Federal Reserve boss Jerome Powell's post-meeting comments will be closely followed for an idea about the bank's plans for 2023
Caution reigned on stock markets on Wednesday ahead of an expected interest rate hike from the Federal Reserve as inflation remains at decade-high levels despite moderate slowdowns.
Wall Street’s main indices posted modest gains in morning trading, with the Dow adding 0.7 percent.
European stocks finished moderately lower, with London losses cushioned by news that UK inflation nudged lower in November.
Meanwhile, Frankfurt and Paris also fell despite the Ifo research institute’s forecast that Germany’s recession could be milder than previously predicted.
Asian stocks rose following Tuesday’s rebound on Wall Street.
The dollar drifted lower against its main rival currencies.
The Fed is forecast to increase borrowing costs 50 basis points Wednesday after four 75-point rises in a row.
The US central bank has embarked on an all-out campaign to cool demand in the world’s biggest economy, raising rates six times this year with interest-sensitive sectors like housing already reeling from tightening policy.
The US central bank’s post-meeting statement and boss Jerome Powell’s comments are the main focus for traders, along with the Fed’s infamous “dot plot” chart of the rate outlook.
“At the end of the day, it’s Jerome Powell, and the Fed, who will either give a green light for a modest Santa rally (for equities), or tell investors that Santa is stuck in a snow storm this year,” noted SwissQuote analyst Ipek Ozkardeskaya.
Investors will be looking for indications on the pace of future rate hikes, as well as what could be the “terminal rate”, or the highest interest rate before the Fed begins lowering rates again.
Briefing.com analyst Patrick O’Hare said the “tone and cadence from Fed Chair Powell will have an outsized impact today” on markets as official forecasts are subject to revision.
Later, the impact of higher interest rates on consumers and the wider economy will feed into investors’ calculations.
“That reality will be an inevitable drag on economic activity and it will be incorporated in the market’s concerns about the long and variable lags of monetary policy on economic activity,” he added.
It’s the turn of Europe on Thursday, with the Bank of England and European Central Bank expected to announce less aggressive rate hikes compared with their recent monetary policy decisions.
Wall Street rebounded Tuesday in reaction to data showing US consumer prices rose 7.1 percent last month, less than forecast and the slowest pace since December 2021.
The reading followed an October slowdown and fuelled hopes that inflation in the world’s biggest economy has finally peaked, after several months of Fed rate hikes.
Markets are also eyeing developments in China, which is continuing to roll back its strict zero-Covid strategy that has battered the world’s number two economy, though fears of a sharp surge in infections are causing some unease among dealers.
Oil prices pushed higher.
“Crude oil prices have continued their recent rise after the IEA warned that prices were likely to rise next year as sanctions further squeeze Russian supply, and demand starts to pick up as China starts to reopen properly,” said market analyst Michael Hewson at CMC Markets.
– Key figures around 1630 GMT –
New York – Dow: UP 0.7 percent at 34,350.80 points
EURO STOXX 50: DOWN 0.3 percent at 3,975.26
London – FTSE 100: DOWN less than 0.1 percent at 7,495.93 (close)
Frankfurt – DAX: DOWN 0.3 percent at 14,460.20 (close)
Paris – CAC 40: DOWN 0.2 percent at 6,730.79 (close)
Tokyo – Nikkei 225: UP 0.7 percent at 28,156.21 (close)
Hong Kong – Hang Seng Index: UP 0.4 percent at 19,673.45 (close)
Shanghai – Composite: FLAT at 3,176.53 (close)
Euro/dollar: UP at $1.0660 from $1.0635 on Tuesday
Dollar/yen: DOWN at 134.76 yen from 135.59 yen
Pound/dollar: UP at $1.2421 from $1.2366
Euro/pound: DOWN at 85.83 pence from 85.96 pence
Brent North Sea crude: UP 2.5 percent at $82.72 per barrel
West Texas Intermediate: UP 2.6 percent at $77.36 per barrel
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