‘The real concern is what comes next’: Markets are mixed as investors shift focus to the last Fed meeting of 2018

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  • Global stock markets were mixed early Wednesday ahead of the Federal Reserve’s final interest-rate decision of 2018.
  • The Fed is expected to hike interest rates for a fourth time in 2018, but investors are more focused on any hints about policy going forward.
  • Any indication that further interest-rate increases are coming in 2019 is likely to cause markets to slide, as more rate hikes could trigger a slowdown in the US economy.
  • Elsewhere, oil prices have stabilized after plunging about 5% during trading on Tuesday.
  • Follow the latest in markets at Markets Insider.

Stock markets around the world were mixed early Wednesday as all eyes fixated on what the US Federal Reserve had in store later in the day.

Fed Chair Jerome Powell at 2 p.m. in Washington is scheduled to announce whether the central bank has decided to go ahead with a fourth interest-rate hike of the year.

The stakes are high. While the market is pricing in a 72.3% probability of the Fed hiking on Wednesday, according to Jasper Lawler, the head of research at London Capital Group, “the real concern for the market is what comes next.”

“With growing fears over the health of the global economy, the markets simply don’t think the US economy can handle higher rates,” he said.

If the Fed gives an indication that it will continue along its path of rate hikes into 2019, equity markets are likely to react with sharp downward moves.

For now, however, markets remain mixed. Here’s how things look out there:

  • Asian equities dropped overnight, with China’s Shanghai Composite dropping 1.05%. Japan’s Nikkei fell 0.6%, while other more minor Chinese indexes were also losing in excess of 1%. Federal Express on Tuesday night blamed its disappointing earnings figures on a slowdown in global trade, which weighed on sentiment.
  • European stocks were cautiously higher. In the first hour of trading Germany’s DAX was about 0.25% higher, while in Britain the FTSE 100 climbed 0.5%.
  • Italian stocks climbed sharply after reports that the government and the European Union were close to reaching a compromise on the long-running saga of the country’s budget. The FTSE MIB index was higher by 1.3%, while yields on Italian government debt dropped on the day.
  • US futures pointed to a cautiously optimistic start to trading stateside later in the day, with all three major indexes looking set to open about 0.5% to 0.6% higher.

As equity investors awaited the Fed’s latest announcement, oil prices also stabilized on Wednesday morning, following a major slump in recent days that has seen the commodity plunge to two-year lows.

Oil prices dropped 5% on Tuesday, with West Texas Intermediate, the US benchmark, dropping as low as $46 a barrel.

Read more: If you thought 2018 was bad for markets, a cocktail of fears is set to make 2019 even worse

“Persistent concerns of oversupply and the slowing global economy hitting demand have weighed heavily on sentiment,” Lawler said.

“The price of oil is showing signs of stabilizing, but we are not expecting any serious flip towards bullish sentiment.”

On Wednesday, the price of WTI was 0.43% higher at $46.80, while Brent crude, the international benchmark, had climbed 0.71% to $56.66, as of about 8:55 a.m. GMT (3:55 a.m. ET).