A look at the day ahead in U.S. and global markets from Mike Dolan
For all the extreme bullishness about 2025, Wall Street is just a bit edgy as the Federal Reserve looks set to deliver its final interest rate of 2024 and give a glimpse into next year.
Remarkably, the Dow Jones Industrial Average's 9-day losing streak is the longest negative run since 1978 - but the index is still just under 4% from record highs set earlier this month.
Even though the broader S&P500 remains closer to its latest peaks, that strength has been largely concentrated in its handful of megacaps. The equal-weighted S&P500 is down more than 4% from its record on Dec. 2 and the small cap Russell 2000 is off 5.5% from the highs of late November.
As Treasury yields have backed up sharply again over the past fortnight - even as the latest U.S. industrial production and retail sales excluding autos missed forecasts for last month - the yearend is looking more anxious than ebullient new year forecasts suggest.
Although stock futures were up a touch ahead of Wednesday's bell, the VIX volatility gauge has moved back above 15 this week for the first time in a month. Ten-year Treasury yields remained above 4.4%.
Even though the Fed is nailed on to announce another quarter-point rate cut to a new 4.25-4.5% policy rate range later on Wednesday, its guidance on what happens next year and its updated projections from individual policymakers will carry more weight in markets.
As it stands, the Fed's most recent quarterly projections put the end 2025 rate down another 100 basis points to 3.4% - but markets don't believe that now and implied rates for the end of next year are as high as 3.90%.
How much the Fed revises up that view later on Wednesday will be the critical takeaway from today's decision, with a close eye too on where the policymaking committee sees the long-term neutral rate.
Fed officials are widely expected to lift that long-term policy rate view above 3% for the first time in eight years - effectively raising the bar on what it sees as neutral, and below which the central bank would be deliberately stimulating the economy.
With such a "hawkish cut" now expected and Treasury yields pumped up, the dollar held firm on Wednesday too.
The other big central bank meetings of the week are expected to be relatively hawkish affairs too.
Another tick higher in British inflation for November, alongside Tuesday's punchy wage growth data, cemented expectations the Bank of England will remain an outlier among major western central banks and hold its rates steady on Thursday.
Sterling slipped, however, as UK government bonds were hit and 10-year yield gilt spreads over Germany widened to the peaks of the disastrous British budget blowout in 2022. UK stocks , however, were firmer on Wednesday.
Japan's yen hovered just under 154 per dollar with the Bank of Japan expected to hold the line in its policy rates on Thursday but signal further hikes are due early next year.
