- European markets open lower, UK rate decision in focus
- US markets tumble on rate cut projections
- Japan holds rates steady
- Oil dips on demand concerns and dollar gains
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“European markets posted sharp losses in early trading, with the FTSE 100 down 1.1%, tracking a global selloff sparked by the US Federal Reserve’s hawkish shift. While the Fed delivered a widely expected 25bps rate cut, its projection of just two cuts in 2025 – down from four in September – rattled investors around the globe. Closer to home, attention turns to the Bank of England, where rates are widely expected to remain on hold, offering little reprieve to jittery markets.
US markets played the part of Scrooge on Wednesday, tumbling as the Federal Reserve’s hawkish tone dampened holiday cheer, with the S&P 500 shedding 2.95%, the Nasdaq sliding 3.62%, and the Russell 2000 plunging 4.46%. The Fed’s latest 25bps rate cut was as expected, but policymakers signalled just two cuts for 2025 – half of what was anticipated last quarter. This shift sent the 10-year Treasury yield up 11 basis points to 4.51%, adding further pressure to equity markets. Wall Street’s reaction underscores the Fed’s delicate balancing act as it tightens its outlook on easing, forcing markets to recalibrate their rate expectations. Investors should see this as a healthy spot of profit-taking rather than an end to the party, after what’s been a fantastic run for markets since the US election.
The Bank of Japan (BoJ) held its short-term interest rate steady at 0.25% during its final meeting of the year, the highest level since 2008, aligning with market expectations. The decision, passed by an 8-1 vote, saw Naoki Tamura dissenting in favour of a 25bps hike, as the BoJ opted to take a cautious approach amid lingering uncertainties, including US economic policies under Donald Trump and next year’s wage growth. Despite pockets of weakness, the BoJ maintained its view of a moderate recovery, supported by rising private consumption and business spending, while inflation, hovering between 2.0% and 2.5%, continues to climb at a gradual pace.
Brent crude oil slipped below $73 per barrel this morning, as the Federal Reserve’s signal of fewer rate cuts raised fears of dampened fuel demand. The strong US dollar, which makes oil more expensive for buyers using other currencies, added to the downward pressure. While falling US crude stocks and Kazakhstan’s decision to back OPEC+ cuts provided some support, expectations of robust non-OPEC+ output kept optimism in check.
