Global shares move lower, weighed down by Federal Reserve meeting, Omicron concerns

Global shares edged lower on Wednesday, coming under pressure as investors waited to see how the Federal Reserve will dampen near four-decade high inflation and guide on its pathway for interest rates.
Analysts pointed to the uncertainty created by Omicron, which they see as a wild card in the equation as the full impact of the new coronavirus variant is yet unclear.

The MSCI`s gauge of stocks across the globe shed 0.30%.

See Zee Business Live TV Streaming Below:

The Dow Jones Industrial Average fell 87.55 points, or 0.25%, to 35,456.63, the S&P 500 lost 12.85 points, or 0.28%, to 4,621.24 and the Nasdaq Composite dropped 95.01 points, or 0.62%, to 15,142.63.

"Caution is once again evident in equity markets as we await the final Fed rate decision of the year," said Craig Erlam, senior equity analyst at OANDA.

At 2 p.m. EST/1900 GMT the Fed is expected to announce that it is speeding up the end of its pandemic-era bond purchases and to signal a turn to interest rate rises next year as a guard against inflation at near four-decade highs.

"Central banks have little choice but to start tightening monetary policy in the majority of cases, as inflation continues to rise to uncomfortable levels, become more widespread, and show signs of becoming more permanent," Erlam said.

"Omicron posing a greater threat and forcing restrictions may delay the inevitable but not for long as policymakers can`t afford to be complacent."

Markets expect at least two increases in 2022 on the Fed`s "dot plot" of where policymakers see borrowing costs going.

U.S. 10-year Treasury yields were at 1.4394%, well below a recent 1.693% top. The yield curve continued its flattening trend, as investors wager an earlier start to Fed tightening will lead to slower inflation in the long run.

Inflation is also an issue elsewhere, with British consumer price inflation surging to its highest in more than 10 years in November to 5.1%, exceeding all forecasts from economists ahead of a Bank of England rate-setting meeting on Thursday.

Investors sharply increased their bets that the BoE is about to raise rates.

"It`s all eyes on the Fed, but the UK inflation data is an absolute disaster for the Bank of England - to all intents and purposes they should be hiking rates but the problem is Omicron and the uncertainty around that," said Michael Hewson, chief markets analyst at CMC Markets.

"How does the Fed manage the message this afternoon? Too hawkish and it could tip stocks lower," Hewson said.

The European Central Bank also meets on Thursday and is expected to dial back stimulus one more notch, but will pledge copious support for the next year, sticking to its long-held view that alarmingly high inflation will abate on its own.

The pan-European STOXX 600 index rose 0.12%.

CRUDE OIL EASES

Asian shares were softer, with MSCI`s broadest index of Asia-Pacific shares outside Japan easing 0.81% in slow trade.

Chinese blue chips fell 0.9% as coronavirus restrictions took a toll on retail sales in November, though industrial output did improve.

The prospect of rising short term rates supported the U.S. dollar, particularly against the euro and yen where monetary policy is expected to lag.

The dollar index rose 0.012%, with the euro up 0.03% to $1.126.

The risk of rising cash rates has been a burden for gold, which offers no fixed return, and left it sidelined at $1,768.81 an ounce. [GOL/]

Oil prices eased after the International Energy Agency said the spread of Omicron coronavirus variant would dent the recovery in global fuel demand. [O/R]

U.S. crude was down 1.15% to $69.92 per barrel and Brent was at $72.97, down 0.99% on the day.