Markets diverge before US rates outcome

LONDON: European stock markets rose yesterday and the dollar mostly firmed against rivals after drops for Asian equity indices and a record-high close on Wall Street, as traders awaited the outcome of the Federal Reserve’s interest-rate meeting. The US central bank is all but certain to raise interest rates, leaving the main focus on chair Janet Yellen’s comments.

Some analysts suggest the rise could be the Fed’s last this year as traders fret over tepid US inflation and the future of President Donald Trump’s big-spending, tax-cutting agenda. Hopes for those policies had fuelled expectations of a surge in prices-and a jump in borrowing costs-but the agenda is now in trouble as the tycoon faces political crises.

“With the rate hike now 96 percent priced in, focus will fall on the Fed’s forward guidance and importantly their views surrounding low inflation,” said Stephen Innes, senior trader at Oanda trading group. In Europe yesterday, a closely-watched survey showed that confidence among German investors fell back in June-breaking a run of euphoric mood indicators in recent months.

The ZEW institute’s poll measuring economic expectations among financial players shed 2.0 points to 18.6 points in June-well below its long-term average of 23.9. Despite the June drop, “prospects for the German economy remain favourable, not least thanks to the positive development of economic growth in the European Union in the first quarter of this year”, ZEW president Achim Wambach said in a statement. In Britain meanwhile, official data showed that the unemployment rate remains at 4.6 percent, the lowest level for 42 years. At the same time however, average weekly earnings are falling against a backdrop of rising UK inflation caused in large part by a weak pound lifting import costs.

“There was more bad news for the UK consumer yesterday after regular wage growth, excluding bonuses, fell to 1.7 percent, its lowest level since late 2014,” said Kathleen Brooks, research director at traders City Index.

“Falling real wage growth is not a new theme, but the fact that inflation-adjusted wage growth has continued to fall to its lowest level for three years, is likely to keep a lid on” a recovery for sterling, which has fallen sharply for much of the time since Britain last year voted to exit the European Union. Elsewhere yesterday, oil prices rose before the release of US energy inventory numbers that provide clues regarding crude demand in the world’s biggest economy.

Watchdog the International Energy Agency said yesterday that global oil output will expand faster than worldwide demand next year, primarily as US producers rack up crude production, and that could hamper exporters’ efforts to prop up prices. The IEA’s assessment came a day after OPEC complained that increased output in the US was slowing efforts to rebalance supply and demand in the oil market.

Asia markets mostly down

Meanwhile, Asian traders were subdued yesterday despite a record close on Wall Street as they await the outcome of the Federal Reserve’s policy meeting, hoping for guidance on its monetary policy plans. The central bank is all but certain to raise interest rates after its meeting ends later in the day but the main focus will be on chair Janet Yellen’s comments afterwards. Some analysts suggest the rise could be the Fed’s last this year as traders fret over tepid inflation and the future of Donald Trump’s big-spending, tax-cutting agenda. Hopes for those policies had fuelled expectations of a surge in prices-and a jump in borrowing costs-but the agenda is now in trouble as the tycoon faces political crises.

“With the rate hike now 96 percent priced in, focus will fall on the Fed’s forward guidance and importantly their views surrounding low inflation,” Stephen Innes, senior trader at OANDA, said in a note. The dollar moved in a tight range against the yen in Asia ahead of the Fed announcement. Equity markets struggled despite a strong lead from Wall Street, where the Dow and S&P 500 ended at record highs.

Tokyo ended 0.1 percent lower, while Shanghai closed down 0.7 percent with dealers unimpressed by Chinese factory output data. Chinese Insurance firms were among the big losers after the chairman of sector giant Anbang Insurance, which had sought a business deal with the family of US President Donald Trump’s son-in-law, stepped aside amid a report he had been detained by authorities. Seoul was off 0.1 percent and Singapore gave up 0.2 percent. Taipei fell 0.6 percent. However, Sydney climbed more than one percent and Hong Kong staged a late bounce to end up 0.1 percent. — Agencies