Global shares decline again as rate-cut euphoria fades.

On Wednesday, global stock markets continued their decline into the New Year, and the dollar remained steady. Market enthusiasm for imminent U.S. interest rate cuts diminished and heightened tensions in the Middle East added to the overall negative sentiment.

MSCI’s comprehensive global equities index <. MIWD0000PUS> decreased by 0.3%, reaching its lowest point in nearly two weeks. Simultaneously, U.S. stock futures indicated a subdued opening for Wall Street.

In another indication that the recent remarkable advances in stocks and bonds were losing momentum, U.S. Treasury yields increased. Simultaneously, European shares declined by 0.7%, and Asia Pacific shares, excluding Japan, dropped by over 1%.

Concerns were increasing in anticipation of the publication of the minutes from the U.S. Federal Reserve’s December meeting, scheduled for 1900 GMT on Wednesday. Additionally, a series of significant U.S. data releases later in the week added to the cautious sentiment.

In December, Federal Reserve officials forecasted a reduction of 75 basis points (bps) in interest rates for 2024. This outlook fuelled expectations in money markets, leading to approximately double the anticipated rate cuts and contributing to a year-end rally across various markets.

The outlook is expected to become clearer this week with key U.S. data. The ISM’s manufacturing survey, scheduled for later on Wednesday, will indicate whether the central bank has new recession signals to address. Additionally, the market-affecting U.S. non-farm payrolls report is set to be released on Friday.

Futures markets indicated a lower opening for Wall Street’s S&P 500 index on Wednesday. Last week, the index approached its all-time closing high as investors factored in the likelihood of substantial rate cuts in 2024.

Stocks of mega-cap companies sensitive to interest rates, such as Nvidia (NASDAQ: NVDA), Apple, and Tesla (NASDAQ: TSLA), experienced slight declines in premarket trading. Apple shares (NASDAQ: AAPL) reached a seven-week low on Tuesday following a downgrade by Barclays.

Concurrently, U.S. Treasury yields continued their gradual ascent. The benchmark 10-year yield, indicating anticipated long-term borrowing costs, increased by 3 basis points to reach 3.97%. It briefly surpassed 4% on Tuesday.

The 10-year Bund yield in Germany remained stable at approximately 2%, while the 10-year gilt yield in Britain saw a slight increase, reaching 3.65%.

The dollar index reached a new peak in the last two weeks at 102.49 as expectations for rate cuts diminished, and it was recently up by approximately a quarter of a percent.