights of fancy.

But it is still hard to escape the notion that pertinent questions are being raised about their outlook on the long-term demand for oil within the House of Saud. And their decision may reflect broader trends in the global oil market dynamics. Factors such as evolving energy transition policies, growing renewable energy investments, and climate change concerns could influence Saudi Arabia's strategic decisions regarding oil production capacity.

The decision to abandon capacity expansion plans underscores pressing questions about OPEC+'s ability to influence prices upward, especially amidst surging U.S. production and uncertainties surrounding Chinese demand. The Saudis, in particular, require oil prices around $100 per barrel to meet their fiscal requirements, underscoring the complexities and challenges facing global oil markets in the foreseeable future.

OIL MARKETS

Following a day of choppy trading, traders are on edge awaiting a response from the United States to a deadly drone attack on a military outpost in Jordan. The Biden administration is carefully weighing its options on how to retaliate against Iran-backed militias without escalating tensions in the already volatile Middle East region.

John Kirby, Coordinator for Strategic Communications for the National Security Council, indicated to reporters aboard Air Force One on Tuesday that the United States is contemplating a "tiered approach, not a single action, but essentially multiple actions" in response to Sunday's attack on a U.S. military base. The attack resulted in the death of three service members and left dozens injured. Notably, there have been over 159 attacks on U.S. troops in the Middle East since the outbreak of the Gaza War on Oct. 7, underscoring the escalating tensions and security challenges in the region.

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