Investors are bracing for another big interest rate hike from the US Federal Reserve
European and US stock markets slid on Wednesday, with investors on edge before another widely expected jumbo interest rate hike from the US Federal Reserve.
On Wall Street, the Dow was down 0.4 percent in midday trading, while the broader S&P 500 slid 0.8 percent and the tech-heavy Nasdaq slumped 1.3 percent.
London equities shed 0.6 percent on the eve of another expected large rate increase from the Bank of England.
In the eurozone, Frankfurt and Paris fell following weak eurozone manufacturing survey data and a dip in German exports.
“All eyes will be on central banks on both sides of the Atlantic as both the US Federal Reserve and BoE get ready to deliver their rate decisions over the next 24 hours or so,” said AJ Bell investment director Russ Mould.
“While we have a good idea of the quantum of increase both parties will deliver, it will be all about the mood music,” he added.
Global central banks have this year ramped up borrowing costs in an attempt to curb inflation, which has rocketed on sky-high energy costs arising from Russia’s war on Ukraine.
Economists fear that rising rates will spark a global economic downturn because they ramp up loan repayments for individuals and businesses, thereby denting consumer spending and investment.
– US rate clues –
Wednesday’s Fed decision is hotly anticipated by traders hoping for a hint from officials that they are ready to temper their speed of monetary tightening.
“Investors are waiting for clues from the Federal Reserve about the path of rate rises, and in the meantime a slightly more wary mood has settled on the markets,” said Hargreaves Lansdown analyst Susannah Streeter.
“A fourth consecutive 75 basis point hike is not going to surprise anyone, but the key question is whether the Fed will signal that it is ready to pivot to a less hawkish stance in its December and subsequent meetings,” said market analyst Fawad Razaqzada at City Index and FOREX.com.
Analyst Craig Erlam at OANDA said increasing numbers of investors are anticipating Fed policymakers will hint at a slower pace of interest rate hikes from December, given the softness of economic data in some sectors and the lag in impact of monetary policy.
“Investors are so desperate for anything remotely dovish at this point that even a hint could get a strong reaction,” he said.
In Asia, stocks were mixed after Tuesday’s losses on Wall Street, as forecast-beating US data jolted hopes the Fed could soon tone down its hawkish pace of rate hikes.
Hong Kong led gainers — extending the previous day’s surge — as traders remain hopeful China could begin rolling back its economically painful zero-Covid policy, the day after an unverified statement suggesting a shift was taking place.
Suggestions that the Fed could take its foot off the pedal as the world’s top economy shows signs of slowing have helped fuel a rally across risk assets for more than a week.
But some of the wind was taken out of their sails Tuesday after data showed a rise in job openings while other numbers released indicated the manufacturing sector did not perform as badly as expected last month.
The readings suggest the US economy continues to hold up despite recent signs of weakness in the face of decades-high inflation, and Fed policymakers are likely to interpret them as interest rates need to continue to move higher.
– Key figures around 1630 GMT –
New York – Dow: DOWN 0.4 percent at 32,539.42 points
EURO STOXX 50: DOWN 0.8 percent at 3,622.01
London – FTSE 100: DOWN 0.6 percent at 7,144.14 (close)
Frankfurt – DAX: DOWN 0.6 percent at 13,256.74 (close)
Paris – CAC 40: DOWN 0.8 percent at 6,276.74 (close)
Tokyo – Nikkei 225: DOWN 0.1 percent at 27,663.39 (close)
Hong Kong – Hang Seng Index: UP 2.4 percent at 15,827.17 (close)
Shanghai – Composite: UP 1.2 percent at 3,003.37 (close)
Euro/dollar: DOWN at $0.9865 from $0.9883 on Tuesday
Pound/dollar: DOWN at $1.1455 from $1.1486
Dollar/yen: DOWN at 147.09 yen from 148.23 yen
Euro/pound: UP at 86.12 pence from 85.96 pence
Brent North Sea crude: UP 1.8 percent at $96.37 per barrel
West Texas Intermediate: UP 2.1 percent at $90.20 per barrel
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