Published: Wed, March 21, 2018
Money | By Armando Alvarado

Cautious trade for European shares ahead of Fed outcome

Cautious trade for European shares ahead of Fed outcome

Yields on government bonds rose, meanwhile, as investors zeroed in on the expected quarter percentage point interest rate hike and additional monetary guidance which are expected to come at the conclusion on Wednesday of the Federal Reserve's first meeting under its new chairman Jerome Powell.

The Hong Kong dollar hit a 33-year low of 7.8452 per dollar early on Wednesday morning, inching closer to the lower end of the monetary authority's targeted trading band, as the interest rate gap between the U.S. and Hong Kong benchmarks widened further.

Equities markets in the rest of Asia had also struggled overnight, though China did manage to eke out some gains as Beijing announced a new economic team.

"There has been the narrative of supposed policy convergence between the ECB and the Fed, but that is just not the reality", said Saxo Bank's head of FX strategy John Hardy. "It's because of the underlying strength of the US and global economy".

The pan-European STOXX 600 index was down 0.1 per cent by 0827 GMT, as more cyclical sectors such as financials, materials and industrials retreated.

The Fed has increased borrowing costs five times since it began tightening policy in late 2015. Markets are pricing in three rate increases this year, but some reckon policymakers might squeeze in a fourth, triggering a bond and equity selloff.

It will also be the first press conference for new Fed Chair Jerome Powell.

"The economic situation post-tax cuts also justifies a significant shift upwards in the dot plot", he added, referring to fears the Fed's de facto policy forecast chart will signal four rate rises rather than three because of the effects of USA tax reforms.

Market expectations for a March rate hike are 94.4 percent as of Tuesday afternoon, according to the CME Group's FedWatch tool. The yield on the 10-year Treasury note was unchanged after it jumped to 2.90 percent Tuesday.

Markets consolidate gains, Sensex reclaims 33k-mark
Mumbai , Mar 21 NSE benchmark Nifty ended with modest gains today ahead of US Federal Reserve's policy meet outcome. Edelweiss Financial Services topped the value chart on the BSE with a turnover of Rs. 563.65 million.

Existing home sales in the USA increased by much more than anticipated in the month of February, according to a report released by the National Association of Realtors on Wednesday.

"Having spent most of this month quietly strengthening (thanks in part to the promise that Australia would be spared United States steel and aluminium tariffs) the last three days has seen the AUD come under pressure as investors have considered Australia's exposure to Asian markets in general and China in particular", said Simon Derrick, chief currency strategist at BNY Mellon in London.

A major overhang for financial markets is the specter of a global trade war.

Aside from the Fed, the Trump administration is creating a stir with plans for up to $60 billion in new tariffs on Chinese imports by Friday, targeting technology, telecommunications and intellectual property, sources familiar with the matter told Reuters. China has vowed to take retaliatory measures in response.

This week's meeting of finance ministers and central banks of the world's 20 biggest economies failed to diffuse tensions, with the so-called G20 bloc saying only it "recognised" the need for more "dialogue and actions".

The Australian dollar fell to a three-month low of $0.7679 on Tuesday but recovered some ground on Wednesday to trade up marginally at $0.7686.

In addition, worries about the potential for a trade war cast a shadow after Trump imposed tariffs on steel and aluminium. The Swiss franc also hit a two-month low of 0.9570 franc to the dollar.

Fears of a trade war have also weighed on commodity prices, though tensions in the Middle East supported oil, lifting Brent futures LCOc1 nearly half a percent.

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