Global markets retreat as initial fed rate-cut optimism wanes
Global equity markets experienced a downturn on Monday, retracing some gains from the previous week’s rally. This shift comes as Federal Reserve officials attempt to manage expectations about multiple interest rate cuts in the coming year.
While the Bank of Japan’s meeting is on investors’ radar this week, recent speculations about a departure from its ultra-loose monetary policy have subsided, with analysts predicting a potential move in the new year.
Despite indications that equities could close the year on a positive note following the Fed’s suggestion of a loosening monetary policy, markets slowed on Wall Street after record highs for the Dow and Nasdaq. The surge in tech firms contributed to the buying frenzy, but investors took a step back on Friday, a move deemed anticipated by analysts.
Asian markets faced challenges at the beginning of the week, with Hong Kong experiencing a one percent decline, and Tokyo, Shanghai, Sydney, Singapore, Mumbai, Taipei, Manila, and Jakarta also seeing red. London, Paris, and Frankfurt opened lower, while Wellington, Bangkok, and Singapore saw marginal gains.
Last week, several Fed officials aimed to temper expectations of extensive rate cuts next year, countering predictions of up to six cuts with the bank’s “dot plot” forecast indicating three. New York Fed chief John Williams stressed that discussions about rate cuts were premature and cautioned against expecting a March cut.
Atlanta Fed boss Raphael Bostic foresaw two reductions from the third quarter, while Chicago counterpart Austan Goolsbee emphasized a cautious approach linked to inflation control.
The Bank of Japan is set to announce its decision on Tuesday, and although there has been speculation about a departure from ultra-loose policies, analysts expect any shift to occur in the coming months. Despite keeping rates in negative territory and adhering to a bond price control policy to boost the economy, rising inflation and a struggling yen are reportedly prompting considerations for change.
Economists at Societe Generale noted that while the BoJ may not rush into policy changes, markets are vigilant for any signals indicating a willingness to end negative rates or yield curve control.
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