Equities, dollar flat as investors cautious ahead of Fed statement

Oil prices pare gains after inventory data

US stocks and the dollar were steady on Wednesday with investors cautious ahead of a US Federal Reserve statement that may give clues on whether the central bank will raise interest rates for a third time this year.

MSCI’s World index, which tracks stocks in 46 countries, was up 0.1 percent and hit another record, while US Treasuries prices gained slightly.

With the Fed due to release its latest policy statement at 2 pm ET (1800 GMT), caution prevailed. The US central bank is widely expected to announce that it will begin paring its bond holdings, and many analysts and investors expect the reductions may begin in October.

While the Fed is expected to hold rates steady, investors are keen to see the Fed’s economic projections and any other signals on whether a rate increase in December is likely.

The S&P financial index was up 0.2 percent on Wednesday after rising 0.8 percent in the previous session.

The Dow Jones Industrial Average rose 9.85 points, or 0.04 percent, to 22,380.65, the S&P 500 lost 0.67 points, or 0.03 percent, to 2,505.98 and the Nasdaq Composite dropped 21.10 points, or 0.33 percent, to 6,440.23.

The pan-European FTSEurofirst 300 index lost 0.18 percent.

Markets are pricing in a 58-percent probability of the Fed raising rates in December, according to the CME Group’s FedWatch tool.

The European Central Bank is widely expected to say next month that it will begin scaling back its asset-purchase stimulus program from January, even though a stronger euro, which dampens inflation, has complicated the outlook.

The dollar index fell 0.01 percent, with the euro unchanged at $1.1992.

The New Zealand dollar hit its strongest in more than a month at $0.7374 after a poll showed the ruling National Party regaining a wide lead over the opposition before Saturday’s election.

In the bond market, benchmark 10year notes were last up in 3/32 price to yield 2.232 percent, from 2.243 percent on Tuesday.

Oil prices were higher, but pared gains after data showed a bigger-thanexpected build in US crude inventories.

US crude rose 1.78 percent to $50.36 per barrel and Brent was last at $55.85, up 1.73 percent on the day.

US

US stocks were little changed in early afternoon trading on Wednesday as investors awaited the Federal Reserve’s policy decision for clues on the future path of interest rates.

The policy statement and projections are due to be released at 2 pm ET (1800 GMT). Investors will closely follow Fed Chair Janet Yellen’s press conference for views on inflation.

The central bank is likely to keep interest rate unchanged and say that it will start unwinding its holdings of about $4.2 trillion in bonds and mortgage-backed securities.

The Fed will also update its rate path or “dot plot,” which will be used to evaluate whether another rate increase in December is likely.

Inflation has remained below the Fed’s 2-percent target rate, but a recent data showed uptick in domestic consumer prices, which raised the chances of a December rate hike by more than 50 percent for the first time since July.

Traders were betting on a 55.8 percent chance of a December hike, compared with 37.3 percent a month ago, according to the CME Group’s FedWatch tool.

At 12:59 pm ET, the Dow Jones Industrial Average was up 20.98 points, or 0.09 percent, at 22,391.78, the S&P was up 1.44 points, or 0.06 percent, at 2,508.09 and the Nasdaq Composite was down 6.00 points, or 0.09 percent, at 6,455.33.

The S&P and the Dow moved in narrow ranges but managed to scale new record highs, helped by industrial, consumer discretionary and energy stocks. The tech-heavy Nasdaq, however, was pulled slightly lower by a drop in Apple.

Shares of the iPhone maker fell 2 percent on reports that the company admitted to connectivity issues with its latest smartwatch.

The energy index’s 0.75 percent rise led eight of the 11 major S&P advancers. Oil prices rose nearly 2 percent after the Iraqi oil minister said OPEC and its partners were considering extending or deepening output cuts.

The technology index was the biggest laggard, falling 0.45 percent, weighed down by Apple, Broadcom and Adobe.

Adobe fell 3.7 percent after the Photoshop maker’s revenue forecast came in line with estimates.

General Mills was down about 6 percent after its quarterly profit missed estimates, hurt by lower sales of its yogurts and cereals in North America.

Western Digital slipped 4.8 percent after Toshiba agreed to sell its semiconductor business to a group led by private equity firm Bain Capital.

Bed Bath & Beyond sank more than 15 percent to its lowest since 2009 after the home furnishing retailer reported earnings and sales below estimates, prompting a slew of price target cuts.

Advancing issues outnumbered decliners on the NYSE by 1,809 to 968. On the Nasdaq, 1,711 issues rose and 1,116 fell.

Europe

Deal-making and political turmoil in Spain livened up a flat session in Europe’ stock markets on Wednesday as investors awaited pointers from the Federal Reserve on the US interest rate outlook.

While caution dominated the broader market, Spanish stocks were hit hard after police arrested Catalan government officials in a bid to halt a banned referendum on independence.

“Market are starting to realize how deep the crisis is (in Spain),” said Jesus Castillo, an economist covering Southern Europe for French bank Natixis.

Madrid’s blue chip index, the best performer among major European benchmarks so far this year, fell 0.8 percent, underperforming the pan-European STOXX 600 which ended flat.

Among the biggest fallers in Madrid were Catalonia-headquartered banks Banco Sabadell and Caixabank, which fell 3.8 and 1.9 percent respectively.

On the M&A front, Thyssenkrupp rose more than 2 percent after it and India’s Tata Steel agreed to merge their European steel operations to create the continent’s No.2 steelmaker.

Also in the spotlight was Fortum after the Finnish power company said it was in talks to buy German utility E.ON’s remaining stake in Uniper, the power stations and trading business it spun off last year.

The news lifted shares in the three companies, which ended up between 2.7 percent and 5.9 percent.

In the banking sector, Commerzbank rallied 2.4 percent after a Reuters report said Italy’s UniCredit had recently told Berlin it was interested in eventually merging with the statebacked German bank.

UniCredit fell more than 2 percent as the possible deal was seen as another strategy shift for Italian lender.

In the construction sector, German builder Hoctief fell 7 percent after media reports said it could launch a takeover for Spanish toll road operator Abertis on behalf of its parent ACS

Britain’s Kingfisher rose 5.6 percent after the home improvement retailer reported a better-than-expected profit for the first half.

By sector, banks were in particular focus, ending down 0.4 percent as investors awaited the result of the Fed meeting.

Banks, which have outperformed the broader market so far this year, generally benefit from higher interest rates.

Asia

Asian markets moved tentatively Wednesday ahead of a Federal Reserve policy decision, while geopolitical issues returned after Donald Trump threatened to “totally destroy” North Korea if it threatened the US or its allies.

In equity trade, Tokyo ended 0.1 percent higher after surging two percent on Tuesday. Sydney and Singapore each shed 0.1 percent, while Seoul was 0.2 percent down.

However, Hong Kong ended up 0.3 percent and Shanghai also closed 0.3 percent higher.

Key figures around 0820 GMT: Tokyo — Nikkei 225: UP 0.1 percent at 20,310.46 (close)

Hong Kong — Hang Seng: UP 0.3 percent at 28,127.80 (close)

Shanghai — Composite: UP 0.3 percent at 3,366.00 (close)

Dollar/yen: DOWN at 111.50 yen from 111.60 yen

Oil

Oil headed for its largest third-quarter gain in 13 years as prices rose on Wednesday after the Iraqi oil minister said OPEC and its partners are considering extending or deepening output cuts aimed at reducing a global supply glut.

Brent crude futures rose 64 cents to $55.78 a barrel by 1330 GMT, while US West Texas Intermediate (WTI) crude futures gained 52 cents to $50.00.

The oil price is on course for a rise of nearly 16 percent this quarter, which would make this year’s performance the strongest for the third quarter since 2004.

“With oil prices steadily appreciating, as investors become increasingly optimistic over OPEC’s effort to stabilise the saturated markets, the cartel should be encouraged to extend the current deal, which may fuel the upside,” FXTM analyst Lukman Otunuga said.

The Organization of the Petroleum Exporting Countries and other producers are considering a range of options, including an extension of cuts, but it is premature to decide on what to do beyond the agreement’s expiry in March, Iraqi oil minister Jabar al-Luaibi told an energy conference on Tuesday.

OPEC and non-OPEC producers including Russia have agreed to reduce output by about 1.8 million barrels per day (bpd) until March to reduce global oil inventories and support prices.

Some producers think the pact should be extended for three or four months, others want it to run until the end of 2018, while some, including Ecuador and Iraq, think there should be another round of supply cuts, al-Luaibi said.

Analysts, however, doubt that such an extension would have much of an impact on the overall oil market.

Gold

Gold prices were steady on Wednesday, aided by a weaker dollar ahead of a US Federal Reserve policy announcement at 1800 GMT that could signal whether it will raise interest rates for a third time this year.

A threat by US President Donald Trump to “totally destroy” North Korea also helped to push the dollar lower while stimulating demand for gold, seen as a safe investment in times of uncertainty.

A weaker dollar makes gold cheaper for holders of other currencies.

Spot gold was flat at $1,311.21 an ounce by 1345 GMT, having hit a 2-1/2 week low on Monday at $1,304.10. US gold futures for December delivery were up 0.4 percent at $1,315.20.

“The dollar is under pressure ahead of the Fed,” said ABN AMRO analyst Georgette Boele. “But I think it’s more to do with the comments from Mr Trump, which are affecting the dollar and indirectly gold as well.”