CNBC Daily Open: High rates are still hobbling IPOs

This report is from today's CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Downbeat markets
U.S. markets dipped and U.S. Treasury yields rose Tuesday as investors braced themselves for the outcome of the Federal Reserve's meeting. Asia-Pacific markets fell Wednesday. South Korea's Kospi slipped 0.26% as wholesale prices in August rose 1% year on year, the first time it's risen since July 2022. Hong Kong's Hang Seng Index lost 0.73% as China left its loan prime rates unchanged.

Instacart delivered
Instacart shares rose 12.3% on their first day of trading, closing at $33.70. That gives the company a valuation of just over $11 billion. At its open, Instacart popped 40% to hit $42, but pared gains as investors sold off to lock in their initial gains. The stock also slid 2.73% in extended trading. Instacart gained over $420 million in cash in the offering.

No longer poised to be biggest economy?
China's policies, such as its security clampdown earlier this year, have hurt its economy. Analysts who once predicted China would become the biggest economy globally are perplexed as to why the country's blunting its own growth. Separately — but relatedly — China didn't export any germanium and gallium in August after it instituted export curbs on those chipmaking metals.

Dwindling dependence
The oil market has depended on China for 20 years, said Facts Global Energy's Chairman Fereidun Fesharaki. That reliance will soon come to an end. China's demand for oil will peak in the next three to five years, predicted Fesharaki. Echoing that, Wood Mackenzie, an energy research group, expects China's demand for oil to fall after 2027 as the country transitions to carbon neutrality.

[PRO] 'Cheapest of all' tech stocks
The Magnificent Seven stocks have driven much of the S&P's growth this year. But they are notoriously expensive, in terms of their price-to-earnings ratio. Still, there's one stock among them that's the "cheapest of all the mega-cap names" — with durable long-term prospects to boot — according to a strategist.

The bottom line

Markets were in a downbeat mood ahead of today's Federal Reserve policy decision. Major indexes closed Tuesday lower. The S&P 500 lost 0.22%, the Dow Jones Industrial Average slid 0.31% and the Nasdaq Composite fell 0.23%.

Even excitement over Instacart's debut on the Nasdaq was somewhat muted. Though the stock jumped 12.3% on its first day, its initial rally of 40% quickly fizzled out. And Arm, which fell 4.88% yesterday, is now 13% below its closing price on its first day of trading, when it surged 25%. The specter of high interest rates is still haunting the IPO market, especially for tech companies, whether startups or older companies with an established revenue stream.

The U.S. bond market slipped as well. Yields on the two-year Treasury are now at 5.092%, the highest since 2006, while it's 4.365% on the 10-year, a level not seen since 2007. (When yields rise, bond prices drop.) Still, that doesn't mean investors expect the Fed to raise rates today — they're betting there's only a 1% chance central bankers will do so, according to the CME FedWatch Tool. Rather, rising yields on rate-sensitive Treasurys are a sign investors think interest rates could go higher at the Fed's November meeting.

As Dylan Kremer, co-chief investment officer at wealth management firm Certuity, said, "What investors are looking for … is where are longer term expectations: Where is that terminal rate."

There was a bright spot amid the gloominess yesterday. Oil prices finally took a breather and dipped slightly. West Texas Intermediate prices fell 0.31% and November contracts for Brent slipped 0.1%, breaking a three-day winning streak for both.

And analysts don't expect spikes in oil prices to affect rate decisions. Simon MacAdam, senior global economist at Capital Economics, doesn't think oil will cause "a sustained rebound inflation" or "cause central banks in advanced economies to respond with interest rate hikes."

But hikes aren't off the table, MacAdam warns. If oil prices continue rising against "a backdrop of resilient activity and rising inflation expectations," central banks might spring into action. In less than 24 hours, we'll see if the Fed shares the same sentiment.