The Nikkei 225 was down 0.80% in morning trading, joining the broader Asian equity markets in the red.
Chinese Deflationary Signals Test Sentiment
While the Fed interest rate decision is the key event of the day, Chinese producer and monthly consumer price trends highlighted ongoing deflationary pressures, weighing on sentiment.
Producer prices fell 2.2% year-on-year in November after declining 2.1% in October. Consumer prices increased 0.7% YoY in November, up from 0.2% in October. However, consumer prices fell 0.1% month-on-month after rising 0.2% in October, suggesting a potential pickup in deflationary pressures.
The month-on-month CPI and the PPI underscored Beijing’s challenge of boosting domestic consumption as firms face margin squeezes, forcing job cuts.
Mainland China’s CSI 300 and the Shanghai Composite Index dropped 0.87% and 0.59%, respectively.
US Federal Reserve Takes Center Stage
Futures posted modest losses during the Asian morning session. The Dow Jones E-mini dropped 26 points, the Nasdaq 100 E-mini fell 46 points, while the S&P 500 E-mini declined 5 points.
Later on Wednesday, the FOMC interest rate decision, economic projections, dot plot, and Fed Chair Powell’s press conference will be the main events of the mid-week session. A 25-basis-point Fed rate cut, projections for two to three cuts in 2026 on softer inflation and rising unemployment outlook, would drive buyer demand for US equity futures.
Sticky inflation data has dampened expectations of a Q1 2026 Fed rate cut, sending US equity futures into negative territory. Crucially, sticky inflation and softer labor market data have divided the Committee.
Some members have raised concerns about sticky inflation, supporting a less dovish rate path, while others support rate cuts to bolster the labor market. The projections and the dot plot will provide much-needed insights into the members’ views on inflation and monetary policy.
According to the CME FedWatch Tool, the chances of a December Fed rate cut stood at 87.6% on December 9, down from 88.4% on December 8. However, the probability of a March Fed rate cut fell from 46.1% to 40.4% on December 9, underscoring uncertainty about the Fed’s policy outlook.
A 25-basis-point rate cut and support for two to three rate cuts in 2026 would likely lift sentiment, supporting a bullish short- to medium-term price outlook.
Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500
Despite the morning losses, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini traded above their 50-day and 200-day EMAs, indicating a bullish bias.
Near-term trends will hinge on BoJ chatter, JGB yields, USD/JPY trends, the Fed interest rate decision, the FOMC economic projections, and the Fed’s dot plot. Key levels to monitor include:
Dow Jones
- Resistance: 47,750, 48,000, 48,250, and then the November 12 record high of 48,528.
- Support: 47,500, the 50-day EMA (47,019), 46,000, and then the November 21 low of 45,779.