European Shares Hold Steady Ahead Of Fed’s Year-End Policy Decision

European stocks opened mostly unchanged on Wednesday, following a range-bound session in Asia, as investors awaited the Federal Reserve’s final policy decision of the year. The Stoxx 600 index showed little movement after four consecutive days of losses. Meanwhile, US futures contracts inched higher, despite both the S&P 500 and Nasdaq 100 slipping 0.4% on Tuesday. A key Asian equities index gained 0.1%, driven by positive performances in Hong Kong and mainland China.

Shares of Commerzbank AG surged as much as 4.3%, after UniCredit SpA announced an increased stake in the German lender. In Japan, Nissan Motor Co. shares spiked, marking their largest rise since at least 1974, following reports that the struggling automaker was exploring a potential merger with Honda Motor Co.

While markets widely expect the Fed to cut interest rates by 25 basis points later today, the focus is now on its outlook for the year ahead. Inflation has decelerated more slowly than anticipated, which could influence future monetary policy. Recent US economic data, including stronger-than-expected retail sales and a surprise decline in industrial production, have added to the uncertainty.

Alberto Tocchio, portfolio manager at Kairos Partners, noted that the Fed’s message today is likely to emphasize a data-dependent approach, with “every meeting being live.” Tocchio anticipates that the market could expect a maximum of three rate cuts for 2024.

Bank of America’s CEO Brian Moynihan said the Fed is expected to reduce rates to 3.75%, three additional cuts from the current level. He stressed that while the economy has shown greater resilience than expected, risks remain. “We haven’t even talked about what is going on outside the United States that could affect it — not tariffs, but wars,” Moynihan commented.

In bond markets, US Treasuries saw slight gains, while Bloomberg’s dollar index remained largely unchanged. The Japanese yen steadied ahead of the Bank of Japan’s policy decision on Thursday.

UK inflation climbed to an eight-month high in November, pushing further above the Bank of England’s 2% target and strengthening expectations that the central bank will maintain interest rates at its final meeting of the year. The British pound fell 0.2% in response.

Meanwhile, in China, longer-dated government bonds weakened after media reports raised concerns over the central bank’s discussions on risks to financial institutions. In Indonesia, the central bank kept its benchmark interest rate unchanged at 6%, following a probe into its use of corporate social responsibility funds.

Japan reported an uptick in exports for November, aided by a weaker yen, as the Bank of Japan prepares to discuss potential rate hikes on Thursday. While views suggest a cautious approach, speculation about a rate move in January is growing.

In other currency developments, the Canadian dollar fell to its lowest point since March 2020. In Brazil, the central bank intervened in local markets, selling over $3 billion to support the real. Bitcoin took a breather after reaching a record high of $108,000, as traders positioned themselves for the Fed’s decision.

Oil prices steadied after two days of losses, buoyed by an industry report showing a significant drop in US commercial crude inventories.