A man looks at an electronic board showing
Japan's Nikkei average outside a brokerage in
Tokyo, Japan, December 1, 2016.
World stocks and the U.S. dollar edged lower,
while government bond yields fell, with
investors certain the Federal Reserve will lift
interest rates for the first time in a year on
Wednesday but less so about what it may do in
2017.
European shares fell 0.4 percent and
U.S. stock futures were flat, suggesting a
cautious start to Wall Street trading after
Tuesday's stock market rally to all-time highs.
Asian stocks outside Japan eked out
just a 0.1 percent gain, while benchmark indexes
in Japan and China dithered either side of flat
with investors reluctant to push shares much
higher before the Fed meeting.
The Fed is widely tipped to lift
interest rates 25 basis points to 0.50-0.75
percent at the end of a two-day meeting on
Wednesday. Its rate announcement is due at 1900
GMT, followed by Chair Janet Yellen's news
conference 30 minutes later.
It would be the Fed's first interest
rate hike in a year and its second since the
financial crisis.
With a rise fully priced in by
markets, eyes are on the Fed's economic and rate
"dot plots" for a sense of how policymakers
think President-elect Donald Trump's policies
will impact growth and inflation.
"Last year the Fed guided the
markets to expect at least four rate rises this
year, guidance that proved to be woefully wide
of the mark, and it is likely that they won't
want to make the same mistake again," said
Michael Hewson, chief market analyst at CMC
Markets.
"That suggests that Fed chief Janet
Yellen can expect some serious cross-examination
of how the FOMC (Federal Open Market Committee)
view not only the economy, but also President
elect Donald Trump's plans for it."
For others, the challenge for Yellen
is how to signal further rate increases without
triggering strong gains in the dollar that could
undermine growth.
The dollar index, which measures
against a basket of six major currencies, hit
14-year peaks last month on expectations for
higher inflation and interest rates.
The euro traded at $1.0646 on
Wednesday, up 0.2 percent on the day and off a
recent 20-month trough at $1.0505. The dollar
was also a touch weaker against the yen at
114.92, while the dollar index was 0.2 percent
lower at 100.88.
"Janet Yellen is in a corner for the
December meeting," said Nicolas Forest, global
head of fixed income at Candriam Investors
Group. "She has to hike interest rates but the
dollar is strong, so she has to decide between a
dovish and a hawkish hike."
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Treasuries have already priced in a
rate hike and more, with 10-year yields pulling
back from peaks seen earlier this week just
above 2.5 percent.
In contrast to the Fed, the European
Central Bank only last week extended its
asset-buying campaign and moved to purchase more
short-term debt.
Germany's 2-year government bond
yield, trading at minus 0.765 percent, is within
sight of recent record lows, while U.S.
equivalents are reaching ground last trod in
April 2010 at around 1.18 percent.
As a result, the spread between U.S.
and German two-year yields is at its widest
since late 2005, with Treasuries offering a
mouth-watering premium of 192 basis points.
The Bank of Japan, meanwhile,
increased government bond purchases in regular
market operations on Wednesday for the first
time since adopting its yield curve control in
September, signaling its readiness to intervene
against unwelcome rises in long-term interest
rates.
Oil ran into profit-taking following
a reported rise in U.S. crude inventories and an
estimate that OPEC may have produced more crude
in November than previously thought.
U.S. crude futures, which hit a high
of $53.41 on Tuesday, were down 71 cents at
$52.27 a barrel. Brent crude eased 70 cents to
$55.03.
(Additional reporting by Wayne Cole
in SYDNEY; Editing by Robin Pomeroy)
http://www.reuters.com/article/us-global-markets-idUSKBN1422WQ?il=0