Fed decision looms as Europe faces inflation data

General market commentary

U.S. equities ended lower on Tuesday, with the Dow Jones Industrial Average dropping for the ninth consecutive session, marking its longest losing streak since 1978. The Dow fell 0.6%, while the S&P 500 and Nasdaq declined 0.4% and 0.3%, respectively, as investors remained cautious ahead of the Federal Reserve's final policy meeting of the year. Markets widely expect a quarter-point interest rate cut when the Fed concludes its two-day meeting today. Investors are also seeking guidance from Fed Chair Jerome Powell on the central bank’s plans for rate cuts in 2025, particularly amid ongoing economic resilience and data dependency. Retail sales in November outperformed expectations, rising 0.7% month-over-month, reflecting strong underlying economic momentum, with autos leading the gains. This robust consumer spending data aligns with the broader narrative of a resilient economy navigating a soft-landing scenario.

Individual shares saw notable movement, with Tesla rising over 3.5% following upward price target revisions by brokerages, while Pfizer jumped more than 4.5% after its 2025 profit forecast matched Wall Street expectations. Bitcoin also made headlines, briefly crossing $108,000 for the first time, setting a new record. Despite signs of strength in certain sectors, investor sentiment remains cautious, with Fed decisions and inflation data driving near-term market volatility. Markets are pricing in potential rate cuts over the next year, though a pause in January remains a possibility as the Fed takes a data-driven approach to future monetary policy adjustments.

Latest market update

• Most Asian equities rose on Wednesday, driven by optimism over China’s plans for increased fiscal spending, with the Shanghai Composite and Hang Seng indices gaining 0.7% and 0.9%, respectively. However, regional gains were tempered by caution ahead of the Federal Reserve’s rate decision and mixed performance in Japanese markets amid speculation of a Honda-Nissan merger.

• US equity futures dipped slightly as markets awaited the Federal Reserve's rate decision, with focus on its long-term outlook amid persistent inflation and strong retail sales data. Attention is on the Fed's economic projections and comments from Chair Jerome Powell for clues on future rate cuts.

• European equities ended slightly lower on Tuesday, with the Euro STOXX 50 falling 0.1% to 4,943, weighed down by disappointing economic data and cautious central bank expectations. Financial shares, including Santander and Intesa Sanpaolo, led the losses, while ASML saw a strong 2% gain, and energy shares like TotalEnergies and ENI were pressured by lower oil prices.

• The dollar index held steady around 106.9 on Wednesday as markets awaited the Federal Reserve's anticipated interest rate cut. The euro traded at 1.0503 against the dollar, with traders focusing on the Fed's projections and comments, alongside upcoming decisions from the Bank of England and the Bank of Japan.

• Oil prices remained steady on Wednesday as traders awaited cues from the Federal Reserve’s rate decision, while U.S. inventory data showed tightening crude supplies but rising fuel stockpiles. Concerns over weak demand in China and a stronger dollar also weighed on market sentiment.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• Honda and Nissan are reportedly in talks to deepen ties, including a potential merger, to create a stronger rival to Toyota and better compete with Tesla and Chinese automakers in the EV market. A merger would form the world’s third-largest auto group, bolstering collaboration on EV components and cutting costs amid intensifying industry pressures.

• Eli Lilly’s Alzheimer’s treatment, Kisunla (donanemab), received approval in China, expanding its presence to a fourth major market after the U.S., Japan, and the UK. This approval strengthens Eli Lilly’s position in the Alzheimer’s treatment market, with the drug’s unique finite dosing offering a competitive edge over rivals.

• Mastercard announced a $12 billion share buyback programme, set to begin after completing its $11 billion repurchase plan. The company also raised its quarterly dividend by 15%, increasing it to 76 cents per share.

• Pfizer expects its 2025 profits to align with Wall Street estimates, projecting adjusted earnings of $2.80 to $3 per share and revenue between $61 billion and $64 billion. The company is focused on reducing costs, divesting non-essential businesses, and improving margins amid declining COVID-19 product sales and challenges from expiring patents.

• Teva's shares rose 17% following positive Phase 2b trial results for its drug duvakitug, developed to treat inflammatory bowel disease, showing significant efficacy in patients with ulcerative colitis and Crohn's disease. The treatment demonstrated strong results with good safety, raising investor optimism about its potential in a market with high unmet medical needs.

• Stellantis unveiled plans to boost production in Italy from 2026, pledging €2 billion in investments for 2025 while keeping all Italian plants open until 2032. The strategy includes hybrid model expansions amid weak EV demand, with no public funds required for planned investments.

• CFRA raised its target price on Tesla to $560 from $450, citing benefits from the cancellation of federal EV tax credits that would favour Tesla over competitors. The brokerage also increased its 2025 and 2026 EPS estimates, anticipating a boost in revenue from regulatory credits and support from the incoming Trump administration.

Upcoming data and events

The U.S. Federal Reserve is expected to announce a 25 basis point rate cut later this evening, while key economic data including Building Permits and Housing Starts will also be released. In Europe, we will have reports on the inflation rate and construction output. Additionally, several companies are set to report earnings today, including FedEx, Oracle, and Adobe.

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