U.S. stock futures rebounded on Wednesday morning as traders anticipated the Federal Reserve’s December interest rate decision. The Dow Jones Industrial Average has been experiencing its worst downturn in 46 years, primarily due to a shift from traditional economy stocks to technology stocks, which are underrepresented in the Dow compared to broader market indices. The Federal Reserve is expected to announce its policy decision at 2:00 p.m. ET, with Fed funds futures indicating a 95% probability of a quarter percentage point rate cut, according to the CME FedWatch tool. This potential rate cut has heightened market interest and influenced trading activity.

European stocks saw gains on Wednesday, buoyed by economic data and corporate news. The U.K. reported a 2.6% rise in inflation for November, aligning with market expectations. Investors anticipate that the Bank of England will maintain its current interest rates at its final monetary policy meeting of the year on Thursday. In corporate news, shares of French carmaker Renault surged by 6% following reports of potential merger talks between Nissan and Honda, in which Renault holds a minority stake. This development contributed to the positive sentiment in the market.

Investors in Asia closely monitored Japan’s trade data ahead of an upcoming Bank of Japan rate decision. Japan’s exports saw a year-on-year increase of 3.8% in November, while imports fell by 3.8%, significantly missing expectations. This mixed economic data influenced regional markets differently. The Nikkei 225 closed 0.72% lower, reflecting investor caution. In contrast, South Korea’s Kospi rose by 1.12%, and Hong Kong’s Hang Seng index increased by 0.95%. Australia’s S&P/ASX 200 experienced a slight decline of 0.06%. Meanwhile, China’s CSI 300 gained 0.51% as investors awaited the People’s Bank of China’s loan prime rate announcement on Friday.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday before the bell include ABM, BIRK, GIS, JBL, & TTC. After the bell reports include LEN, MLKN, MU, SCS, & WS.

News & Technicals’

Despite inflation remaining above target, a robust 3% economic growth rate, and a strong labor market, futures market traders are almost certain that the Federal Open Market Committee (FOMC) will lower its benchmark overnight borrowing rate by 25 basis points, bringing it to a target range of 4.25% to 4.5%. This anticipated rate cut contrasts with the typical response of raising rates or maintaining the current level under such economic conditions. To justify this decision, Chair Jerome Powell and the committee will need to communicate their rationale effectively. Former Boston Fed President Eric Rosengren recently expressed his opposition to a rate cut at this meeting, highlighting the complexity of the decision.

U.S. Treasury yields edged higher on Wednesday as investors awaited the Federal Reserve’s latest interest rate decision and guidance on the economic outlook. The yield on the 10-year Treasury note rose by two basis points to 4.40%, while the 2-year Treasury yield increased by one basis point to 4.25%. Market participants are keenly watching the post-meeting statement and the press conference with Fed Chairman Jerome Powell for insights into the central bank’s monetary policy stance and its assessment of the broader economy. These communications are expected to provide crucial clues about future policy directions.

Nissan shares soared by 24% while Honda Motor stock declined, following reports that the two Japanese automakers are considering a merger. According to the Nikkei newspaper, Honda and Nissan are exploring the possibility of operating under a holding company and are expected to sign a memorandum of understanding soon. Joe McCabe, president and CEO of AutoForecast Solutions, commented to CNBC that Nissan requires a “revitalization” after its partnership with Renault deteriorated. This potential merger could mark a significant shift in the automotive industry landscape.

Novo Nordisk’s popular diabetes medication, Ozempic, may have an unexpected side effect. Danish health authorities announced on Monday that they are requesting the European Union’s drug regulator to review findings from two Danish studies. These studies suggest a link between Ozempic and an increased risk of non-arteritic anterior ischemic optic neuropathy (NAION), a rare eye condition that can cause vision loss due to reduced blood flow to the optic nerve.

As we catch a very needed relief rally in the DIA and IWM plan carefully if you intend to add new positions with the FOMC interest rate decision coming at 2 PM Eastern.  Also keep in mind that we have a pending GDP report on Thursday and the Core PCE figures coming Friday morning as well as the possible government shutdown midnight on Friday unless a deal is reached in Congress.

Trade Wisely,

Doug