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World markets steady ahead of Fed statement | The Mesh Report

World markets steady ahead of Fed statement

the Mesh Report Staff December 14, 2010 0

By PAN PYLAS

LONDON – Global markets traded in narrow ranges Tuesday as investors awaited key U.S. retail sales figures and the latest policy meeting of the Federal Reserve.

The dollar remained under pressure following a warning from a leading credit rating agency that the U.S. could have a negative outlook put on its triple-A rating if it doesn’t get a handle on its borrowing over the coming two years.

In Europe, the FTSE 100 index of leading British shares was down 7.13 points, or 0.1 percent, at 5,853.62 while Germany’s DAX fell 3/38 points, or 0.1 percent, to 7,026.01. The CAC-40 in France was just under 2 points higher at 3,894.24.

Wall Street was poised for a flat opening too following modest gains Monday – Dow futures were down 3 points at 11,363 while the broader Standard & Poor’s 500 futures rose 1.5 point to 1,237.70. On Monday, the S&P eked out a new 2010 high of 1,240.46, its fourth straight closing high.

How the U.S. performs though will likely hinge on what the Fed says in its statement following its meeting.

Though the actual meeting is not expected to yield much, with interest rates and the quantitative easing program to expand the money supply left unchanged, the accompanying statement will be closely assessed for any change in tone. Despite weak U.S. nonfarm payrolls data for November, the U.S. economic newsflow has generally surprised to the upside since the Fed announced a $600 billion extension to policy of buying financial assets in the hope that banks start lending again.

“The nuances – mis- and over-interpreted as they often are – of the statement will be combed through with the usual fine toothcomb,” said Marc Ostwald, market strategist at Monument Securities.

Most analysts think that the Fed will likely acknowledge the recent improving tone in the U.S. data and that the immediate outlook looks a little bit more rosy since President Barack Obama agreed to compromise with Republicans to extend about-to-expire tax cuts for all Americans.

Though the tax compromise has increased the U.S.’s near-term growth prospects, there are worries about the impact on the public finances.

“Focus on the deficit threatens to be brought sharply into focus by Moody’s announcement that tax concessions could put the U.S.’s triple A status in danger,” said Jane Foley, senior currency strategist at Rabobank International.

The dollar has been under pressure ever since, dropping further Tuesday. By late morning London time, the dollar was down 0.6 percent on the day at 82.95 yen while the euro was 0.5 percent firmer at $1.3455.

The euro continues to be buoyed by a seeming easing in tension in Europe’s debt crisis. That has been partly fueled by confirmation that the European Central Bank has stepped up its bond purchases over the past couple of weeks.

Figures Monday showed that the ECB bought around euro2.7 billion n government bonds in the week ending Dec. 10. That’s the biggest weekly purchase since July and up from euro1.97 billion a week earlier.

By buying up the bonds of vulnerable countries like Greece, Ireland, Spain, or Portugal the ECB stabilizes their prices and yields, or interest rates. Those rates indicate how much a government would have to pay if it were to raise money in the debt markets.

Before the Fed statement investors will have U.S. retail sales data for November to digest. The consensus in the markets is that retail sales rose a monthly 0.6 percent during the month.

“Failure to deliver has the potential to shake investor confidence,” said Ben Critchley, a senior sales trader at IG Index.

The figures are particularly important because they shine a light on the state of consumption in the United States, a key driver of growth. The U.S. retail spending accounts for around 70 percent of the world’s largest economy.

Figures during the European session failed to have much of a market impact. Lower than anticipated industrial production growth of 0.7 percent in the eurozone in October was largely offset by a fairly solid German investor sentiment survey from the ZEW research institute. Its index rose for the first time after six straight slides to 4.3 points in December from 1.8 in November.

Investors are also keeping a close watch on developments in China after figures recently showed the country’s inflation rate surged to 5.1 percent in November amid higher costs for food and utilities. Financial markets are wondering if another interest rate increase is on the cards following an earlier one in October.

Earlier in Asia, Hong Kong’s Hang Seng climbed 0.5 percent to 23,431.19 and China’s benchmark Shanghai Composite Index gained 0.1 percent to 2,927.08.

Japan’s Nikkei 225 stock average added 0.2 percent to 10,316.77 while Australia’s S&P/ASX 200 advanced 0.2 percent to 4,766.90.

Benchmark crude for January delivery was down 9 cents at $88.52 a barrel in electronic trading on the New York Mercantile Exchange.

AP Business Writer Kelly Olsen in Seoul, South Korea contributed to this report.

A service of YellowBrix, Inc.



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