Global Markets React to Upcoming Fed Meeting

MSCI's global equity gauge experienced a decline on Friday, while bond yields surged as investors eagerly awaited insights into the future trajectory of interest rates from the upcoming U.S. Federal Reserve meeting.

Rising Yields and Inflation Concerns

In U.S. Treasuries, the benchmark 10-year yields reached a three-week high, marking their fifth consecutive daily gain. Investors are speculating that Fed Chair Jerome Powell might signal a pause in policy easing following the anticipated 25-basis-point rate cut next Wednesday.

The U.S. central bank is facing persistent inflation above its 2% annual target. Recent data revealed higher-than-expected U.S. producer prices in November, adding pressure on the Fed.

Market Reactions and Analyst Insights

The market is anticipating Powell's move to cut rates next week and then pause. "I think that's the right assumption because we're seeing a tension between the inflationary data and the labor-market data," said Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management.

While bets on a December rate cut are almost unanimous, CME Group's Fedwatch tool implies just two cuts in 2025.

Currency and Commodity Markets

In currencies, the dollar saw its largest weekly gain in a month due to the prospect of slower U.S. rate cuts next year. Meanwhile, oil prices settled at a three-week high, influenced by expectations of tighter supplies due to potential sanctions on Russia and Iran, and the potential boost in fuel demand from lower U.S. and European interest rates.