The Federal Reserve signalled greater doubt over how much it would continue to cut rates after agreeing to a reduction on Wednesday that Chair Jerome Powell conceded had been a close call.
The latest cut, approved by 11 of 12 Fed voters, will lower the Fed’s benchmark federal-funds rate to a range between 4.25% and 4.5%, a two-year low. The Fed reduced rates at its two previous meetings, beginning with a half-percentage-point reduction in September amid signs the labor market might be weakening. Officials approved a quarter-point cut last month. New projections released Wednesday show officials expect inflation to be somewhat stickier next year than previously anticipated, possibly because of policy changes by President-elect Donald Trump. The projections show officials expect to make fewer rate reductions, with most penciling in two cuts for 2025, down from four at their meeting in September. In the run-up to this week’s meeting, several officials had suggested they had less conviction in the need to steadily reduce rates. Investors had duly taken note of those hints, with prices in interest-rate futures markets implying the Fed would stand pat at its next meeting at the end of January. The latest rate projections from 19 Fed officials who participate in the policy meeting could reflect nagging concerns from some that the current setting of interest rates might not slow down the economy as much as they would have thought a few years ago. Powell said it would be difficult to model the effects of tariffs, though he has conceded that the current situation may differ from an episode in 2018-19, when Trump launched a trade war with China after imposing tariffs on steel and aluminum more broadly.

On Wednesday, the Swiss stock market was characterised by downward pressure. The SMI lost 0.9 per cent to 11,639 points. Among the 20 SMI stocks, there were 17 losers and three winners. A total of 21.31 (previously: 19.28) million shares were traded. The index heavyweights Nestlé, Novartis and Roche, which were sought after the previous day, were sold. Nestlé in particular weighed on the SMI with a drop of 1.5 per cent. Novartis fell by 0.8 per cent and Roche by 1.1 per cent. Givaudan also declined significantly (-2.5 per cent). UBS had lowered its target price for the share to CHF 4,380 from CHF 4,520 and reiterated its ‘Neutral’ rating. At Swiss Re (-1.8%), profit-taking continued for the third day in a row. The reinsurer had given a convincing outlook on Friday, causing the share price to rise sharply. In the second tier, the share price of online pharmacy operator Docmorris slumped by 13.2 per cent. A report in the Handelsblatt, which in turn referred to informed persons, caused the decline. According to the report, the German drugstore chain dm is planning to enter the pharmacy market. From next year, the company intends to ship over-the-counter medicines to Germany from the Czech Republic, according to the report.

Europe
The European stock markets rose slightly on Wednesday. The Stoxx Europe 600 index gained 0.2% to 514.4 points. In Paris, the CAC 40 and SBF 120 both picked up 0.3%, buoyed by Renault. The DAX 40 ended flat in Frankfurt, while the FTSE 100 grabbed 0.1% in London. Renault climbed by 5.2%. Nissan, the Japanese partner of the French carmaker, is in talks with its rival Honda with a view to a merger or other collaboration. A merger would enable Honda and Nissan to create synergies in purchasing and technological development. VusionGroup shares jumped 11.7% as the electronic labels specialist won a contract with US food retailer The Fresh Market. ‘This ground-breaking contract provides for the accelerated and simultaneous deployment of smart labels, the AI solution for shelf monitoring and out-of-stock detection (Captana) and the data analysis software Memory Store Analytics in 166 shops by the end of 2025’, explained the French group in a press release.

United States
The Dow Jones Industrial Average fell more than 1,100 points after the Federal Reserve cut interest rates but signalled they might stay higher than investors expected in 2025. The blue-chip index gave up an early gain and posted its largest slide since August after Fed officials lowered rates by a quarter percentage point and disappointed investors by signalling just two more cuts next year. The move marked the index’s 10th straight decline - its longest streak of daily losses since October 1974. Investors’ expectation for lower rates ahead was among the factors that powered stocks to records in recent weeks, with the Dow industrials hitting an all-time high above 45000 earlier in December. On Wednesday, the prospect of fewer cuts sparked broad declines, driving all 11 sectors of the S&P 500 lower. Heading into the meeting, traders had expected that the Fed would cut interest rates twice next year. Interest-rate futures now indicate a strong probability that the Fed will cut rates only once in 2025, or not all. The Dow industrials lost 2.6%, or 1,123 points, to 42326.87. The S&P 500 fell 2.9% and the Nasdaq Composite declined 3.6% in its worst day since July. Hard-hit companies included some recent highfliers such as Amazon.com, which lost 4.6% to lead declines in the Dow. Tesla fell 8.3%. Gold dropped. Bitcoin fell more than 5.7% in its worst single-day slide since August. Shares of stocks perceived as sensitive to higher rates were among the biggest decliners in the S&P 500, with the real-estate sector losing 4%. Consumer discretionary stocks fell 4.7%. Financials slipped 3%. Elsewhere in trading Wednesday, shares in General Mills dropped after the breakfast-cereal maker scaled back profit expectations with consumers growing weary of high food prices.

Asia
The ‘hawkish’ Fed put significant pressure on Asian stock markets on Thursday. The Shanghai Composite fell by 0.7 per cent on the Chinese stock exchanges and the Hang Seng Index lost 1.0 per cent. The biggest drop was in Seoul, where the Kospi dropped by 1.5 per cent. By contrast, the Nikkei-225 in Tokyo recovered a good half of its losses after the interest rate decision by the Bank of Japan (BoJ) and still slipped by 0.7 per cent. The BoJ left interest rates unchanged at 0.25 per cent for the third time in a row. In Seoul, index heavyweights Samsung Electronics (-2.9 per cent) and SK Hynix (-4.6 per cent) suffered heavy losses. Participants point to the after-hours slide in the share price of US competitor Micron Technology by a good 16 per cent following the chip manufacturer's quarterly sales forecast, which largely failed to meet expectations.

Bonds
Yields on 10- and 30-year U.S. government debt finished at their highest levels since May on Wednesday, after the Federal Reserve pulled back on the number of interest-rate cuts it foresees for 2025 and delivered its final reduction in borrowing costs this year. The 10-year Treasury note yield jumped by 10 basis points (0.4 percentage points) to 4.51%. The 2-year Treasury note yield climbed by 9 basis points to 4.36%.

Analysis
RBC upgrades Lonza target to CHF 610 (590) - Sectorperform
Rating VAT: Goldman Sachs starts with Neutral - Target CHF 363
Target price Givaudan: UBS downgrades to CHF 4380 (4520) - Neutral

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