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The Federal Reserve’s (Fed) rate decision is the main highlight of the day as the Fed is expected to hike its interest rates for the first time this year.
A quick glance to last twelve months hints at a comfortably dovish Fed. In December 2015, the Fed increased the Federal fund rates for the first time since the sub-prime crisis hit the US economy in 2007. Analysts expected the Fed to follow up with two to four rate hikes during 2016. Yet, the Fed walked through the year without tightening its rates. Hence, today’s very much anticipated rate hike would be this year’s first and the last rate action.
Despite a fairly dovish Fed, the US dollar firmed against the majority of its G10 majors and emerging market currencies throughout the year. Donald Trump’s victory in November’s US presidential election accelerated the speed of US dollar appreciation. As of today, the US dollar is at the highest levels since 2002 on a trade weighted basis.
Although there should be no surprises given the very much anticipated 25 basis points hike at today’s meeting, the FOMC’s accompanying statement and the Fed’s dot plot will set the primary tone for the 2017 outlook for the US’ monetary policy.
As predicted, US stocks renewed their record highs in New York on Tuesday, with energy and technology stocks leading gains.
The S&P500 extended gains to $2277 before retreating to $2271 at the US close. The Dow Jones rose to 19953 and finished the day at 19911.
Although Asia failed to build on the positive sentiment, the S&P futures gained 0.76% in the session.
Except US stocks, the global equity markets lost steam into the Asian close. Asia handed a flat to negative market to the European traders.
The FTSE opened downbeat. Utilities (-0.99%) and energy stocks (-0.25%) underperformed at the open. Mining stocks (+0.58%) gained on the back of firmer commodity prices.
Rio Tinto (+1.12%), Anglo American (+2.59%), BHP Billiton (+1.14%), as copper futures rose 0.31%.
The S&P 500 is expected to open flat at 2270.
The Dow is expected to ease by 11 points from yesterday’s all-time high close and setback to 19900 at the US open.
The Fed statement will certainly define the direction of US stocks till the end of the year. If the Fed disappoints the hawks at this year’s last policy meeting, we could then expect the recent enthusiasm seen in the stock markets to follow up with a year-end ‘Santa rally’, and pave the way for fresh historical high levels for stock traders.