By Joyce Yu
Philadelphia, PA–The US central bank will announce its latest interest rate decision today where the market expects Fed chair Janet Yellen to outline plans of balance sheet reduction. Led by gains in financial stocks, the three major U.S. stock indexes drifted higher on Tuesday.
The Dow Jones Industrial Average on Tuesday gained 0.2% to 22,370.80 while the S&P 500 and Nasdaq both closed 0.1 per cent higher. The Japanese Topix index closed flat, and both the Hong Kong Hang Seng and Shanghai Composite was 0.2% firmer.
“The wait for the Federal Reserve’s monetary policy announcement is going to overhang markets all day,” says Chris Bailey, European strategist at Raymond James.
He told the Financial Times that “It should all be about Janet Yellen’s comments concerning the timing of balance sheet reduction but this has got slightly sidetracked by the rising probability — now over 50 per cent for the first time in months — of a rate rise by the Fed in December, meaning the press conference is going to be a funny mixture of questions and potential insights.”
The market expects the Fed to start unwinding its holdings of about $4.2 trillion in bonds and mortgage-backed securities from October.
A recent data showed uptick in the US’s domestic consumer prices despite inflation remaining below the central bank’s 2 percent target. This bolstered the chances of a December rate hike to a level more than 50 percent.
For individual stocks, shares in Sprint and T-Mobile soared yesterday following reports that the two companies are in talks of a merger. Masayoshi Son, CEO of Sprint’s controlling shareholder SoftBank, said in May that the “door is open” for potential deals involving Sprint.
Bed Bath & Beyond lost more than 13 percent after as its latest earnings and sales failed to meet estimates, prompting a slew of price target cuts.
Investors will also monitor markets in Mexico following a massive earthquake that killed over 200 people. The Mexican peso is holding steady.
Meanwhile, prices of haven assets, which had retreated from their recent highs earlier in the week, turned round after the US president Donald Trump issued his harshest warning yet to North Korea in his speech at the UN.
A Thomson Reuters/INSEAD survey showed business confidence among Asian companies fell for the first time in three quarters in July-September due to escalating geo-political tensions. China, India and South Korea led the fall in sentiment in the third quarter, according to a Reuters report.
