Global Shares Decline, Investors Play It Safe Ahead of the Fed

Global stocks were broadly lower Tuesday, with investors expected to avoid taking major positions ahead of the Federal Reserve policy meeting later this week.

The Stoxx Europe 600 edged down 0.2% in early morning trade, led by losses in the food and beverage sector.

Futures pointed to a flat opening for the S&P 500 and the Dow Jones Industrial Average, after both closed at a record Monday.

The equities bull run paused Tuesday as investors turned their attention to the Fed’s interest rate decision. The central bank is likely to announce Wednesday plans for shrinking its massive portfolio of mortgage and Treasury bonds, while rates are expected to remain unchanged.

“The U.S. economy is not thriving. I think it would be smart for the Fed to sit back and do nothing right now,” said Trip Miller, managing partner at Gullane Capital Partners.

Subdued inflation has largely underpinned skepticism of another Fed rate increase this year. However, better-than-expected U.S. consumer prices last Thursday gave a fresh boost to investor expectations for one more rate rise in 2017. Traders now see a 58% chance of a rate increase by year-end, from 41% last week, according to Fed-fund futures tracked by CME Group.

In the bond market, prices have pulled back in recent sessions as concerns among investors over North Korea and hurricanes in the Atlantic Ocean dissipated, at least for now.

The 10-year Treasury yield on Tuesday edged down to 2.224% according to Tradeweb, compared with Monday’s close of 2.230%. Meanwhile, the 10-year German government bond yield was lower at 0.450%, from 0.459% Monday. Portugal’s bond yield also continued to fall after the country regained its investment grade rating, to trade at 2.362% from 2.459% Monday. Yields fall when prices rise.

The Japanese yen, which tends to rise when markets stutter, lost 0.1% against the U.S. dollar.

The dollar pared some of its Monday gains. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, fell 0.1%. The euro rose 0.4% against the dollar to trade at $1.200.

In Asia, markets were mixed, with commodities, currencies and a number of Asian stock indexes moving back and forth across Monday’s settlement levels, failing to find direction. Japan’s Nikkei Stock Average was the exception, gaining nearly 2% after a public holiday Monday. Game maker Nintendo jumped over 7%, hitting fresh nine-year highs.

Meanwhile, South Korea’s Kospi, Hong Kong’s Hang Seng Index and the Australian S&P/ASX 200 were down 0.1%.
Source: Dow Jones