The Paris stock exchange is expected to open flat on Tuesday morning, held back by a sharp rise in bond yields in a market displaying increasing caution on the eve of highly anticipated announcements from the US Federal Reserve.
At around 8:15 a.m., the "future" contract on the CAC 40 index--December delivery--was down barely 0.5 points at 8,113, signaling a virtually unchanged start to the session.
The Federal Open Market Committee (FOMC) meeting begins today and will conclude tomorrow with a press conference by its chairman Jerome Powell, as well as the release of the central bank's latest economic forecasts.
According to the CME's FedWatch tool, more than 89% of market participants now expect another quarter-point cut in the Fed's benchmark rates this Wednesday--the third in less than three months.
While this reduction in borrowing costs is widely anticipated, the timeline for the Fed's decisions in 2026 appears much more uncertain.
"The real question is what pace of easing will be implemented next year," notes Christopher Dembik, investment strategy advisor at Pictet AM.
"We will need patience and probably have to wait for the appointment of J. Powell's successor--which could happen in the coming weeks--to learn more," the analyst adds.
At J. Safra Sarasin, teams expect another "preventive" rate cut tomorrow, but the Swiss private bank also believes it will become "much more difficult to implement all the rate cuts currently priced in by the market, even with a more accommodative Fed chair."
In this context, market participants will be watching closely for any signals from the Fed chief tomorrow to fine-tune their bets on the continuation of the Federal Reserve's generous monetary policy next year.
According to the bond markets, the prospect of two more rate cuts in 2026 seems far from certain.
The deterioration is particularly notable in the United States, where Treasury yields have eased significantly in recent days, with uncertainty around the Fed's comments prompting participants to sell longer-dated paper.
At over 4.17%, the ten-year Treasury yield returned last night to its early November levels, when Jerome Powell surprised the market by stating that a December rate cut was "far from a done deal."
The ten-year German Bund yield--a key benchmark in the eurozone--meanwhile climbed ten basis points on Monday to rise above 2.87%.
Even though the predictive power of yield curves may legitimately be questioned, the emergence of this contrary signal in the bond market led equities to become more hesitant yesterday.
Perfectly illustrating this phase of indecision, the CAC 40 notched up its sixth consecutive session of near-stagnation last night, slipping 0.1% to 8,108.4 points.
On Wall Street as well, the stock markets are showing signs of fatigue, with New York's major indices still stalling below their recent records.
Monday's session was relatively uneventful, resulting in subdued volatility and insignificant moves: at the closing bell, the Dow Jones fell 0.4%, the S&P 500 lost 0.3%, and the Nasdaq Composite edged down about 0.1%.
With the S&P posting gains since January 1, the year has been fruitful in New York, and no one seems eager to take new positions in the current environment.
With little news expected before year-end following the Fed meeting, some investors may even be prompted to close their books early.
