GLOBAL MARKETS-Stocks, dollar dip as Fed decision on stimulus looms

Tue Sep 17, 2013 7:16am EDT

* MSCI world equity index retreats from 5-year high
    * Dollar dips but remains above four-week low
    * Germany's stronger-than-expected ZEW weighs on Bund
    * Oil drops below $110 as Syrian tensions further ease

    By Blaise Robinson
    PARIS, Sept 17 (Reuters) - Shares dipped and the dollar lost
ground on Tuesday as investors consolidated positions before
this week's U.S. Federal policy meeting at which the central
bank is set to start scaling back stimulus.
    German Bunds also edged lower, with Bund futures 
down 0.2 percent at 138.24, increasing their losses after a
survey from ZEW economic think tank showed German analyst and
investor sentiment rose more than expected in September,
prompting a search for higher yielding assets.
    The monthly poll of economic sentiment rose to 49.6 from
42.0 in August, reaching the highest level since April 2010 and
beating the consensus forecast for a rise to 46.0.
 
    Despite the stronger-than-expected figure, equity investors
were reluctant to chase stocks higher, a day after Germany's DAX
 jumped to a record high and the MSCI's world equity
index hit a five-year high, and as the Fed is
set to trim its quantitative easing programme which has been a
major factor behind the brisk stock rally of the past year.
    The MSCI world index was down 0.2 percent around 1100 GMT,
while Europe's FTSEurofirst 300 index of top European
shares was down 0.5 percent.
    In Asia, the MSCI's broadest index of Asia-Pacific shares
outside Japan lost 0.3 percent, while Japan's
Nikkei stock average closed 0.7 percent lower.
    The Fed's Open Market Committee begins its two-day meeting
on Tuesday, and despite a lacklustre August U.S. jobs report, it
is expected to trim its monthly asset purchases by about $10
billion from $85 billion. 
    "With the Fed set to start trimming down its quantitative
easing programme, we could see the return of volatility,
especially for markets that have benefited the most from it,
such as U.S. stocks," said Roland Kaloyan, global asset
allocation strategist, at Societe Generale CIB, in Paris. 
    "The Fed's liquidity played a key role in the rally that has
propelled U.S. stocks to record highs this year, while at the
same time, company fundamentals and earnings momentum are not
that great, so we could see some profit taking following the
Fed's announcement tomorrow."
    The MSCI world equity index has gained 12.6 percent so far
this year, while Wall Street's S&P 500 is up 19 percent.
    The dollar was down 0.2 percent versus a basket of
currencies on Tuesday, at 81.141, but remained in a tight
range, having recovered from a four-week low of 80.968 set on
Monday.
    "Once the Fed will announce the first reduction of its
quantitative easing programme, the debate will quickly shift to
the timing of the central bank's first interest rate hike, and
this should put pressure on short-term U.S. treasuries and boost
the dollar," SG's Kaloyan said.
    With the Fed looking set to take its first step to wind down
its stimulus, investors will also be focusing on the central
bank's guidance on its future policy stance on Wednesday.OIL DIPS AS SYRIAN TENSIONS EASE
    "On top of the size of tapering, what's more important this
time is the Fed's forecast of interest rates in 2016, which will
give markets an idea on the pace of future rate hikes," said Sho
Aoyama, senior market analyst at Mizuho Securities.
    Brent crude fell below $110 a barrel as easing
worries over a potential U.S. military action on Syria calmed
concerns of a disruption to Middle East oil supplies and after
output resumed at a western Libyan oilfield.
    U.S. air strikes on Syria now look unlikely after a deal to
remove Syria's chemical weapons, although the United States,
Britain and France have warned President Bashar al-Assad of
consequences if he fails to comply.
    "The market believes the U.S. dollar will strengthen if
monetary conditions are tightened, which would put some pressure
on oil," Commerzbank senior oil and commodities analyst Carsten
Fritsch said.
    Gold hovered just above a five-week low, while copper
 edged higher on Tuesday but stayed close to five-week
lows in cautious trade ahead of the Fed.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.