Markets await FOMC rate decision today

Asian stocks, US and European futures saw muted trading on Wednesday as investors awaited a policy decision from the Federal Reserve. Focus will be on the Fed members’ projections, or dot plots, for interest rates and whether more of the members would tip a hike in 2023. Previously only 7 out of 18 had seen such a move. Both the S&P 500 futures and Nasdaq futures were little changed despite falling 0.2% to 4,246.59 & 0.71% to 14,072.86 respectively.

The Stoxx 600 rose to an eighth successive record yesterday, the longest streak since 1999, and set another high on a closing basis in early trading. Gains are led by insurance and financial services. The FTSE 100 is today’s big winner, helped by financial (on a big inflation beat) and energy companies. UK stocks are garnering more investor interest. Inflation in the UK surged unexpectedly past the Bank of England’s target for the first time in almost two years, an increase that will add to speculation about when monetary policy could be tightened.

Crude oil traded at the highest since 2018 with the global benchmark Brent closing in on $75/bbl, after industry data pointed to a substantial draw in US crude stockpiles and top traders predicted further gains in prices. Brent advanced 0.9%, while West Texas Intermediate climbed to the highest level since October 2018. The industry-funded American Petroleum Institute reported US crude inventories fell 8.54 million barrels last week. The fall would be the largest drop since January if the figures are confirmed by government data later Wednesday.

An agreement with the IMF on a new Extended Fund Facility (EFF) should bolster Gabon’s ability to cover its external financing requirements and provide an anchor to policy, says Fitch Ratings. Nonetheless, execution risks remain, as demonstrated by the mixed record of reform implementation under the previous IMF program.  IMF funding will probably not be sufficient to cover all of Gabon’s remaining external funding needs. The new program could facilitate access to other bilateral and multilateral lending, but the country has a record of failing to obtain planned multilateral funding. In 2020, Gabon was unable to obtain the disbursement of several budget support loans that were expected during the year, highlighting weaknesses in public financial management.