Dec 18, 2018, by Lorcan Roche Kelly
Yesterday’s drop to the lowest close in 14 months for U.S. equity markets has set the tone for the rest of the world in trading today. Overnight, the MSCI Asia Pacific Index slid 0.9 percent, while Japan’s Topix index closed 2 percent lower to hit an 18-month trough ahead of this week’s Bank of Japan meeting. European markets were off the lows of the day by 5:45 a.m. Eastern Time, cutting losses to just 0.2 percent despite disappointing sentiment data from the region’s biggest economy. As 2019 beckons, there are tentative hopes cheap valuations will stem the torrent of outflows. S&P 500 futures are pointing to a small bounce at the open as fears over the impact of this week’s expected Federal Reserve Hike continue to dominate.
One thing that is keeping pressure on global stock benchmarks is the plunge in oil prices. West Texas Crude futures have dropped more than 8 percent in the last three sessions, with a barrel for January delivery falling as low as $47.84 this morning. Brent crude is at the lowest level since October 2017. The sell-off is being driven by worries over increasing U.S. shale supplies, doubts over how effective the implementation of the latest OPEC+ cuts will be, and weak sentiment as global equities fall.
President Xi Jinping told an audience of party officials, military leaders and entrepreneurs that “no one is in the position to dictate to the Chinese people what should and should not be done” in a speech marking the 40th anniversary of the reform era. While the address was strong on rhetoric, it emphasized established policies rather than announcing anything new — much to the disappointment of Asian stock investors. The communist party’s annual economic-policy meeting begins tomorrow, where more detailed plans may be unveiled.
Fed meeting begins
The Federal Reserve Open Market Committee begins its two-day meeting today, which is expected to clinch the fourth rate hike of 2018 when the decision is announced tomorrow. With investors expecting a dovish hike, attention will focus on the forward guidance given by the updated forecasts. President Donald Trump has intensified his attacks on the institution as equity markets continue to behave in a fashion that is not normally conducive to policy tightening.
If Fed rate hikes have been a feature of 2018, little progress on Brexit has been a constant. British Prime Minister Theresa May has given herself another four weeks to save the deal the deal she’s negotiated. For their part, European leaders are upping pressure on the U.K., saying that in a no-deal scenario they would not do mini-deals with Britain to ease the chaos for the country under that situation. As the year of little progress comes to an end, signs of Brexit stress are everywhere across the U.K. economy.