Markets expect to hear from a dovish Fed on Wednesday, while a bubbling up of oil prices makes weekly U.S. inventory data a bigger than normal focus.
For the stock market, the first notable report of the corporate earnings season—Alcoa—is expected after the closing bell. Earnings season gets into full swing next week when major banks and technology companies report.
The minutes of the Fed's March meeting are released at 2 p.m. ET. Fed watchers hope to see more elaboration on the deliberations that led Fed officials to signal a willingness to move towards raising rates, and what it is they are looking for as a trigger when they make the final decision.
Oil, however, was a big story for markets this week with West Texas intermediate futures jumping more than 9 percent, and that could spill into Wednesday trading.
West Texas intermediate futures for May delivery rose 3.5 percent to $53.98 per barrel Tuesday. Crude could stay volatile Wednesday, as traders await the Energy Information Administration's U.S. oil and gas inventory report at 10:30 a.m. ET. Speculation has been building that low prices are finally catching up to U.S. producers, impacting the amount of oil going into storage.
"The rate of increase is slowing. We're still going to have, like, a four-million barrel build tomorrow," said John Kilduff of Again Capital. Oil has been moving higher as traders expect less oil to move to storage in Cushing, Oklahoma, the physical hub for Nymex crude oil futures.
Oil edged lower after the American Petroleum Institute's late afternoon report that said weekly crude stocks rose 12.2 million barrels, with stocks at Cushing up 1.2 million barrels.
Kilduff said the surge in oil could be seen as a selling opportunity, particularly after Saudi Arabia announced a significant increase in production.
In comments Tuesday, Saudi Oil Minister Ali al-Naimi said Saudi Arabia is ready to "improve" prices if other producers outside OPEC join the effort. He said Saudi Arabia also pumped 10.3 million barrels a day, a big jump from prior months. Brent crude, the international benchmark was weaker, in afternoon trading.
"That is huge. That could be 800,000 barrels per day more than they were producing a couple months ago," said Kilduff. He said part of the move upward in WTI futures was technical.
"$52.50 was big. There were a lot of weak shorts that came into the market late. I think this is a big selling opportunity here. The supply is not decreasing. It's increasing, still," he said.
Stocks gave up gains late in Tuesday's session, following the small-cap Russell 2000 lower. The Dow was off 5 at 17,875, and the was down 4 at 2076. The Russell was off 8 at 1253, after trading lower all afternoon. The S&P energy sector, up 0.3 percent, was the best performer for a second day.
Treasury yields fell at the long end, with the 10-year yield dipping to 1.88 percent in late trading Tuesday. The government auctions $21 billion in 10-year notes Wednesday at 1 p.m., normally an event that would send rates higher.
"Rates backed up and there could be some short covering," said Ian Lyngen, senior Treasury strategist at CRT Capital.
Lyngen said the market's focus will be on the auction and the Fed minutes. "I want to hear why they lowered their GDP forecast," he said, adding the market expects a dovish tone.
Markets have been expecting the Fed to move slowly toward rate hikes, after it released its statement in March, making it clear it would be data dependent but also willing to take its time. That message was reinforced by the surprise weakness in March's jobs report, with just 126,000 nonfarm payrolls created.
Economists mostly expect September or even later for the first rate hike, and Goldman Sachs economists said Tuesday the fact that inflation has been so low is one reason the Fed could wait until December.
"I don't think there's going to be anything in the minutes that will take people by surprise," said Steve Massocca of Wedbush Securities. "It's data dependent. It's going to be the same song and dance…. I think they delivered the message they want to deliver. I don't think they want to change the message right now."
Markets will hear from Fed officials again Wednesday, with New York Fed President William Dudley speaking on the economy at 10 a.m. CNBC's Steve Liesman will moderate a discussion with Fed Gov. Jerome Powell at 8 a.m. on the challenges for monetary policy at the Council on Foreign Relations.
Massocca said the Fed's easy stance has been a positive for the stock market because with weak data, it now appears to be on hold. Stocks rallied Monday after dovish comments from Dudley who said he thought the economic weakness was temporary and the trajectory of rate hikes would be shallow.
"I think yesterday's rally caught people by surprise. People thought the employment number would take the market down and the economy would take the market down. The fact that it didn't, helped the market," he said.
Massocca said the more sluggish economy is not necessarily a bad thing as long as it does not slow down too much. The recent batch of weak data makes investors wary about weakness in corporate earnings, expected to be lower for the first time in six years.
"I think you can spin a story the employment number was a positive because even though the economy is slowing down it means the Fed is going to be pumping money," he said.
Alcoa is expected to report first-quarter profits of 26 cents per share, nearly triple last year's level, on $5.9 billion in revenues, 9 percent higher than a year ago. Bed Bath & Beyond also reports after the bell. Family Dollar and Rite Aid both report ahead of the opening bell.
Thomson Reuters says analysts expect a drop in S&P 500 net income of 2.8 percent, the first actual decline since 2009.
"Corporate America has gotten very good at managing Wall Street expectations, and they've gotten the expectations to a place where they can beat them," Massocca said.