World shares set for seventh day of gains ahead of Fed meeting
Wall Street futures are up with the dollar soft ahead of the meeting, and sterling drifts as a third vote on May’s same Brexit deal is halted
London — World shares edged towards their longest winning streak of the year on Tuesday ahead of a US Federal Reserve meeting, while the pound kept calm after another dramatic twist in the Brexit plot bolstered bets on a lengthy delay to the process.
With traders expecting soothing sounds from the Fed’s two-day meeting which starts later, Europe’s early 0.2% to 0.5% gains lifted MSCI’s 47-country world index for a seventh straight day and to its highest since October.
Asia had stuck to tight ranges during its session, but all three major Wall Street indices were pointing up again after bank and tech stocks helped extend the year’s 20% charge for US markets on Monday.
The dollar, though, was feeling the strain, skulking near a two-week low on the bets that with both US and global growth now slowing the Fed will need to put its rate hike plans on ice.
“The market has priced in that the Fed’s next move will be a [rate] cut,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, adding that it may have to if US data continues to sour and key indicators, such as the US yield curve start flashing warning signs again.
Investors will particularly look to see whether policy makers have sufficiently lowered their interest rate forecasts to more closely align their “dot plot”, a diagram showing individual policy makers’ rate views for the next three years.
Also expected is more detail on a plan to stop cutting the Fed’s holdings of nearly $3.8-trillion in bonds. “A key focus is when the Fed will omit the word ‘patient’ from its statement, as that would be a pre-requisite for a rate hike,” said Toru Yamamoto, chief fixed-income strategist at Daiwa Securities.
In currency markets, sterling found some footing after slipping to as low as $1.3183 in the previous session as law makers cast doubt on UK Prime Minister Theresa May’s third attempt to get parliament to back her Brexit deal.
May’s Brexit plans were thrown into further turmoil on Monday when the speaker of parliament ruled that she could not put her divorce deal to a new vote unless it was re-submitted in fundamentally different form.
May has only two days to win approval for her deal to leave the EU if she wants to go to a summit with the bloc’s leaders on Thursday with something to offer them in return for more time. Meanwhile, senior diplomats said the EU leaders could hold off making any final decision on any Brexit delay when they meet in Brussels later this week, depending on what exactly May asks them for.
“The predominant notion adopted by the market is that as long as the worst-case scenario of a hard Brexit is avoided by delaying Brexit, the pound is a buy on dips,” Rabobank strategists said in a note.
With the dollar nudging down ahead of the Fed meeting, the euro made some ground at $1.1347 and the yen edged up 0.1% to ¥111.28 to the US currency.
Oil prices were near 2019 highs, supported by supply cuts led by oil cartel Opec. US sanctions against oil producers Iran and Venezuela are also boosting prices, although traders said the market may be capped by rising US output.
US West Texas Intermediate (WTI) futures gained 0.2% to $59.23 a barrel, while Brent crude futures rose to $67.97, also not far from this year’s high of $68.14.