Stock markets mostly drop ahead of Fed policy update

AFP | London
Email : editor@newsofbahrain.com

Major stock markets mostly declined yesterday as attention turned to the Federal Reserve’s upcoming policy decision, with traders hoping for guidance on interest rate plans as President-elect Donald Trump prepares to take office.

Wall Street’s major indices fell, with the Nasdaq Composite retreating from a record high.

“Investors are cashing in some of their profits ahead of Wednesday’s Fed rate decision,” said IG analyst Axel Rudolph.

The Fed is widely expected to lower borrowing costs on Wednesday for the third consecutive meeting as it seeks to guide the world’s top economy to a soft landing. However, investors have already started paring their expectations on the number of rate cuts over the next 12 months due to persistent inflation, a strong labor market, and uncertainty surrounding Trump, who has pledged to slash taxes and impose tariffs on imports.

The reduction in the number of Fed interest rate cuts expected is reflected in the rise in U.S. Treasury yields, as investors demand higher returns in anticipation of fewer cuts.

“U.S. yields continue to rise as investors worry about the Fed pausing or slowing its monetary loosening cycle in 2025,” said Rudolph.

The Fed statement and comments from its policymakers will be closely analyzed for clues about next year’s outlook.

Tariffs Fallout
The Canadian dollar fell to its lowest level against the U.S. dollar since April 2020 after Canada’s Deputy Prime Minister Chrystia Freeland resigned on Monday, citing disagreements with Prime Minister Justin Trudeau over U.S. President-elect Donald Trump’s tariff threats.

Freeland’s resignation, which also saw her step down as finance minister, marked the first open dissent from within Trudeau’s cabinet and could threaten his hold on power.

In her resignation letter, Freeland warned that Canada needed to take Trump’s tariff threats “extremely seriously,” fearing it could lead to a “tariff war” with the United States. She stated that Ottawa must keep its “fiscal powder dry.”

Trudeau had dined with Trump at Mar-a-Lago last month to try to ease the tariff threat, but so far, there has been no indication that Trump’s position will change.

Investors are also monitoring Beijing after the latest Chinese measures to stimulate the economy fell short of expectations, with weak retail sales data on Monday reinforcing the need for further support.

Market Movements in Europe and Beyond
In European equities, London’s FTSE 100 slid, while Paris edged higher. Frankfurt dipped as sentiment was impacted by news that German business confidence this month hit its lowest level since the start of the coronavirus pandemic.

“The Ifo Business Climate Index published today speaks for itself: the German economy is in the midst of a crisis,” said CMC Markets analyst Konstantin Oldenburger.

Bitcoin traded close to a record high of nearly $107,791 reached on Monday, driven by optimism that Trump will introduce measures to deregulate the cryptocurrency market.

Oil prices retreated, hit by concerns that China’s struggling economy would impact demand for crude.

Key Figures Around 1630 GMT

• New York - Dow: -0.6% at 43,448.76 points
• New York - S&P 500: -0.4% at 6,049.71 points
• Nasdaq Composite: -0.4% at 20,099.84 points
• London - FTSE 100: -0.8% at 8,195.20 (close)
• Paris - CAC 40: +0.1% at 7,365.70 (close)
• Frankfurt - DAX: -0.3% at 20,4246.37 (close)
• Tokyo - Nikkei 225: -0.2% at 39,364.68 (close)
• Hang Seng Index: -0.5% at 19,700.48 (close)
• Shanghai - Composite: -0.7% at 3,361.49 (close)

Currencies

• Euro/dollar: - at $1.0498 from $1.0509 Monday
• Pound/dollar: + at $1.2706 from $1.2678
• Dollar/yen: - at 153.61 yen from 154.13 yen
• Euro/pound: - at 82.61 pence from 82.86 pence

Commodities

• West Texas Intermediate: -1.7% at $69.54 per barrel
• Brent North Sea Crude: -1.5% at $72.80 per barrel