By Geoffrey Smith
Investing.com -- The Federal Reserve is expected to raise the target range for fed funds by 50 basis points to its highest level since 2007. Watch out for guidance from chair Jerome Powell and the infamous 'dot-plot' later. Markets are drifting ahead of the decision but reacted weakly to positive CPI data on Tuesday, suggesting that a lot of the looming 'dovish pivot' has already been priced in. China has given up counting COVID cases as lines for treatment from outside its hospitals. Apple is set to allow third-party app stores on the iPhone in Europe, which has taken a tougher antitrust line than the U.S. on its high fee policy. And oil prices rebound as the IEA warns that the market will stay tight next year. U.S. inventory data are the day's focus. Here's what you need to know in financial markets on Wednesday, 14th December.
1. From 75 to 50 - the Fed's dovish pivot begins
The Federal Reserve is expected to raise the target range for fed funds by 50 basis points to an upper limit of 4.5% at its policy meeting later. That much is seen as more or less certain, so the key variable, as ever, will be the guidance from chair Jerome Powell’s press conference and new forecasts coming out of the central bank.
Markets have bought heavily into the idea that the slower pace of tightening – down from 75 basis point increments in each of the last four meetings – is the beginning of the end of this cycle: the 10-year Treasury yield is already down 75 basis points from its October peak.
The question of how long it will take to reach ‘peak’ rates is still open, but that day appears to be drawing closer after data showed that the headline inflation rate fell to 7.1% - its lowest level this year - in November. It has now fallen for the last five months in a row since peaking at over 9%.
2. China gives up counting COVID cases
Chinese authorities said they will stop releasing comprehensive data on new cases of COVID-19, effectively acknowledging that its official numbers no longer make sense. China reported just over 2,000 new infections on Tuesday, while Hong Kong, with a small fraction of the mainland’s population, recorded some 15,000.
The National Health Commission said the country will, in future, only report symptomatic cases.
The measure is a sign that COVID is spreading faster than the authorities can track it, in the wake of a rapid relaxation of testing and quarantine requirements. It sets the stage for an interesting social experiment as much as it may allow the world to see the degree of voluntary restraint exercised by citizens in an environment of fewer restrictions where the disease is still spreading fast.
3. Stocks set to drift ahead of Powell press conference; Apple's app store dominance cracks
U.S. stock markets are set to drift ahead of the release of the Fed’s decisions at 14:00 ET (19:00 GMT) and Powell’s press conference half an hour later. However, they will open under something of a cloud, after the lackluster market response to positive CPI news on Tuesday showed how much has already been priced in.
By 06:30 ET, Dow Jones futures were down 25 points or 0.1%, while S&P 500 futures were down by a similar amount, and Nasdaq 100 futures were down 0.2%.
Stocks likely to be in focus later include Apple (NASDAQ:AAPL), after news that it plans to allow third-party app stores on the iPhone in Europe to forestall antitrust action against it in the EU. The development, if mimicked in the U.S. and other jurisdictions, would eat into a lucrative revenue stream for the company.
It breathes more life into the controversy about its high commission fees for app store purchases, after Elon Musk’s high-profile spat with Apple earlier this month.
4. Crypto stabilizes after Binance wobble
A measure of calm returned to crypto markets after Binance, the world’s largest crypto exchange, lifted its suspension of withdrawals of USD Coin as promised and returned to what its founder Changpeng Zhao called “business as usual.” Bitcoin prices tested but didn’t quite break through the $18,000 level.
Concerns around the soundness of Binance have refused to go away after its ‘proof-of-reserves’ attestation from Mazars failed to convince last week, while a recent Reuters report has also revived fears about possible legal jeopardy.
Legal risks for crypto are in sharp focus after Sam Bankman-Fried was arrested and jailed in the Bahamas, pending extradition to the U.S. to face fraud charges.
5. Oil pushes higher after IEA report; EIA inventories due
Crude oil prices rose after the International Energy Agency said that the market is likely to remain tight next year, with the risk of a rebound in Chinese demand still very present. It sees demand rising by 2.3 million barrels a day this year and by another 1.7 million b/d in 2023.
The IEA also corroborated the Organization of Petroleum Exporting Countries’ analysis that OPEC output fell by around 500,00 barrels a day in November.
The market’s focus later is likely to be on U.S. inventory levels, after the American Petroleum Institute reported a surprise increase in crude and gasoline stocks last week. By 06:45 ET, U.S. crude futures were up 1.0% at $76.16 a barrel, while Brent was up 0.9% at $81.44 a barrel.