World Markets Extremely Nervous, Anticipating Robust Rate Hike to be Announced Tomorrow

The Federal Reserve’s policy-setting FOMC is set to start its two-day meeting tonight, as investors are keen to see whether the financial regulator is ready to raise its benchmark rate by 0.75 or a full point. The corresponding announcement is scheduled for tomorrow. Stock indices have been in a bearish trend since infamous August’s inflation data, prompting more uncertainty about how long the Fed would keep raising rates to combat stubbornly rising prices. U.S. equities markets, coming off a positive Monday, is set to open lower in a few hours from now.

Yesterday, U.S. equity markets reversed early declines to finish higher in the last hour of trading, snapping last week’s losing streak ahead of the Federal Reserve’s two-day policy meeting that starts tomorrow. The Dow climbed 0.6%, while the S&P 500 gained 0.7%, and the Nasdaq rose 0.8%. The National Association of Home Builders (NAHB) reported homebuilder sentiment declined for the ninth consecutive month amid a slowdown in the U.S. housing market (more below). Shares of home flipping firm Opendoor (OPEN) fell 4% on reports the company was loss making on nearly half of its August transactions. Shares of rival Zillow (Z) also plummeted.

Shares of banks and other financials, including Bank of America (BAC), JPMorgan (JPM) and Wells Fargo (WFC) rose amid expectations of higher rates. Tech and consumer cyclical stocks, however, also made gains. However, health care company shares fell, with vaccine makers Moderna (MRNA) and Johnson & Johnson (JNJ) leading losses on the Dow following reports projecting vaccine sales would decline.

Commoditywise, crude oil prices retreated in late afternoon after rebounding, with the price of U.S. WTI crude lower by 0.41% at $84.67 a barrel. Prices for most major cryptocurrencies slightly recovered, with the price of Bitcoin (BTCUSD) near $19,000.

European markets are also sharply in the red today. As of 3:40 p.m. CET, the Stoxx Europe 600 Index fell 0.66%, British FTSE 100 declined 0.30% while the French CAC 40 Index fell 1.09%, and German DAX dropped 0.76%. Swedish Riksbank earlier today shocked economists by launching a robust, 100 basis point, hike to interest rates, taking its main policy rate to 1.75%, as it warned that “inflation is too high.” In an accompanying statement, the central bank said soaring inflation was “undermining households' purchasing power and making it more difficult for both companies and households to plan their finances.” The Eurozone recorded a current account deficit of €10.1 billion in July against a €36.8 billion surplus in the year-ago period. The annual producer inflation in Germany accelerated to a new record high of 45.8% in August from 37.2% in the previous month. Spain's trade deficit increased to €6.56 billion in July from €1.60 billion in July 2021.

Earlier this morning, Asian markets traded mostly higher. Japan’s Nikkei 225 gained 0.44%, Hong Kong’s Hang Seng Index climbed 1.16% and China’s Shanghai Composite Index rose 0.22%. Australia’s S&P/ASX 200 rose 1.3%, while India’s S&P BSE SENSEX jumped 1.3%. China’s central bank held its benchmark lending rates unchanged at September fixing. The annual inflation rate in Japan climbed to 3.0% in August from 2.6% in the prior month, while the core consumer price index, CPI, increased 2.8% from a year ago in August.