US markets retreat as bears take control before Fed decision

David Morrison

SENIOR MARKET ANALYST

19 Mar 2025

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US markets fell on Tuesday, snapping the two-day rebound as the bears took back control ahead of the Federal Reserve’s rate decision later today. The Nasdaq is still stuck in correction territory, while the S&P 500 continues to flirt with it, as investor sentiment remains fragile.

Overnight, the Bank of Japan left interest rates unchanged, as expected, but acknowledged upward inflation pressure, signalling a cautious stance amid rising prices. The Nikkei closed 0.3% lower, and movements elsewhere in Asia were also relatively subdued.

Europe set for a weaker open as dollar rebounds

European stock indices were weaker on the open, led by the German DAX, which fell 0.5%, as investors digest the passage of the fiscal package by the Bundestag. Market volatility has ticked up lately, with traders reacting nervously to fiscal and economic developments.

In currency markets, the dollar rebounded overnight as traders positioned themselves ahead of the Fed’s announcement. After showing signs of strength yesterday, the EURUSD pulled back to the 1.09 level, while the Japanese yen was mixed following the BOJ’s decision to keep rates unchanged.

Gold marches higher, oil dips, crypto stagnates

Gold continued its relentless ascent, pushing above $3,040 as safe-haven demand remained robust. Recent market volatility and ongoing economic uncertainties have encouraged investors to pile into the precious metal, and betting against it has proven costly so far. Despite gold's record-breaking rally, Silver lost ground overnight, pulling back below $34.

Oil was weaker in early trade, compounding yesterday’s losses. Front-month WTI fell below $66.50. Today’s weekly inventory data is expected to show a build of around 1 million barrels, which could add further downside pressure on prices. Gas moved higher but has settled into a range as volatility has tapered off recently.

Crypto markets posted modest overnight gains. Bitcoin continues to trade in the low $80,000s, giving little indication about where it is heading next. The recent stagnation reflects a lack of momentum, with sentiment struggling to shift decisively to the bullish side.

Volatility holds as Fed takes centre stage

The VIX continues to hover in the mid-20s on the April contract, signalling that caution is still the dominant sentiment. According to Goldman Sachs, Chinese markets have been outperforming US counterparts this year, with the MSCI index rising 19% year-to-date, marking the best start in its history.

On the political front, Trump and Putin’s meeting yesterday was viewed positively, with both sides agreeing to a 30-day ceasefire on energy and infrastructure targets. Meanwhile, according to some analysts, Trump’s policies are being eyed as a potential factor in the economic downturn.

In corporate news, Nvidia unveiled its Blackwell Ultra AI chip at its conference, positioning itself to capture more of the booming AI market. At the same time, retail investors appear to be abandoning the “buy the dip” mentality as the market correction deepens—a shift not seen in quite some time.

Market outlook

Today’s Federal Reserve meeting at 18:00 GMT will be the focal point for markets, with Fed chair Jerome Powell’s press conference set for 30 minutes later. As it’s a quarterly meeting, the Fed’s FOMC will also release its latest forecasts for interest rates, inflation, GDP and unemployment for the rest of this year and beyond. While rates are expected to remain unchanged, the outlook and guidance will be closely scrutinised.

For now, it’s a waiting game as traders position themselves ahead of the announcement. The dollar has found support, and gold’s rally continues, leaving those betting against it in a tight spot. The bears seem to have a slight edge going into the meeting, but much will depend on how Powell communicates the Fed’s outlook. With sentiment leaning cautiously bearish, any hawkish hints could see risk assets come under further selling pressure.


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