Wednesday 08:00 GMT

Overview

Stock markets are mixed, underpinned by another record for Wall Street, but with oil prices softer and investors cautious ahead of the Federal Reserve’s policy decision later in the day.

Moves in forex are muted, with the dollar a touch weaker as Treasury yields nudge lower, helping gold recover some poise.

Currency analysts at Citi noted that along with the Fed, the Bank of England and other central banks were due to update strategy in the next day or so, and “unsurprisingly, [the] market has been in a wait-and-see mode, with interbank volumes today only three-quarters of the past five days’ average”.

Hot topic

At what pace? That’s the question investors are pondering as they await the Federal Reserve’s final policy decision of 2016, due at 19:00 GMT.

Futures markets are placing a 100 per cent probability on the US central bank increasing borrowing costs by 25 basis points to a range of 0.5-0.75 per cent, only the Fed’s second hike since the financial crisis.

With that tightening seemingly nailed on, attention will be focused on how fast borrowing costs are forecast to increase from here.

At the moment, analysts reckon the Fed may deliver another couple of 25 basis point rises in 2017. Forex and fixed-income assets have priced in such a scenario — where the Fed is tightening but peers in the eurozone and Japan remain in easing mode.

Should Fed chair Janet Yellen and colleagues present a significant divergence from that view, then traders may need to adjust their positions — potentially delivering a market wobble.

In the meantime, the dollar index on Wednesday is down 0.2 per cent at 100.90, but sits only about 1 per cent shy of a near 14-year high touched last month.

US 2-year bond yields are easing one basis point to 1.16 per cent, a fraction off a six-year high. Benchmark 10-year US Treasuries are down 3bp to 2.45 per cent, while equivalent maturity German Bunds and Japanese paper are easing 1bp to 0.35 per cent and steady at 0.06 per cent, respectively.

What to watch

Dow 20 Thow! It’s a share price weighted index of just 30 stocks, and so has its critics as a meaningful gauge of equity market performance. But there is no doubting the resonance the Dow Jones Industrial Average has with the American public — and thus sentiment toward investing on Wall Street.

And now the Dow sits just 89 points away from hitting 20,000 for the first time, powered of late — up nearly 2,000 points in five weeks — by post US election ebullience and seasonal tailwinds.

Can it hit the milestone? Of course, but things are getting stretched. The Dow’s 14-day relative strength index, a closely watched momentum measure, closed on Tuesday at 87.4, well above the 70 level that marks the supposedly “overbought” threshold.

Importantly, the wider market may be running on fumes too. The S&P 500, Wall Street’s proper barometer, finished the previous session at a record 2,272, leaving its 14-day RSI at 77.57.

Equities

Index futures suggest the S&P 500 will dip 1.5 points when trading gets under way later in New York, and this tentative tone is feeding into other bourses.

The pan-European Stoxx 600 is slipping 0.4 per cent as banks and energy groups struggle.

Australia’s S&P/ASX 200 gained 0.7 per cent as a burst of takeover activity in the gaming sector helped investors shake off a soggy consumer confidence reading.

Japan’s benchmark Topix fell 0.1 per cent. The Bank of Japan’s closely watched Tankan survey of large manufacturers rose in the December quarter, an improvement driven largely by petroleum and coal companies.

Hong Kong’s Hang Seng added 0.2 per cent while on the mainland China’s Shanghai Composite lost 0.45 per cent, with sentiment not helped by regulators saying they would restrict insurers making risky investments, according to Reuters.

Forex

Sterling is up 0.1 per cent at $1.2672 ahead of UK jobs data due at 09:30 GMT. The euro is climbing 0.3 per cent to $1.0661 and the Japanese yen is 0.3 per cent firmer at ¥114.88 as the greenback has an off day.

The Australian dollar is 0.1 per cent firmer at $0.7503 against its US counterpart despite a closely watched reading on consumer confidence falling in December to its lowest since April. The drop was blamed on renewed concerns about the economy, such as interest rates and the health of the labour market.

Commodities

Oil markets are finding it difficult to hang on to gains made earlier this week after non-Opec members agreed to cut production.

Brent crude, the international benchmark which on Monday hit an intraday 16-month high of $57.89 a barrel, is down 0.8 per cent at $55.28 a barrel, while West Texas Intermediate is off 1 per cent to $52.42.

The price of gold, which this week hit $1,151 an ounce, its cheapest since February as a firm buck and rising bond yields weighed, is recovering $5 to $1,163.

Additional reporting by Peter Wells in Hong Kong

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