Market Brief: Fed Expected to Hike Rates, US 10-Year Yields Dip Below 5%

Fed Decision and Bond Market Pressures

• Federal Reserve: Markets price in a 90% probability of a 25 bps rate hike to 3.75%-4.00%, marking the first increase since July 2023. The dot plot and Kevin Warsh's press conference will dictate volatility on ES and NQ.
• Treasury Yields: The US 10-year yield pulled back below 5% (to 4.994%) after peaking at 5.03%. In the UK, the gilt market is now pricing in two BoE rate hikes due to energy price pressures.

Stock Indices and Sector Dynamics

• US & European Indices: US stock futures trade slightly higher ahead of the FOMC decision. The CAC 40 held the key 8,000-8,050 support zone after touching a low of 8,033 points.
• Tech & Semiconductors: Soitec surged over 10% following a JPMorgan upgrade to "Overweight" with a €200 target, driven by AI demand. Separately, OpenAI is reportedly discussing a new funding round valuing the firm at $1.2 trillion.

Geopolitics and Energy Markets

• Middle East: Escalation in Yemen with up to 450 Saudi strikes against Houthi positions. China called on the US and Iran for restraint to ensure free navigation in the Straits of Hormuz and Bab el-Mandeb.
• Crude Oil: The oil rally paused after an unexpected build in US crude inventories, though supply disruption fears keep geopolitical risk premiums elevated.

What to Watch Today

• Fed Rate Decision: Monetary policy announcement and release of the dot plot.
• Kevin Warsh Press Conference: Forward guidance on rate trajectory and inflation outlook.