The Federal Reserve’s final policy decision of the year and indications regarding the possibility of rate cuts the following year weighed on traders as Asian shares mixed on Wednesday and oil prices fell to six-month lows.
Due to worries about oversupply and slowing demand, U.S. crude fell to $68.14 per barrel, while Brent reached its lowest point since late June at $72.75 per barrel. At the end of its two-day policy meeting on Wednesday, the Fed is expected to announce its rate, taking center stage.
The market anticipates that authorities will maintain the current level of interest rates, despite the U.S. inflation report coming in mostly in line with forecasts. That leaves the press conference by Powell and the Fed’s dot plot of its projected course for policy going forward.
According to Vishnu Varathan, head of Mizuho Bank’s strategy and economics, “The December FOMC is poised to be short on action, given the consensus for no rate hike, but may nevertheless be big on drama.”
“In particular, as a refreshed dot plot accompanied by revisions to the summary of economic projections that offer ample fodder to interpret the propensity for a Fed pivot… as well as confidence around a soft landing. But the growing danger is that the Fed’s inclination may be to calibrate expectations for a pivot.”
However, according to the CME FedWatch tool, investors are pricing in a 75% chance that the first cut could occur as early as May, continuing to bet that the Fed will almost certainly start easing monetary policy in 2024.
Due to these expectations, market sentiment remained positive, pushing U.S. stocks to new all-time highs for 2023 on Tuesday. Though trading was muted ahead of the Fed decision, MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) was unable to sustain the rally and fell 0.2%. The Nikkei (.N225) in Japan increased by 0.6%.
As investors continued to search for signs of additional policy support from Beijing, Hong Kong’s Hang Seng index (.HSI) fell 0.8%, and blue-chip stocks (.CSI300) in China fell nearly 0.5%. The yield on two-year Treasury bonds last stood at 4.7245%, having fallen to a nearly six-month low of 4.5400% earlier in December. U.S. bond yields were trading close to their recent lows.
The benchmark 10-year yield remained stable at 4.2006%, almost three months below its previous low. The US dollar was trading at $1.2558 against the British pound, showing signs of weakness in the currency market.
According to data released on Tuesday, wage growth in the UK slowed down for the first time in nearly two years. Despite this, pay growth was probably still too rapid for the Bank of England to soften its strict stance against lowering interest rates. At last, the value of the US dollar was 145.48 yen.
While investors are watching for indications of rate cuts from major central banks in the upcoming year, many are placing bets on the Bank of Japan (BOJ) to abandon its extremely loose monetary policy.
Maybank analysts wrote in a note, “We expect the BOJ to stay steady at the December meeting. We still think they will only exit (negative interest rate policy) and (yield curve control) in Q2 2024 after a strong spring wage negotiations’ result.”
Gold prices in commodity markets remained stuck close to a three-week low; it was last trading at $1,980.79 per ounce.
- Published By Team Genuine Reporter