Global stock markets advanced Wednesday ahead of the Federal Reserve’s widely anticipated first interest rate hike in nearly a decade. A failure to hike would be a huge shock to financial markets and could well lead to some major volatility.
KEEPING SCORE: In Europe, stocks posted big gains following a tentative start. The FTSE 100 index of leading British shares was up 1 percent at 6,077 while the CAC-40 in France rose 0.8 percent to 4,653. Germany’s DAX was 1 percent higher at 10,554. U.S. stocks were also poised to open firmer with Dow futures and the broader S&P 500 futures up 0.4 percent.
THE FED, FINALLY: Investors around the world have one clear focus on Wednesday — the Fed. The central bank is expected to raise interest rates from near zero percent, which would be its first hike since June 2006. Fed Chair Janet Yellen and other officials have signaled that they are likely to raise rates. They’ve also hinted that they’ll keep the pace of any further increases gradual to ease any worries in financial markets, which have become accustomed to easy and cheap credit. The decision highlights the world economy’s two-speed nature. As the U.S. economy comes back to full strength, other big central banks are opting to keep the stimulus taps open to revive flagging growth in their economies.
MARKET INSIGHT: “While the beginning of the tightening cycle should of course be viewed positively as it typically indicates strong economic performance, for a long time this has been more feared than welcomed as many have questioned the ability of the economy to withstand higher rates,” said Craig Erlam, senior market analyst at OANDA. “Clearly that fear is passing though and investors are more optimistic now which is why we’re seeing markets rally ahead of the decision.”
ASIAN SCORECARD: Most of the region’s benchmarks finished with strong gains. Japan’s Nikkei 225 index jumped 2.6 percent to close at 19,049.91 and South Korea’s Kospi climbed 1.8 percent to 1,969.40. Hong Kong’s Hang Seng rebounded from a nine-day losing streak to advance 2 percent to 21,701.21. Gains were more muted on the Shanghai Composite Index in mainland China, which rose 0.2 percent to 3,516.19. Australia’s S&P/ASX 200 added 2.4 percent to 5,028.40.
ENERGY: Benchmark U.S. crude futures slipped 22 cents to $37.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.04, or 2.9 percent, to settle at $37.35 a barrel on Thursday but overall oil is down about 30 percent in 2015 and is at its lowest in more than six years. Brent crude, a benchmark for international oils, lost 77 cents to $37.68 a barrel in London.
CURRENCIES: Ahead of the Fed decision, currency markets were fairly flat. The euro was down 0.1 percent at $1.0915 while the dollar was steady at 121.80 yen.