On Tuesday, December 9, the CAC40 and Euro-Stoxx50 marked their tenth consecutive session trading within a narrow 1.5% range, with intraday fluctuations not exceeding 0.5%. The CAC40 (-0.5% around 8,060) has remained locked between 8,050 and 8,150 points since November 25, while the Euro-Stoxx50 (-0.1% on Tuesday) is oscillating between 5,650 and 5,725, showing a slightly upward trend.
The reopening of Wall Street failed to break the deadlock, with the Nasdaq down 0.2%, the S&P500 up 0.1%, and the Dow Jones gaining 0.25%--all as the Federal Reserve begins its 48-hour FOMC meeting.
A positive note on Tuesday: the sharp rise in bond yields seen over the past two sessions came to a halt. The yield on T-Bonds eased by 2 basis points to 4.153%, and the 30-year yield dropped 2.8 points to 4.787%. With little suspense surrounding the expected announcement of a third rate cut tomorrow, the main focus will shift to the Federal Reserve's latest economic forecasts.
According to the CME's FedWatch tool, more than 89% of market participants now anticipate another quarter-point cut in the institution's key rates this Wednesday. "The real question is what pace of easing will be implemented next year," notes Christopher Dembik, investment strategy advisor at Pictet AM.
"We'll need to be patient and probably wait for the appointment of J. Powell's successor, which could take place in the coming weeks, to learn more," the analyst adds.
At J. Safra Sarasin, teams expect another "precautionary" rate cut tomorrow, but the Swiss private bank also believes it will become "much more difficult to implement all the rate cuts currently priced in by the markets, even with a more dovish Fed chair."
Against this backdrop, market players will be watching closely for any signals from the Fed chief tomorrow to refine their bets on the continuation of the Federal Reserve's accommodative monetary policy next year.
If bond markets are to be believed, the prospect of two more rate cuts in 2026 seems far from certain.
The deterioration is especially pronounced in the United States, where Treasury yields have risen sharply in recent days, with uncertainty over Fed commentary prompting investors to sell long-term paper.
In Japan, long-term rates are peaking with no improvement in sight, while in Europe, the German 10-year Bund--an important benchmark in the eurozone--rose by ten basis points on Monday to surpass 2.87%, before giving back a symbolic point on Tuesday to 2.857%. French OATs erased 1.5 points to 3.576%.
Even as the predictive power of yield curves is legitimately questioned, the appearance of this contrarian signal in the bond market led equities to display greater indecision yesterday.
With little major news expected after the Fed meeting until year's end, some investors may even opt to close their books early.
The euro is consolidating, down 0.15% to $1.1620, while oil prices are stabilizing at low levels after Monday's 2.5% correction (Brent at $62.3).
