World Shares Slide as Wall Street Declines Ahead of Fed Decision
Global stocks experienced a dip on Wednesday, largely driven by a slide in Wall Street, while Treasury prices rose as investors anticipated a soft landing for the US economy ahead of the Federal Reserve’s two-day policy meeting. Market participants are eagerly awaiting clues and further insight into the timing of potential interest rate cuts from the Fed. Futures markets now favor a 63% probability of a rate cut in March, according to the CME Group’s FedWatch Tool. As a result, the dollar dipped against the euro and yen as traders awaited the Fed’s statement and Chair Jerome Powell’s subsequent press conference.
The US central bank is widely expected to hold rates steady, but market observers will be closely analyzing the language used in the statement for hints of future cuts. Matt Miskin, co-chief investment strategist for John Hancock Investment Management, noted the precarious situation in which the Fed finds itself. He emphasized the need for the central bank to maintain a fine balance, ensuring that the economy does not overheat and cause inflation to rise uncontrollably, while also avoiding unnecessary restrictions if inflation remains on target.
Meanwhile, European shares edged slightly higher, with the pan-regional STOXX 600 index rising 0.16%, buoyed by strong corporate updates and positive performances in Spain and Italy. However, MSCI’s global stocks gauge experienced a 0.44% decline, while Wall Street struggled, with the tech-heavy Nasdaq tumbling 1.61% to a week’s low. The decline was triggered by Google-parent Alphabet’s projection of rising artificial intelligence costs, which negatively impacted mega-cap and chip stocks.
In the bond market, Treasury yields fell as investors increased demand for safe-haven assets. This was driven by signs of slowing labor costs and a weaker-than-expected reading of private payrolls. Initially, strong economic data had sparked concerns that the Fed would refrain from cutting rates in the near future. The two-year Treasury yield, which is often seen as an indicator of interest rate expectations, fell by 15.4 basis points to 4.205%, while the yield on the benchmark 10-year note dropped 10.5 basis points to 3.952%.
Throughout the month, the dollar index has gained almost 2% against a basket of major currencies, marking its largest monthly rise since September. This increase in value is primarily due to a recalibration of market expectations surrounding the pace and scale of future rate cuts. At the end of the trading day, the dollar index was down 0.28% at 103.09.
Meanwhile, euro zone government bond yields decreased as a result of mixed economic data from Germany and France, as well as dovish comments from European Central Bank officials. The yield on Germany’s 10-year government bond, which serves as the benchmark for the euro area, fell by 9.7 basis points to 2.177%.
