By Geoffrey Smith
Investing.com -- The Federal Reserve starts a two-day meeting that's expected to end in an accelerated move to tighten monetary policy. U.S. producer price data for November may help show why. Meme stocks and crypto comes under pressure as the end of the era of free money approaches. Central bank rate hikes are also expected in Latin America and emerging Europe, while crazy European energy markets are making it harder for the European Central Bank to keep its composure when it meets on Thursday. And the International Energy Agency sees a sharp drop in global oil demand in the first quarter of next year. Here's what you need to know in financial markets on Tuesday, 14th December.
1. Fed starts meeting; PPI due
The Federal Reserve begins a two-day meeting, a week after Chairman Jerome Powell signaled that he had changed his mind about the current inflation surge and suggested that the central bank will move up the end of its bond purchases.
The Federal Open Market Committee meets against the backdrop of consumer inflation running at its highest in nearly 40 years, although base effects alone suggest the annual rate may have peaked in November. Producer price inflation data for November are due at 8:30 AM ET (1330 GMT).
The FOMC will only publish its decisions on Wednesday. However, the trend toward higher interest rates around the world is likely to be reinforced later with hikes in Hungary and Chile.
2. Diamond hands crumble in the face of likely policy tightening
The prospect of an end to the era of free money from the Fed is taking its toll on some of the more speculative market plays of the year.
Meme stocks such as GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), which have embodied the wave of momentum-focused trading by retail investors this year, fell heavily on Monday and are extending their losses in premarket.
Also under pressure are cryptocurrencies: Bitcoin fell as low as $46,104 in the overnight session and is still down 2.8% from late Monday despite retracing some of its gains. Dogecoin was the exception, rising 15% after Elon Musk said Tesla (NASDAQ:TSLA) would start accepting payment in the digital currency “and see how it goes.” Doge is still down 74% from its peak earlier in the year.
3. Stocks set to open lower; meme stocks in focus
U.S. stocks are set to open mostly lower as investors take some money off the table ahead of the Fed meeting.
While market participants still appear largely confident that the new Omicron variant of Covid-19 will prove less virulent than its predecessors, there are still concerns about how fast it is spreading, and whether this will trigger more restrictive measures on consumer-facing sectors in particular.
By 6:20 AM ET (1120 GMT), Dow Jones futures were down 7.5 points, essentially flat, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were down 0.6%.
Stocks likely to be in focus later include Terminix (NYSE:TMX), which agreed to be bought by U.K.-based Rentokil (LON:RTO) for $6.7 billion in a cash and stock transaction, and Coinbase (NASDAQ:COIN), owing to the volatility in crypto markets.
4. Europe gas, power markets surge again as Germany refuses fast approval for Nord Stream 2
European gas and electricity prices hit fresh record highs for a second day in a row, after Germany’s new Foreign Minister Annalena Baerbock warned that there would be no quick certification of the new Nord Stream 2 pipeline.
Spot gas prices in the Netherlands, which provide the benchmark for north-west Europe, rose as high as 122.92 euros a megawatt-hour, before retracing slightly. French day-ahead power prices, meanwhile, topped 300 EUR/MWh and German year-ahead futures topped EUR200/MWh.
The prospect of a sustained squeeze on energy prices in the Eurozone, which raises the risk of a prolonged period of above-target inflation, is an awkward backdrop to the ECB’s policy meeting on Thursday. Elsewhere in Europe, the U.K. labor market held up better than expected in October and November, but not so much so as to change expectations that the Bank of England will leave its key rate unchanged this week.
5. Oil weakens as IEA cuts demand forecast; Omicron reaches China
Crude oil prices weakened after the International Energy Agency cut its forecast for oil demand in the first quarter of next year by 600,000 barrels a day, tipping the world market back into a sizeable surplus.
By 6:30 AM ET, U.S. crude futures were down 0.2% at $71.14 a barrel, while the global benchmark Brent was down 0.2% at $74.23 a barrel.
Sentiment was also dented by the confirmation of the first Omicron case in China. The high transmissibility of Omicron is likely to pose a serious challenge to China’s zero-tolerance policy for Covid-19, risking fresh closures of factories that could prolong the problems with global supply chains.
American Petroleum Institute data on U.S. crude stockpiles are due at 4:30 PM ET.