US stock markets stabilised yesterday and closed with minor gains after past days’ sell-offs. Trading is mixed in Asia this morning as investors await the FOMC tonight.
The U.S. Federal Reserve is expected to raise interest rates but may cut the number of hikes it anticipates next year and signal an earlier end to its monetary tightening in the face of financial market volatility and rising recession fears. The central bank is due to announce its decision after its final two-day policy meeting of the year. Fed Chairman Jerome Powell is scheduled to hold a press conference half an hour later. President Donald Trump has repeatedly attacked the Fed for raising rates this year, saying it was undercutting his efforts to boost the economy. On Tuesday, Trump warned Fed policymakers not to “make yet another mistake.” The Fed’s tightening is designed to reduce the monetary policy boost to a U.S. economy that is now growing much faster than central bank policymakers think it can sustain.
The Italian government has made a deal with the EU Commission on the budget for 2019. The new budget reduces the deficit to 2.04% and according to Italian officials there has been a technical agreement on the budget. We still need an official statement from the EU Commission, but that should come today. This leaves room for more convergence between Italy and the core-EU markets.
In main currencies, EUR/USD nudged up to 1.1379 from a 1.1266 low. GBP/USD is stabilized above 1.2650 and USDJPY is trading at 112.35 a day before the BOJ will announce its last rate decision of 2018
In commodities, Oil price dropped substantially overnight. U.S. crude was last down another 13 cents at $46.11 a barrel, while Brent recouped just 4 cents to $56.30. The decline in the oil price appears to be driven by a combination of supply and growth concerns. Brent’s 35 percent plunge since October is sending a disinflationary pulse through the world at a time when trade and economic activity are already cooling. That has only added to pressure on the Fed to abandon its commitment to yet more hikes.