Wall Street tanked overnight, with the S&P 500 touching 14-month lows. Investors fret over the health of the economy and the next steps by the Fed. The Fed is due to make the monetary policy announcement on Wednesday, which has been the markets' focus, almost obsession this week.
The Fed is expected to hike rates on Wednesday, however investors are looking at what the Fed intends to do in 2019. The markets' overriding fear is that the Fed will press ahead with plans to raise interest rates, which could be too much for the U.S. economy to handle. An indication from the Fed that they will slow their pace of hikes could calm these jittery markets. However, until the Fed have confirmed that as a course of action, investors will remain skittish. The volatility index, also known as the fear gauge lifted 2.27 points to a seven-week high.
The Dow closed 500 points lower, the S&P ended the session down 2.1% amid calls of a bear market, and the NASDAQ lost 2.2%. Taking the lead from Wall Street, Asian markets skidded southwards overnight. Traders’ attention shifted to Chinese President Xi Jinping and his failure to mention any new reforms or stimulus in a speech hailing China’s opening to the world, saw Asian markets hit their nadir.
Europe is on track for a weaker start. However, with U.S. futures moving higher, the losses on the European open are not looking as severe as those felt by the U.S. and Asia overnight.
The dollar was under pressure across the board on Monday as investors grew doubtful over the Fed’s next steps. The dollar closed 0.3% lower versus a basket of currencies. The pound is taking advantage of the weaker dollar, moving high in early trade on Tuesday.
Pound Edges Higher as Date Set for Parliament’s Brexit Vote
The pound climbed in the previous session, despite Theresa May facing a hostile Parliament. PM May confirmed a meaningful vote on Brexit in the third week of January, removing a layer of uncertainty from the chaotic Brexit picture. Jeremy Corbyn stopping short of toppling the Prime Minister, has also offered support to the pound. He is unlikely to press ahead until he is sure he can win. The pound breathed a sigh of relief amid the increasingly evident frustration on all sides of UK politics.
A 4th Straight Decline for IFO Business Confidence?
The euro is edging lower as traders look ahead to IFO business sentiment data, which is expected to fall again in December. This would be the fourth consecutive monthly decrease as businesses revise down their assessment of the current business climate and their forward-looking expectations. The data comes following a dovish Draghi last week and inflation dipping below the ECB’s 2% target. All in all, there is little for euro traders to be cheering right now. It’s only saving grace could be a weaker dollar should the Fed take the foot off the accelerator.