Global markets tread cautiously prior to crucial Federal Reserve rate decision

In the lead-up to the Federal Reserve’s final monetary policy decision of the year, global equities demonstrated mixed movements, influenced by tempered expectations for an early interest-rate reduction in the United States.

Wall Street’s primary indices displayed divergent trends, with the Dow slipping amid caution surrounding the anticipation that the US central bank would maintain its key lending rate at a 22-year high.

On Wednesday, European markets experienced modest gains, including in London, despite news of a worse-than-expected contraction in monthly UK economic output. Frankfurt remained stable following a last-minute budget deal in Germany led by Chancellor Olaf Scholz’s coalition.

In Asian markets, Tokyo, Sydney, and Wellington saw gains, while Hong Kong, Shanghai, and Bangkok faced declines. The market’s focus now turns to the language used in the Fed’s decision, accompanying economic forecasts, and the post-meeting press conference led by Fed Chair Jerome Powell.

Analysts speculate that this final Fed meeting of the year could be significant, as the central bank is expected to signal a conclusion to tightening measures and potential rate cuts in the coming year. Craig Erlam, senior market analyst at OANDA, noted, “The question is how many, with markets now pricing in four starting in May.”

The Federal Reserve’s decision marks the beginning of a series of announcements by major central banks on both sides of the Atlantic, as the European Central Bank and the Bank of England are set to reveal their decisions on Thursday.

London investors absorbed data indicating a sharper-than-expected slowdown in the UK economy in October, attributing it to the persistent impact of high Bank of England borrowing costs. While Wall Street ended Tuesday on a positive note, with the S&P 500 reaching a near three-year high, concerns lingered as core prices in the US remained resilient, revealing the ongoing challenge officials face in meeting their inflation target.

Wednesday’s data indicated that US wholesale prices remained unchanged in November, driven by a significant drop in the energy index. Despite the broad expectation of rate cuts in the coming year, traders now anticipate a less substantial reduction, with the first expected slightly later.

Oil prices saw a modest rebound on Wednesday, following a nearly four percent decline the previous day, attributed to concerns over rising US crude output and weakening Chinese demand.