Markets subdued ahead of expected Fed tampering
AP and AFPLONDON/HONG KONG--The mood in financial markets Wednesday was subdued ahead of a crucial policy statement from the U.S. Federal Reserve.
September 19, 2013, 12:25 am TWN
The Fed is widely expected to begin reducing its monetary stimulus when it concludes its two-day policy meeting later. Since the 2008 global financial crisis, the Fed has pumped trillions into the U.S. economy in an attempt to get the economy going again.
Recent indicators have suggested that the U.S. economy has improved and that's prompted the central bank to consider unwinding down the program. The Fed is currently buying US$85 billion worth of financial assets, such as bonds, every month to keep a lid on borrowing rates and get lending going.
Fed chairman Ben Bernanke put markets on notice in May that “tapering” was likely this year. Most economists think the Fed will announce a US$10 billion reduction in monthly bond purchases and try to provide a roadmap for the months ahead.
Reduction forecasts range from US$5 billion to US$15 billion and Michael James, managing director of equity trading at Wedbush Securities said a larger taper “might cause a little bit of market weakness. Anything else is priced in”.
Stock markets are hoping for a small reduction because the bond-buying has kept interest rates super-low, making it cheaper to borrow money. The low bond yields and flow of new money led investors to pile into stocks all round the world. Other repercussions have included gains in commodity prices and a broad-based fall in the dollar.
“What markets are seeking is a sense of direction,” said Joshua Mahoney, research analyst at Alpari.
In Europe, the FTSE 100 index of leading British shares was up 0.1 percent at 6,576 while Germany's DAX rose 0.4 percent to 8,632. The CAC-40 in France was 0.5 percent higher at 4,167.
Wall Street was headed for a flat opening, with both Dow futures and the broader S&P 500 futures up 0.1 percent.
Asian markets were mixed on Wednesday following a strong lead from Wall Street, with investors biding their time as they await the end of a crucial Federal Reserve policy meeting.
With few other trading cues, the main focus is on the Fed meeting, which is expected to see policymakers begin reeling in the bank's massive stimulus programme.
Tokyo rose 1.35 percent, or 193.69 points, to 14,505.36, while Shanghai added 0.29 percent, or 6.29 points, to 2,191.85.
However, Sydney ended 0.25 percent lower, shedding 13.1 points, to 5,238.1 while Hong Kong eased 0.27 percent, or 63.07 points, to 23,117.45. Seoul was closed for a public holiday.
Global markets have focused intently on the Fed's plans for its stimulus, which has been credited with fuelling a huge investment spree.
Emerging economies — particularly India and Indonesia — have suffered a flight of foreign cash since Fed boss Ben Bernanke in May said the U.S. economy was showing signs of strength that meant QE could be wound in.
Gold was US$1,300.40 an ounce at 1042 GMT compared with US$1,319.11 late Tuesday.