(Bloomberg) — Stocks struggled for direction as a watchful tone spread across global markets before the Federal Reserve’s interest-rate decision.
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Traders are split over whether the US central bank will cut rates by 25 or 50 basis points later Wednesday, with market-implied odds on the bigger move currently at 50%. The Fed will also release new quarterly projections, and Chair Jerome Powell will hold a press conference.
“If they’re doing 25 basis points this time, the likelihood that they can get to a hundred basis points by year end is pretty slim,” said Justin Onuekwusi, chief investment officer at St James Place Management. “So if you don’t get 50, then you’re going to get significant moves in market pricing.”
S&P 500 and Nasdaq 100 contracts gave up modest gains, while technology stocks led Europe’s Stoxx 600 index lower. In corporate news, Aperol maker Davide Campari NV’s shares fell 6.7% as its chief executive officer resigned after just five months.
The Japanese yen climbed as much as 0.8%, signaling expectations of a narrowing divergence in policy between the Fed and the Bank of Japan, which decides on rates on Friday. The dollar weakened slightly and Treasury yields ticked higher.
In the UK, money markets see the Bank of England delivering modestly less easing after services inflation rose to 5.6% in August from 5.2% in July, while the headline figure held at just above the 2% target. The pound strengthened after Wednesday’s data.
Economists largely anticipate the Federal Open Market Committee will reduce rates by a quarter point to a range of 5% to 5.25%, though a number expect a half-point move. Investors see even odds of a half-point adjustment.
Fresh quarterly projections in the form of the so-called “dot plot” released at the end of the central bank’s two-day meeting will offer further insight into the path ahead for borrowing costs and the economy.
St James’ Onuekwusi said the economy is in decent shape, recession risks have been largely priced out and unemployment is low. “Take all that together and we are relatively positive on the world and this decision won’t really change expected returns from asset classes overall.”
In Asia, a gauge of regional stocks edged lower. Chinese equities listed on mainland markets were modestly higher after a holiday break, shrugging off the gains in Hong Kong amid calls for major economic stimulus.
Chinese chip-related stocks jumped after the nation claimed a breakthrough in the development of homegrown chip-making equipment. Shanghai Zhangjiang High-Tech Park Development jumped by the daily 10% limit, while Changchun UP Optotech and Sai Micro Electronics also rallied.
Oil turned lower after a two-day gain as traders assessed indications of higher US stockpiles, rising tensions in the Middle East, and the likely course of the Federal Reserve’s rate path. Crude jumped Tuesday after thousands were hurt in what Hezbollah labeled an attack by Israel involving pagers in Lebanon.
Key events this week:
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Eurozone CPI, Wednesday
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Fed rate decision, Wednesday
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UK rate decision, Thursday
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US US Conf. Board leading index, initial jobless claims, US existing home sales, Thursday
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FedEx earnings, Thursday
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Japan rate decision, Friday
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Eurozone consumer confidence, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.3% as of 9:20 a.m. London time
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S&P 500 futures were little changed
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Nasdaq 100 futures were little changed
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index was little changed
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The MSCI Emerging Markets Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.1% to $1.1130
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The Japanese yen rose 0.4% to 141.91 per dollar
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The offshore yuan rose 0.3% to 7.0914 per dollar
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The British pound rose 0.3% to $1.3198
Cryptocurrencies
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Bitcoin rose 0.2% to $60,264.01
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Ether fell 1% to $2,322.47
Bonds
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The yield on 10-year Treasuries advanced one basis point to 3.66%
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Germany’s 10-year yield advanced two basis points to 2.16%
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Britain’s 10-year yield advanced three basis points to 3.80%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck, James Hirai and Winnie Hsu.
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