World equities ease on caution before Fed decision

Stocks around the world fell on Wednesday as caution reigned ahead of an expected US Federal Reserve interest rate rise later in the day that may see rates go up to their highest since the global financial crisis.

European stocks fell as much as 0.3% in early trading, with indices in Germany and France slipping 0.2% and 1.1% respectively.

The Fed’s July decision will be announced later on Wednesday after a two-day meeting. The benchmark rate is expected to be lifted to a range between 5.25% and 5.5% — roughly the highest level since the approach to the 2007-2009 financial crisis and recession.

Still, money market traders are split on the odds of another increase later in the year.

“The 25 basis-point rise is a done deal. The expectation is that they will signal a pause of the next meeting,” said Luca Paolini, chief strategist at Pictet Asset Management.

“The risk is that the Fed, looking at market bullishness, may not want to sound too dovish — they may want to keep the door open for more rate hikes.”

The MSCI world equity index, which tracks shares in 47 countries, was flat, as were S&P 500 e-minis futures on Wall Street.

In the UK, lender NatWest fell as much as 3.6% after CEO Alison Rose quit earlier in the day after a row over the closure of ormer Brexit party leader Nigel Farage’s account with the private bank Coutts, which NatWest owns. Competitor Lloyds Bank plunged as much as 4.8% as its half-year profit missed expectations.

The yield on benchmark 10-year Treasury notes rose to 3.8905%, compared with its US close of 3.912% on Tuesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, was last at 4.8703% compared with a US close of 4.893%.

China scepticism

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1%.

In Hong Kong, the Hang Seng index eased 0.3% and China’s blue chip CSI300 index was off 0.2%. Positive sentiment had returned to China’s market on Tuesday, when the CSI 300 Index snapped a six-day losing streak.

The gains were driven by pledges by the country’s leadership to support the economy through a “tortuous” post-pandemic recovery, but they offered very little detail on specific measures, leading to mixed feelings among investors and economists.

“We’re not expecting a silver bullet in terms of any fiscal or monetary stimulus,” said David Chao, Invesco’s Asia-Pacific strategist.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down 0.1% at 101.19, after pushing as high as 101.65 overnight for the first time since July 11.

The dollar also pulled back from close to a two-week high against the euro, which gained 0.1% to $1.10655. It earlier hit a daily low of $1.1036, a level last seen on July 12.

The euro has gained about 1.3% in a month, with markets fully pricing in a 25 basis-point rate increase by the European Central Bank at its meeting this week, though the path for rates beyond July remains uncertain.

Reuters