Equities, greenback edge lower as countdown to US Fed begins

Oil prices fall on rising US crude inventory

NEW YORK, Dec 14, (Agencies): World stock indexes and the US dollar eased on Wednesday ahead the US Federal Reserve’s statement and expected interest rate increase, with investors bracing for what the central bank may signal about future hikes.

Expectations that the Fed would take a cautious stance on its rate outlook caused investors to take profits in the dollar, which has gained nearly 4 percent between the Nov 8 US election and last Friday.

The Fed is widely predicted to lift interest rates 25 basis points to 0.50-0.75 percent at the end of a two-day meeting on Wednesday, which would be its first rate hike in a year and its second since the financial crisis. The rate announcement is due at 2:00 pm EST (1900 GMT), followed by Chair Janet Yellen’s news conference 30 minutes later. Investors will be examining the central bank’s statement and economic forecasts for any signs of how policymakers think President-elect Donald Trump’s election affects the outlook for growth and inflation.

Some analysts said the dollar’s weakness showed a bias among market participants that the Fed also may hint at financial conditions having already tightened, given the surge in US Treasury yields and rally in the dollar in the wake of the Nov 8 election.

The challenge for the central bank may be how to signal further rate increases without triggering strong gains in the dollar that could undermine growth.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.3 percent at 100.770. US stocks edged lower following Tuesday’s rally to all-time highs, led by losses in energy shares.

The Dow Jones industrial average fell 34.59 points, or 0.17 percent, to 19,876.62, the S&P 500 lost 5.94 points, or 0.261476 percent, to 2,265.78 and the Nasdaq Composite dropped 6.86 points, or 0.13 percent, to 5,456.97.

MSCI’s all-country world stock index was down 0.2 percent, the pan-European STOXX 600 share index ended down 0.5 percent.

Oil prices were down after data from the American Petroleum Institute late on Tuesday showed US crude inventories unexpectedly rose last week, though they pared losses after another report showed a smaller-than-expected build in stockpiles.

US crude futures, which hit a high of $53.41 on Tuesday, were down 71 cents at $52.27 a barrel. Brent crude eased 70 cents to $55.03. Spot gold was up 0.4 percent at $1,162.46 an ounce.

US

The post-election rally in US stocks took a breather on Wednesday, as investors turned their attention to the outcome of the Federal Reserve’s policy meeting.

The Fed is widely tipped to lift rates 25 basis points, but investors are likely to pay close attention to Fed Chair Janet Yellen’s tone and new forecasts for clues on policymakers’ thinking on how President-elect Donald Trump’s policies will impact growth and inflation.

The announcement is due at 2:00 pm ET (1900 GMT), followed by Yellen’s news conference 30 minutes later.

However, concerns over a strengthening dollar linger with the dollar index, which measures the greenback against a basket of six major currencies, hitting 14-year peaks last month.

At 11:00 am ET (1600 GMT) the Dow Jones industrial average was down 29.08 points, or 0.15 percent, at 19,882.13, the S&P 500 was down 3.6 points, or 0.15847 percent, at 2,268.12 and the Nasdaq Composite was down 0.52 points, or 0.01 percent, at 5,463.31.

Ten of the 11 major S&P sectors were lower, with the energy index’s 0.56 percent fall leading the decliners.

Oil prices fell about 2 percent as glut worries resurfaced after a reported rise in US crude inventories and as OPEC signaled a growing crude surplus next year unless production cuts are implemented. The financial index declined 0.36 percent.

Wells Fargo fell 2.2 percent to $54.59 after the bank’s “living will” failed US regulators’ assessment for a second time this year.

US stocks have been on a tear since the election, fueled by expectations that Trump will reduce taxes and regulation and stimulate the economy.

The Dow, which has risen about 9 percent since Nov. 8, is less than a percent away from the 20,000 mark.

Meanwhile, US retail sales barely rose in November as households cut back on purchases of motor vehicles. The Commerce Department said retail sales edged up 0.1 percent. Economists had forecast overall retail sales increasing 0.3 percent.

General Motors fell 3.1 percent to $36.24 and Ford declined 1.5 percent to $12.58 following a report that China will soon slap a penalty on an unnamed US automaker for monopolistic behavior.

Hertz Global dropped 4.5 percent to $23.99 after the car rental company said on Tuesday it would replace its chief executive and reduce its board size.

Express Scripts fell 5.8 percent to $68.94. The pharmacy benefit manager signaled that scrutiny into drug pricing isn’t going away. The stock was the biggest drag on the health sector.

Declining issues outnumbered advancers on the NYSE by 1,709 to 1,089. On the Nasdaq, 1,718 issues fell and 923 advanced.

The S&P 500 index showed 12 new 52-week highs and one new low, while the Nasdaq recorded 66 new highs and 28 new lows.

Europe

European equities retreated Wednesday as investors tread cautiously ahead of a key US Federal Reserve meeting which is expected to result in a rate increase.

London drifted 0.3 percent lower while Frankfurt shed 0.4 percent and Paris 0.7 percent on the day.

Expectations that this will in turn light a fire under inflation has led to speculation the Fed will be forced to embark on a more aggressive programme of rate hikes than previously thought. Key figures around 1645 GMT London — FTSE 100: Down 0.3 percent at 6,949.19 points (close)

Frankfurt — DAX 30: Down 0.4 percent at 11,244.84 (close)

Paris — CAC 40: Down 0.7 percent at 4,769.24 (close)

EURO STOXX 50: Down 0.8 percent at 3,211.71

Asia

Most Asian markets rose Wednesday, tracking a seventh successive record on Wall Street as they wait for the conclusion of a keenly awaited Federal Reserve policy meeting.

After months of betting the Fed will lift interest rates, the big day has arrived and investors will be hanging on every word bank boss Janet Yellen says in her post-meeting conference hoping for clues about future policy. “The markets are sitting tight waiting for the Fed decision, but more so Dr Yellen’s forward outlook and, of course, the accompanying statement,” Stephen Innes, senior trader at OANDA, said.

“As is the case with most Fed ‘pressers’, it will mainly involve deciphering the Feds verbal gymnastics while looking for a smoking gun — tonight’s smoking gun will be in the form of a hawkish or dovish Fed lean.”

Global equities and the dollar have rallied in the five weeks since Donald Trump won the US election, with traders betting his plans for big spending, tax cuts and deregulation will fan already healthy economic growth.

Expectations that will in turn light a fire under inflation has led to speculation the Fed will be forced to embark on a more aggressive programme of rate hikes that previously thought.

Hong Kong was marginally up, Sydney added 0.7 percent and Singapore gained 0.1 percent.

Manila and Kuala Lumpur were also higher while Seoul was flat. Shanghai ended 0.5 percent lower.

Tokyo managed to eke out a small but eighth successive rise and is sitting at its highest mark since mid-December.

However, the losses were limited after the Bank of Japan’s closely watched Tankan survey showed business confidence among the country’s major manufacturers rising for the first time in more than a year.

The Nikkei was also being supported by a weaker yen, which is struggling to recover against the dollar as the Fed prepares to lift borrowing costs. Key figures around 0800 GMT Tokyo — Nikkei 225: Flat at 19,253.61 (close)

Hong Kong — Hang Seng: Up 9.92 points at 22,456.62 (close)

Shanghai — Composite: Down 0.5 percent at 3,140.53 (close)

Oil

Oil prices fell on Wednesday following a reported rise in US crude inventories and as OPEC signalled a growing crude surplus next year unless production cuts are implemented.

International Brent crude futures were down 82 cents at $54.90 per barrel at 1334 GMT, while US West Texas Intermediate (WTI) crude oil futures were down 92 cents at $52.06 a barrel.

Traders said the price falls followed an industry report of surprise increases in US crude inventories.

Data from the American Petroleum Institute showed US crude inventories rose by 4.7 million barrels in the week to Dec. 9, compared with analysts’ expectations for a 1.6-million-barrel decline. Official inventory data from the US Energy Information Administration will be released later on Wednesday.

The Organization of the Petroleum Exporting Countries on Wednesday signalled a growing oil supply surplus next year unless members implement their deal to curb output from record levels and outside producers also deliver on cutback pledges made at the weekend.

In a monthly report, OPEC said that without cuts the 2017 overhang would reach 1.24 million bpd, about 300,000 bpd higher than the forecast in its previous report.

OPEC pumped 33.87 million bpd last month, according to figures OPEC collects from secondary sources, up 150,000 bpd from October.

Saudi Energy Minister Khalid alFalih said on Wednesday it would take some time for the market to recover after the deal between OPEC and rival producers to limit supplies.

Gold

Gold hovered at slightly firmer levels on Wednesday as investors kept to the sidelines, confident that the US central bank would raise interest rates but unsure about what guidance it would give for next year.

Bullion was supported by a softer dollar ahead of a US Federal Reserve announcement later on Wednesday that markets overwhelmingly expect to detail a quarter-point rate increase.

“Gold is in no-man’s land today, waiting for more insight from the Federal Reserve,” said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.

Spot gold was up 0.4 percent at $1,162.46 an ounce by 1500 GMT and US gold futures added 0.5 percent to $1,165.

The Fed is due to release its latest policy and interest rate statement at 1900 GMT, with new forecasts assessing whether the economic outlook has changed since the presidential election.

Higher US rates raise the opportunity cost of holding non-yielding bullion and normally weigh on gold, but markets have already priced in a December rise.