The markets are in a holding pattern ahead of the Federal Reserve’s rate decision later today.
Expected rate hike already priced in
Not only is the Fed’s signalled 25 basis points rate hike already well priced into the currency and bond markets, as evidenced by the spike in the US 10-year bond yield to a seven-year high, but the level of the Fed funds rate futures indicate there is an 85% chance of a further rate increase at the end of the year. Although until earlier this week US markets powered to the highest level ever the sentiment is beginning to shift and for the first time in months wariness is creeping in that the high interest rates may start hurting aspects of the US economy, particularly the housing market, and cause the unbridled rally to come to an end.
European shares lacked conviction in any direction trying to balance out the effects of higher oil prices, lower metals and the looming rate decisions except for the French CAC index which started losing ground as French consumer confidence fell to a multi-year low.
FTSE to include Chinese stocks
Asian shares edged higher in a burst of activity before China goes off line for Golden Week next week. The lack of news on the trade war front is in itself good news at present and the focus is shifting onto China’s plans for economic stimulus and the fact that mainland Chinese stocks are due to be imminently included in major global indices. FTSE Russell is expected to make mainland Chinese companies part of its major benchmarks this week after years of resisting the move. Chinese tech stocks in particular have rallied at a phenomenal pace but given how much influence the state still carries in the market have also brought significant volatility and unpredictability. Nevertheless the index decision is likely to attract billions in foreign investment into a market being roughed up by a trade dispute.
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