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 Worries that Greece's new government is heading for clashes with the
rest of the euro zone over its debts saw European shares stumble for
a second day as Greek bonds also took another dive.
Gadget giant Apple had grabbed headlines overnight after it reported
the biggest quarterly profits in corporate history, but focus was
now squarely on what message the Fed sends when it wraps up its
first meeting of the year later.
Wall Street was expected to see a steady start. The dollar slipped
against the euro, the yen and a number of other key currencies in
early European trading before stabilising.
Scepticism is growing that the Fed will raise rates by mid-year, as
had been expected. Other major central banks are easing aggressively
and the strong dollar and slumping oil prices are driving down
inflation.
Big U.S. firms that sell abroad are also grumbling, with a slew
multinationals from Microsoft to Procter & Gamble having warned
their situation will get worse if the greenback holds its strength.
"The question at the top of every market participant's mind is
whether the world's largest central bank will follow its global
counterparts into a more dovish policy lean," said John Kicklighter,
chief currency strategist at DailyFX.
Two-year U.S. Treasury yields -- the most sensitive to U.S. rate
hike expectations -- held above 0.50 percent in Europe, having
dipped on Tuesday following some weaker-than-expected durable goods
data and lacklustre corporate earnings.
European government bonds, with the exception of safe-haven Germany,
saw their yields rise again as uncertainty about Greece persists.
Greek Prime Minister Alexis Tsipras named a cabinet of
anti-austerity veterans on Tuesday and promptly halted the
privatisation of Greece's biggest port, signalling he intentions to
stick to his party's election pledges.
Shares in Greece's main banks plunged over 20 percent. Greek
five-year bond yields hit their highest since the country's
2012 debt restructuring and 10-year yields shot back above 10
percent.
SINGAPORE SLING
It had all seemed brighter in Asia. MSCI's broadest index of
Asia-Pacific shares outside Japan ticked up 0.2 percent to a
four-month high and Japan's Nikkei also reached a one-month high.
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As well as the sentiment boost of Apple's world record profits,
Singapore's central bank eased monetary policy unexpectedly, its
first unscheduled change in over a decade, jumping in ahead of a
planned meeting in April.
Singapore's central bank joins a growing list of counterparts --
from Denmark and Canada to Turkey and India -- that have made
surprise moves in what is looking increasingly like a global
currency war.
The Singapore dollar skidded to its weakest in nearly 4-1/2 years.
Other emerging Asian currencies also weakened, including Malaysia's
ringgit and Thailand's baht, despite their central banks keeping
their rates on hold.
Rising bets that the U.S. Fed will push back a rate hike saw
emerging market shares consolidate their recent gains. Fed funds
rates are now pricing in only a slim chance rates will rise before
the end of the year.
"The market now thinks a rate hike around June is unlikely. So if
the Fed does not change its tone, the market will take it as a bit
more hawkish than expected," said Tomoaki Shishido, fixed income
analyst at Nomura Securities.
In commodity markets, oil prices were pressured by news U.S. oil
stockpiles surged by nearly 13 million barrels last week. Brent
crude oil dipped to $49.40 a barrel and U.S. crude oil futures
slipped to $45.57.
Safe-haven gold hovered at 1,290 an ounce while copper, which
has lost 25 percent in the last six months, climbed 1 percent.
(Editing by Catherine Evans)
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