Stocks recover despite China downgrade; dollar trades flat

Investors await Federal Reserve minutes

NEW YORK, May 24, (Agencies): World stock markets recovered on Wednesday from initial losses after Moody’s first credit downgrade of China in 30 years, with investors turning their attention to US Federal Reserve minutes that could provide more certainty of a rate hike next month.

Asia stocks and emerging markets initially skidded after Moody’s Investors Service’s downgraded China, cutting its sovereign debt to A1 from Aa3.

But dented markets mostly recovered. Japan’s Nikkei rose 0.66 percent and emerging market stocks rose 0.05 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.05 percent lower.

Markets were lacking fresh economic or corporate drivers. Investors shrugged off the rise in Britain’s terror threat level to maximum in the wake of Monday’s attack in Manchester.

The Dow Jones Industrial Average rose 20.59 points, or 0.1 percent, to 20,958.5, the S&P 500 gained 1.15 points, or 0.05 percent, to 2,399.57 and the Nasdaq Composite added 7.18 points, or 0.12 percent, to 6,145.89.

The US dollar hovered just above its 6-/12 month lows as investors shifted from US politics to monetary policy ahead of the release of the minutes from the Fed’s May meeting, scheduled to be released at 1800 GMT on Wednesday.

Measured against a basket of other major currencies, the dollar index rose 0.03 percent.

Oil prices well, with US crude down 0.29 percent to $51.32 per barrel and Brent last at $54.00, 0.28 percent lower on the day.

The pan-European FTSEurofirst 300 index lost 0.06 percent and MSCI’s gauge of stocks across the globe shed 0.08 percent.

The euro was 0.03 percent lower at $1.1179.

Spot gold added 0.2 percent to $1,252.75 an ounce.

US

US stocks were modestly higher early on Wednesday afternoon, aiming for a fifth straight day of gains, ahead of the minutes of the Federal Reserve’s latest meeting that could cement the chances of a widely expected interest rate hike next month.

Investors are also awaiting more details regarding the Fed trimming its $4.5 trillion balance sheet.

While recent economic data has been mixed, with signs of a dip in consumer sentiment and spending, the job market continues to strengthen. That could give the Fed impetus to continue with its path of monetary tightening.

At 13:02 am ET (1702 GMT) the Dow Jones Industrial Average was up 31.98 points, or 0.15 percent, at 20,969.89, the S&P 500 was up 1.51 points, or 0.06 percent, at 2,399.93 and the Nasdaq Composite was up 9.51 points, or 0.15 percent, at 6,148.23.

Seven of the 11 major S&P 500 sectors were higher, led by the materials index’s 0.63 percent rise.

Energy fell 0.49 percent after oil prices retreated on a smaller-thanexpected draw in US gasoline stocks as investors await the outcome of a meet between OPEC and other oilexporting countries on whether to extend output cuts.

General Electric was off 1.8 percent and was the biggest drag on the S&P after the company said its profit forecast was at the high end of expectations.

The retail sector continued to issue disappointing results.

Lowe’s dropped 3.1 percent after the home improvement chain reported a lower-than-expected profit and comparable sales.

Jewelry retailer Tiffany sank 7.9 percent after posting a surprise drop in comparable sales. Signet Jewelers , which reports on Thursday, was down 7.2 percent. The two were the biggest losers on the S&P.

At the other end was Intuit, which jumped 7.5 percent after the tax-preparation software maker posted a profit topped estimates and also raised its revenue forecast.

Declining issues outnumbered advancers on the NYSE by 1,431 to 1,404. On the Nasdaq, 1,413 issues fell and 1,313 advanced.

Europe

European shares, stuck just below 21-month highs for more than a week, struggled to gain momentum on Wednesday, with strength in banks and big oil majors offset by weakness in miners and autos.

The pan-European STOXX 600 index ended up 0.1 percent. Among the national markets, Britain’s FTSE 100 rose 0.4 percent, while Germany’s DAX fell 0.1 percent, weighed down by stocks including Hugo Boss and Evonik going ex-dividend.

Banks were the biggest contributor to gains on the STOXX index with Banco BPM leading the way with a surge of 4 percent, helped by market talk about the sale of bad loans.

But the sector was weighed down by a 0.9 percent fall in Deutsche Bank after news that US House Democrats had asked the German lender to provide information on whether any accounts connected to US President Donald Trump have ties to Russia.

European auto stocks were the biggest sectoral fallers, down 0.6 percent. They were led lower by a 1.6 percent fall in Daimler, which extended losses after its sites were searched on Tuesday by German prosecutors in an emissions probe, and a 0.6 percent fall in Fiat Chrysler .

Shares in the Italian-American carmaker recouped some of their earlier losses after the US government sued it over emissions.

Among mining stocks, hit by a fall in copper after Moody’s downgraded China, a big global metals consumer, Rio Tinto declined 0.5 percent while Randgold and Fresnillo fell 1.5 and 0.4 percent respectively.

Glencore lost 0.1 percent after saying it had made an informal approach to US grains trader Bunge to discuss “a possible consensual business combination”. But Bunge responded by saying it was not in talks with the mining and commodities group.

On the positive side, a well-received set of fourth-quarter results from Dixons Carphone lifted its shares 4.7 percent, while Britvic’s first-half update also boosted its shares.

Asia

Most Asian markets rose Wednesday following a positive lead from the US and Europe, while Shanghai recovered from early selling fuelled by Moody’s decision to cut China’s credit rating on worries about its growing debt mountain.

The ratings agency said its downgrade on the world’s number two economy was prompted by the likelihood of a “material rise” in debt throughout the economy and as potential growth slows.

The ratings cut was the first by Moody’s since late 1989 when it assessed the impact of the Tiananmen Square crackdown on China’s trade with the world.

Shanghai fell one percent early on but reversed the losses to end up 0.1 percent, while the yuan also bounced back from initial losses against the dollar. Hong Kong rebounded to end 0.1 percent higher.

But elsewhere, investors tracked a Wall Street gain. Tokyo finished 0.7 percent higher while Sydney put on 0.2 percent, Singapore gained 0.3 percent and Seoul added 0.2 percent.

Wellington and Taipei were each comfortably higher.

In early trade, London was flat while Frankfurt and Paris each shed 0.2 percent.

Tokyo — Nikkei 225: Up 0.7 percent at 19,742.98 (close)

Hong Kong — Hang Seng: Up 0.1 percent at 25,428.50 (close)

Shanghai — Composite: Up 0.1 percent at 3,064.08 (close)

Oil

Oil prices steadied on Wednesday as investors waited for news from Vienna where ministers from OPEC and other exporting countries were discussing whether to extend production cuts into the first quarter of next year.

Benchmark Brent crude oil was up 10 cents a barrel at $54.25 by 1210 GMT. US light crude oil was unchanged at $51.47.

Both crude benchmarks have gained more than 10 percent from their May lows below $50 a barrel, rebounding on a consensus that the Organization of the Petroleum Exporting Countries and other producers will maintain strict limits on oil production in an attempt to drain a global oversupply.

OPEC has promised to cut supplies by 1.8 million barrels per day (bpd) until June and is expected on Thursday to decide to prolong that cut by up to nine months.

“It could be three, six or nine months,” the Iranian Students’ News Agency quoted Iran’s oil minister, Bijan Zanganeh, as saying.

Most investors expect an extension of nine months.

Sushant Gupta, research director at Wood Mackenzie, told Reuters Global Markets Forum that output cuts were likely to be extended until the first quarter of 2018, and that adherence by OPEC members to the output cuts would probably remain high.

Harry Tchilinguirian, strategist at BNP Paribas, agreed:

“With oil stocks nowhere near OPEC’s self-assigned objective of the recent five-year average level, an extension of cuts seems all but a forgone conclusion,” he said.

BMI Research said the OPEC-led cuts would only result in a balanced market this year, but that from 2018 onward markets would return to oversupply, albeit at a lower level than 2013-2016.

Gold

Gold steadied just above $1,250 an ounce on Wednesday, taking a breather after the previous day’s fall as investors awaited minutes of the Federal Reserve’s latest meeting for clues on the outlook for US interest rates.

The metal is highly sensitive to rising US rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Spot gold XAU= was at $1,251.83 an ounce at 1330 GMT, little changed from $1,250.76 late on Tuesday, when it slipped 0.7 percent after two days of gains.

The minutes of the Federal Open Market Committee’s early May meeting are due to be released at 1800 GMT. Interest rate futures on Tuesday implied traders saw about an 83 percent chance of a rate increase in June, up from 79 percent on Monday.

“(We’re in) wait and see mode ahead of the FOMC minutes later today and the OPEC meeting tomorrow,” Commerzbank analyst Carsten Fritsch said, adding that the Fed is likely to signal further gradual rate hikes.