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 With much of it still guesswork though, Europe's main bourses were a
shade lower, Wall Street was pointing to a slightly higher start,
while the euro and dollar were nudging around in tight ranges.
Ultra-safe German government bonds and the Swiss franc had been the
preferred options for much of the morning in Europe but the former
were beginning flag as traders started to withdraw ahead of the Fed.
Markets are hoping the U.S. central bank's statement due at 2 p.m.
EDT, followed half an hour later by Chair Janet Yellen's news
conference, will trim down the list of potential hike dates which
currently stretches from September to late next year.
After watching the U.S. economy contract in the first quarter, Fed
policymakers will have to judge whether healthier recent jobs, wage
and consumer spending data are enough to allow its first rate rise
in almost a decade."Right now, markets are pricing a-less-than 30
percent probability the Fed hikes in September, but a-greater-than
60 percent probability they hike by December," said Richard Clarida,
global strategic advisor at bond fund giant PIMCO.
"I suspect Yellen would not be unhappy if, after her press
conference, the markets price in a higher probability of a
September."
The dollar was barely budging ahead of the Wall Street restart, at
$1.1258 per euro, buying 123.97 yen though stronger-than-expected
wage growth in Britain saw it bow to sterling at $1.57.
Whenever a Fed hike comes, it will mark a major turning point for
global markets, effectively ending an unprecedented era of easy
money that has helped drive both global stock and many major bond
prices to record highs.
There still remains far too much uncertainty in other parts of the
world however to signal the all clear, especially in the euro zone
where its debt crisis continues to flare.
Relations between Greece and its creditors have become increasingly
acrimonious in recent days, leaving hopes that the country will
avoid a default on IMF loans hanging by a thread.
Euro zone finance minister are due to meet on Thursday but there was
talk of plans being put in place for another emergency summit at the
weekend.
EMERGING PRESSURE
Greece's national central bank sent out a stark warning that failure
to clinch a deal would: "mark the beginning of a painful course that
would lead initially to a Greek default and ultimately to the
country's exit from the euro area and, most likely, from the
European Union,"
"Striking an agreement with our partners is a historical imperative
that we cannot afford to ignore," it said.
Spanish, Italian and Portuguese bond yields which have climbed to
multi-month highs this week in one of the most serious episodes of
euro debt contagion since the height of the debt crisis in 2010-12,
dipped for a second day despite a higher start.
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However, Portugal, which like Greece had to be bailed out by the
European Union and IMF, saw its short-term borrowing costs rise
sharply at a debt auction. Germany also saw its costs rise at an
auction it held.
Overnight in Asia the mood had seemed a bit more positive.
MSCI's index of Asia-Pacific shares outside Japan gained 0.8
percent, moving away from a three-month low on Tuesday as Chinese
stocks rallied by more than 2 percent from the day's lows.
The Shanghai market had gained 50 percent since the start of the
year, making Chinese stocks the world's best performers in U.S.
dollar terms.
There are, however, worries about frothiness. Thomson Reuters data
shows that some stock markets, such as the Shenzhen stock exchange,
currently trade far above their 10-year median average.
Emerging markets are closely watching the Fed's moves. Traditionally
they are highly sensitive to changes in U.S. rates because it makes
their own ones relatively less attractive for global investors and
can play havoc with their currencies.
Deutsche Bank Managing Director Nick Lawson said he expected MSCI's
benchmark EM stock index - standing at a 2-1/2 month low - to break
down out of a range it has been in for the last four years when U.S.
rate hikes begin.
Outflows from emerging market equity and bond funds hit their
highest since 2008 according to data from fund-tracker EPFR.
In commodities, oil prices were a shade firmer as plentiful output
was met by strong demand, with the market waiting for U.S. storage
figures later in the day.
U.S. crude futures was up over a dollar at $61.17 a barrel, while
Brent climbed to $65.17. Gold was sidelined at $1,179.50 an ounce
and copper nudged off a three-month low.
(Additional reporting by Wayne Cole in Sydney; Editing by Crispian
Balmer)
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