LDN - Business

Shares slip as markets await Fed rate rise

[July 26, 2023] By Tom Wilson and Scott Murdoch

LONDON/SYDNEY (Reuters) - Stocks around the world fell on Wednesday as caution reigned ahead of an expected U.S. Federal Reserve interest rate rise later in the day that may see rates go up to their highest since the global financial crisis.

European stocks fell as much as 0.3% in early trading, with indexes in Germany and France slipped 0.2% and 1.1% respectively.

The Fed's July decision will be announced later on Wednesday following a two-day meeting. The benchmark rate is expected to be lifted to a range between 5.25% and 5.5% - roughly the highest level since the approach to the 2007-2009 financial crisis and recession.

Still, money market traders are split on the odds of another increase later in the year.[FEDWATCH]

"The 25 basis point rise is a done deal. The expectation is that they will signal a pause of the next meeting," said Luca Paolini, chief strategist at Pictet Asset Management.

"The risk is that the Fed, looking at market bullishness, may not want to sound too dovish - they may want to keep the door open for more rate hikes."

The MSCI world equity index, which tracks shares in 47 countries, was flat.

On Wall Street, S&P 500 e-minis futures were flat.

In Britain, shares of lender NatWest fell as much as 3.6% after CEO Alison Rose quit on Wednesday after discussing former Brexit party leader Nigel Farage's relationship with NatWest with a BBC journalist. Fellow UK lender Lloyds slipped as much as 4.8% as its half-year profit missed expectations.

The yield on benchmark 10-year Treasury notes rose to 3.8905%, compared with its U.S. close of 3.912% on Tuesday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, was last at 4.8703% compared with a U.S. close of 4.893%.

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A man walks past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar, Euro and other foreign currencies outside a brokerage in Tokyo, Japan May 2, 2023. REUTERS/Issei Kato

NO CHINA 'SILVER BULLET'?

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1%.

In Hong Kong, the Hang Seng index was down 0.3% and China's blue chip CSI300 index was off 0.2%. Positive sentiment had returned to China's market on Tuesday, when the CSI 300 Index snapped a six-day losing streak.

The gains were driven by pledges by China's leadership this week to support the economy through a "tortuous" post-pandemic recovery, but they offered very little detail on specific measures, leading to mixed feelings among investors and economists.

"We're not expecting a silver bullet in terms of any fiscal or monetary stimulus," said David Chao, Invesco's Asia Pacific strategist.

In the currency market, the dollar index, which tracks it against a basket of currencies of other major trading partners, was down 0.1% at 101.19, after pushing as high as 101.65 overnight for the first time since July 11.

The dollar also pulled back from close to a two-week high versus the euro, with the single currency gaining 0.1% to $1.10655. It earlier hit a daily low of $1.1036, a level last seen on July 12.

The euro has gained about 1.3% in a month, with markets fully pricing in a 25-basis-point rate increase by the ECB at its meeting this week, though the path for rates beyond July remains up in the air.

Oil prices pulled back from three-month highs as industry data showed a build in U.S. crude inventories. Brent crude futures slipped 0.3% to $83.32 a barrel.

(Reporting by Tom Wilson in London and Scott Murdoch in Sydney; Editing by Jamie Freed and Kim Coghill)

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