Global stock markets held steady near record highs as investors prepared for a widely anticipated interest rate cut by the Federal Reserve, scheduled for later today, September 6, 2023. The US dollar showed signs of recovery after a recent decline, while gold prices retreated following a significant surge.
European shares opened higher, reflecting optimism across the continent. Japan’s blue-chip Nikkei index, however, experienced a slight pullback, closing 0.3 percent lower at 44,790.38. In contrast, Hong Kong’s Hang Seng Index rose impressively by 1.8 percent, reaching its highest level in four years, driven by positive developments regarding TikTok’s operations in the US.
China’s blue-chip CSI300 Index increased by 0.6 percent, while the Shanghai Composite Index gained 0.4 percent. South Korea’s Kospi, on the other hand, dropped nearly 1.1 percent, highlighting the mixed performance across Asian markets.
As for the Federal Reserve, it is expected to reduce interest rates by a quarter of a percentage point, bringing the target range to between 4.00 percent and 4.25 percent. Investors are particularly keen to hear any comments from Fed Chair Jerome Powell regarding the future direction of monetary policy. This meeting comes at a time of unusual circumstances, including the appointment of Steven Miran, on leave from the Trump administration, to the Fed board, while Lisa Cook faces potential removal by President Donald Trump.
According to Nina Stanojevic, a senior investment specialist at St James’s Place, “A rate cut is fully priced in. There were some questions around a 50 basis points cut given the doves on the board, but I think that’s less likely. What will be interesting is the narrative that comes out of the meeting and where the trajectory of rates is going to be.”
The US dollar index, which tracks the greenback against a basket of other major currencies, edged up by 0.2 percent after experiencing a decline on Tuesday, dropping to its lowest level since early July. The euro slipped by 0.25 percent to $1.1840, after reaching $1.1867 the previous day, its highest level since September 2021. The dollar was also firmer against the Japanese yen at around 146.66, recovering from a 0.6 percent decline in the previous session.
Mahjabeen Zaman, head of foreign exchange research at ANZ, noted, “If the [Fed] chair is more dovish than expected, of course, you would expect that to weigh on the dollar, but really, how much more bearish can you get from here? We’ve already got more than five cuts priced in for the cycle.”
In a similar vein, the Bank of Canada is also expected to announce a rate cut today in response to a weakening labor market and ongoing trade tensions. Meanwhile, UK inflation remained steady at 3.8 percent in August, reinforcing expectations for no change in rates at the upcoming Bank of England meeting.
The British pound softened slightly to $1.3637 as markets absorbed these developments. Elsewhere, Indonesia’s central bank surprised markets with another interest rate cut, marking its sixth reduction since initiating an easing cycle in September 2022. The move aims to bolster economic growth amidst recent unrest and protests in several cities.
Oil prices experienced a slight decline after a previous rise of over one percent. Brent crude futures fell by 33 cents, or 0.5 percent, to $68.14 a barrel, while US West Texas Intermediate crude futures eased similarly to $64.20. Despite this dip, geopolitical concerns continue to support the market.
Spot gold prices also declined by 0.6 percent to $3,665 per ounce after surpassing $3,700 for the first time earlier this week. The fluctuations in these markets reflect ongoing uncertainties and the evolving economic landscape as central banks around the world respond to shifting conditions.
