Thursday, July 10, 2014

Markets subdued ahead of Fed minutes

August 21. 2013 11:38AM
Associated Press

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(AP) Markets were subdued Wednesday ahead of the publication of the minutes to the last policy meeting of the U.S. Federal Reserve, which could provide further insights as to when the central bank will start reducing its monetary stimulus.

The Fed is currently buying $85 billion a month in financial assets in order to help keep U.S. interest rates down and spur borrowing and investment. Over recent months, the U.S. economic data has been strong enough to convince Fed officials that a reduction in the stimulus is merited soon.

Forecast-busting U.S. housing figures on Wednesday showing sales of previously occupied U.S. homes surged 6.5 percent in July reinforced speculation that the so-called tapering could begin within a month. That's contributed to a recent spike in market interest rates.

"This should make Fed policymakers more comfortable with a September tapering," said Sal Guatieri, senior economist at BMO Capital Markets.

He noted that some prospective home buyers may have rushed their purchases to pre-empt a further increase in borrowing rates. "A few more months of data are likely needed to wave the all clear flag," he said.

In Europe, Germany's DAX rose 0.1 percent to 8,305 while the CAC-40 in France rose the same rate to 4,031. The FTSE 100 index of leading British shares was down 0.4 percent at 6,425, underperforming its peers because HSBC PLC has gone ex-dividend.

In the U.S., the Dow Jones industrial average was down 0.2 percent at 14,968 while the broader S&P 500 index fell the same rate to 1,649.

Global markets have been shaky this week as traders worried about a pullback in the Fed's bond purchases. The Dow, for example, has posted a five-day sequence of losses for the first time this year, while U.S. bond yields have risen to their highest levels since 2011. Money has also flowed out of emerging stock markets, denting the currencies and stock markets of countries such as Malaysia, Indonesia and India.

Trading in the currency markets was fairly lackluster ahead of the minutes. The dollar's near-term performance is likely to hinge on when the Fed decides to start tapering its stimulus. The euro was down 0.2 percent at $1.3390 while the dollar rose 0.1 percent to 97.44 yen.

"What is certain is that this week's price action, not only in equity markets, but bond markets as well has served to highlight how uncertain the markets are," said Michael Hewson, senior market analyst at CMC Markets.

Earlier, Asian stock markets traded unevenly. Japan's Nikkei 225 index ended 0.2 percent higher at 13,424.33 while South Korea's Kospi fell 1.1 percent to 1,867.46. Hong Kong's Hang Seng lost 0.7 percent to 21,817.73.

Indonesia's benchmark index rose 1.1 percent after dropping over 8 percent over the first two days of the week on concerns over the Fed policy.

Oil prices tracked equities lower, with the benchmark New York rate up 4 cents at $105 a barrel.

Associated Press

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