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Wall Street falls ahead of Fed rate decision while FTSE bounces back

FTSE U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Dec. 14, 2022. The U.S. Federal Reserve on Wednesday hiked interest rates to their highest point in 15 years, signaling that the central bank's battle against inflation is far from finished. (Photo by Liu Jie/Xinhua via Getty Images)
US Federal Reserve chair Jerome Powell. Wall Street and FTSE 100 traders are getting ready for more interest hikes from the Fed, Bank of England and ECB. Photo: Liu Jie/Xinhua via Getty

The FTSE 100 and European stocks finished mixed on Monday as investors await interest rates decisions from the US Federal Reserve and the Bank of England (BoE) this week.

The FTSE 100 (^FTSE) bounced back and rose 0.30% to close at 7,788 points, while the CAC 40 (^FCHI) in Paris was flat at 7,096 points. In Germany, the DAX (^GDAXI) also closed muted at 15,144.

Across the pond, stocks tumbled with the Dow Jones (^DJI) down 0.24% at 33,896 points. The S&P 500 (^GSPC) lost 0.75% to 4,040 points and the tech-heavy NASDAQ (^IXIC) fell 1.16% to 11,486.

Richard Hunter, head of markets at Interactive Investor, said: “Markets tempered their strong opening to the year, as investors braced for a week brimming with important economic and corporate releases.”

The BoE is expected to raise UK interest rates on Thursday, from 3.5% to 4%, which would be the highest since autumn 2008.

The European Central Bank is also expected to hike borrowing costs by 50 basis point while US Federal Reserve will also makes its decision this week.

Michael Hewson of CMC Markets said markets are optimistic hikes will be less aggressive than before as inflation cools.

"Last week’s sudden surge of exuberance from US markets appears to be being driven by a belief that not only will the US economy avoid a hard landing, but that the Federal Reserve will not only signal another step down in its rate hiking cycle to 25bps but will also signal a pause," he said.

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"This belief that we could see a pause in the Fed’s rate hiking cycle was given legs last week, when the Bank of Canada signalled that it was doing exactly that to further assess the impact of recent rate hikes on the wider economy," he added.

Neil Wilson at Markets.com said “All eyes are on the Fed and what it says about the future path of monetary policy.”

“Two key things remain unknown ⁠— how high and for how long. I don’t think even the Fed knows the answers to these questions at the moment, but it will undoubtedly want to push back against the dovish read the markets have taken.“

Legal & General (LGEN.L) was one of the biggest fallers on the FTSE 100, down 2.08% after the insurer said chief executive Nigel Wilson was retiring after a decade in the top job but would remain in the post until a successor took the helm.

The midcap FTSE 250 (^FTMC) lost 0.60% as 888 (888.L) plummeted 27.54% after the bookmaker said chief executive Itai Pazner would step down immediately and that it would suspend VIP activities in some markets pending an internal investigation.

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Marios Hadjikyriacos, senior investment analyst at XM, says the markets have priced in a quarter-point rate hike from the Fed this Wednesday ⁠— but Fed chairman Jerome Powell could hint at further rate rises to come.

"A massive week lies ahead for investors. Central bank decisions in the United States, Eurozone, and United Kingdom, earnings updates from several Wall Street tech giants, and a heavy dose of economic data releases that include the US employment report all have the capacity to inject volatility into global markets," Hadjikyriacos said.

"All roads lead back to the Fed, which will announce its rate decision on Wednesday. Inflation finally seems to be cooling and leading indicators suggest economic growth is losing steam, but the US labor market remains historically tight and financial conditions have loosened, keeping the risk of a second inflation wave on the table and complicating matters for policymakers.

"Markets have fully priced in a 25 basis point rate increase, so the dollar’s reaction will depend mostly on Powell’s commentary."

Meanwhile, Brent crude (BZ=F) slipped and was trading at around $85 per barrel as the Opec+ alliance prepares to meet this week.

In Asia, Tokyo’s Nikkei 225 (^N225) closed higher, climbing 0.19% to 27,433 points, while the Hang Seng (^HSI) in Hong Kong plunged 3% to 22,007. The Shanghai Composite (000001.SS) also edged higher, rising 0.14% to 3,269 points.

Watch: Fed can ‘talk tough’ behind low unemployment rate amid consumer, inflation concerns: Strategist

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