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Markets send mixed signals ahead of Fed bond tapering announcement

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Federal Reserve Chairman Jerome Powell
Federal Reserve Chairman Jerome Powell. Photo: Kevin Dietsch/Reuters

Eyes remained firmly trained on the Federal Reserve on Wednesday in markets, as investors brace for news on bond purchase tapering. 

The market is also holding its breath ahead of the Bank of England interest rate decision, due on Thursday. 

As such, European markets made muted moves at the open. The FTSE 100 (^FTSE) added to Tuesday's fall, heading 0.1% lower. The DAX (^GDAXI) and CAC (^FCHI) were almost flat. 

By the time markets closed, the FTSE had lost 0.4% and the DAX was flat. The CAC ticked up 0.3%. 

On Tuesday, US markets had closed at a record high, ahead of the key speech by the Fed.

"Currency traders and equity players will be watching the outcome of this event very closely. This is because under a textbook scenario, we should see a strong rally in the dollar index as the Fed is tightening its belt on its monetary policy, and equity markets should take this action as a vote of confidence," said Naeem Aslam, chief market analyst at AvaTrade.

The expectation is that the Fed will move to taper asset purchases by $15bn (£11bn) per month — an amount that would be considered a dovish message. 

Read more: UK labour and supply worries hit record high ahead of Christmas

"As for the rate hikes, we believe that the Fed may begin the tapering process by the end of Q2 of next year or perhaps at the beginning of the Q3 of 2022," said Aslam. 

US markets were mixed as the day finished in Europe, following a strong set of ADP employment data. The S&P 500 (^GSPC) moved 0.1% lower, the Dow (^DJI) was 0.3% lower and the Nasdaq (^IXIC) headed 0.2% higher. 

Over in Asia, major stock indexes declined. The Hang Seng (^HSI) closed 0.5% lower, the SSE Composite (000001.SS) was down 0.2%.

Chinese stocks have been on rocky footing this week despite services PMIs that indicated growth. 

Chinese Premier Li Keqiang has warned that the economy is facing new downward pressures, appealing to citizens to ensure there was enough food to go around by stocking up on essentials. The government has since downplayed the significance of this appeal. 

Japanese markets were closed for a holiday. 

Watch: China bonds' rally may continue, AllianceBernstein says

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