US open: Stocks in the red as Fed rate hike looms

US equity markets were in the red on Wednesday as an expected 25 basis point rate hike from the Federal Reserve looms over investors.

The Fed is anticipated to rate interest rates for the second time in nearly decade, but greater attention will be paid to Fed chair Janet Yellen’s comments on the economy and expectations of pending stimulus plans by president-elect Donald Trump. The announcement will be made at 1900 GMT.

The Dow Jones Industrial Average fell 0.23% to 19,865.83, the S&P 500 decreased 0.19% to 2,267.33, and the Nasdaq slipped 0.02% to 5,462.81 at 1509 GMT.

Lukman Otunuga, research analyst at FXTM, said: “The dollar was static during trading on Wednesday as investors were on guard ahead of the FOMC meeting. With the probability of an interest rate increase this evening almost certain, much attention may be directed towards the FOMC press conference and dot plot for further clarity on rate timings in 2017.

“The engine behind dollars resurgence this quarter has been the inflated expectations of Trump’s administration boosting US economic growth via fiscal stimulus measures. Optimism over rising inflation from healthy growth swiftly sparked aggressive speculations of the Federal Reserve raising US rates repeatedly in 2017 to prevent the economy from overheating. Dollar bullish investors may be seeking for hawkish comments from the Federal Reserve revolving around the potential impacts of higher inflation and Trumps effect but could be left empty handed if the central bank adopts a cautious approach.

“With the risk of Trump’s policy reality not matching to the market shaking expectations, the Fed could maintain a protective stance by keeping the dot plot unchanged for two rate hikes in 2017. While there is a slight possibility of the dollar edging slightly lower today in an event of a Fed disappointment, dollar index bulls remain in firm control above 100.00.”

In currency markets, the dollar was down 0.25% to 114.89 against the yen, it fell 0.17% to 0.9395 versus the euro, and lower by 0.35% to 0.7873 versus sterling.

Meanwhile, oil prices retreated after the American Petroleum Institute said late on Tuesday that in the week ended 9 December, there was a 4.68m barrel build in US crude inventory levels, versus a 1.5m draw expected.

Brent crude fell 1.18% higher at $55.08 a barrel and West Texas Intermediate was weaker by 1.57% to $52.16 at 1433 GMT.

Gold on Comex was up 0.62% to 1,166.20 per troy ounce.

On the data front, US retail sales climbed just 0.1% last month, falling short of forecasts for a 0.3% increase. October’s figures were also revised down to 0.6% growth from a previously reported 0.8% rise.

US industrial production, which measures factory, mine and utility outputs, fell 0.4% in November, compared to a 0.1% increase in October and more than the 0.3% drop forecast.

Capacity use declined to 75% from 75.4% a month earlier and slightly less than the 75.1% expected.

US business inventories slid 0.2% in October following a 0.1% rise in September and worse than the 0.1% decline that was estimated.

In corporate news, shares in car rental company Hertz dropped 0.9% after saying late on Tuesday that chief executive John Tague will retire, to be succeeded by Kathryn Marinello.

Johnson & Johnson nudged higher 0.85% after the pharmaceutical giant said it ended discussions with Swiss biotech firm Actelion regarding a potential transaction.