Stock markets, dollar slip before US rate decision ~ EconomyLens.com

London (AFP) – European markets and the dollar slipped, while US stocks barely budged Wednesday as traders avoided taking strong bets on the size of the US Federal Reserve’s interest rate cut expected later in the day. The Fed has widely signalled it will cut borrowing costs for the first time since the start of the Covid pandemic in early 2020, but uncertainty remains over whether it will trim borrowing costs by 25 or 50 basis points. The Dow and the wider S&P both hit record levels Tuesday, but on Wednesday the main US indexes were unchanged in late morning trading.

In Europe, Paris and London closed lower, while Frankfurt ended the day flat. “The debate between 25 and 50 rages on,” said Cooper Howard, director of fixed income strategy at Charles Schwab. “The market has never been so much in the dark, other than during COVID, this close to the meeting about what the Fed will do.” The lack of clarity might help explain why yesterday’s early run to record highs fizzled out,” he said. CME’s FedWatch Tool is ascribing about a 60-percent probability of a 50-bps cut.

“It seems reasonable that traders and investors should sit on their hands for now,” said David Morrison, analyst at Trade Nation. “It’s extremely rare to go into a Fed meeting with this amount of uncertainty.” The argument against a larger cut is that it could spook markets by signalling that the Fed is worried about the state of the economy. A smaller cut could disappoint investors who think the Fed has been too cautious in the face of signs of a slowing US economy.

“The rate decision could provoke a good bit of trading volatility in its wake,” said Patrick J. O’Hare, an analyst at Briefing.com. Recent jobs reports have triggered concerns over weakness in the world’s biggest economy, following on from worries about a growth slowdown in China, the next largest. Official data Tuesday showed US consumer spending cooled in August, but not as much as expected. That helped temper lingering worries that the country was in danger of slipping into recession.

The dollar slipped against the pound, hurt by chances of a 50-basis-point cut from the Fed, coupled with increased expectations that the Bank of England would decide against a consecutive reduction in UK borrowing costs Thursday. The central bank is seen sitting tight following a regular meeting, as official data Wednesday showed British annual inflation held at 2.2 percent in August.

Elsewhere on Wednesday, oil prices slipped as an industry report showed rising crude inventories in the United States, offsetting interest rate cut expectations which in theory should boost demand.

– Key figures around 1540 GMT –

New York – Dow: DOWN 0.1 percent at 41,551.84 points

New York – S&P 500: DOWN 0.1 percent at 5,634.44

New York – Nasdaq Composite: DOWN 0.1 percent at 17,611.38

London – FTSE 100: DOWN 0.7 percent at 8,253.68 points (close)

Paris – CAC 40: DOWN 0.6 percent at 7,444.90 (close)

Frankfurt – DAX: DOWN 0.1 percent at 18,711.49 (close)

Tokyo – Nikkei 225: UP 0.5 percent at 36,380.17 (close)

Shanghai – Composite: UP 0.5 percent at 2,717.28 (close)

Hong Kong – Hang Seng Index: Closed for a holiday

Pound/dollar: UP at $1.3202 from $1.3162 on Tuesday

Euro/dollar: UP at $1.1120 from $1.1116