Global Stocks Pause Ahead of Fed Decision
18 September 2019 - 11:29PM
Dow Jones News
By Anna Isaac
-- Treasury yields tick lower
-- Repo markets calm after intervention
-- U.S. stock futures edge down
Global stocks paused ahead of an interest-rate decision from the
Federal Reserve, amid political tensions and a volatile week for
oil prices.
In the U.S., futures on the Dow Jones Industrial Average and
S&P 500 were down 0.1% and 0.2%, respectively. The contracts
don't necessarily predict movements after the opening bell.
The Fed on Tuesday had to step in to address a problem in money
markets. It was the first time since 2008 that the central bank had
to inject cash to keep interest rates down for short-term
borrowing, and it is unclear how long the market intervention will
last.
The easiest fix "would be to revive quantitative easing (QE), to
create excess reserves," said Bastien Drut, senior strategist at
CPR Asset Management, in a note. This would "ease the tensions on
the interbank market," he said, adding the impact of such a move on
financial markets would be "very strong" and trigger a depreciation
of the U.S. dollar.
On Tuesday afternoon, the Fed said it would inject a further $75
billion Wednesday morning to ease the cost of overnight
borrowing.
Shares of FedEx Corp. dropped 10.8% in off-hours trading after
the delivery firm late Tuesday reported a sharp fall in its profit
forecast.
The Stoxx Europe 600 edged up 0.1% in midday trading after a
mixed session in Asia. The Shanghai Composite rose 0.3% and Korea's
Kospi gained 0.4%, while Japan's Nikkei slipped 0.2%.
Japan's exports dropped 8.2% on year last month, a more rapid
fall than expected, adding to speculation that the central bank may
seek to cut interest rates deeper into negative territory. The weak
data came as global uncertainty has boosted the yen, regarded as a
haven by investors, by around 1.4% against the U.S. dollar so far
this year.
Global oil benchmark Brent crude slipped 1% to $63.93 on
Wednesday, following days of sharp swings after an attack on
production facilities in Saudi Arabia. The tick downward came after
the Saudi energy ministry said the kingdom would recover output in
weeks.
The attack caused the Brent price to rise 15% on Monday, the
biggest leap in a single day since 1988, before dropping back by
6.5% on Tuesday. The volatility spread to other asset types,
including junk bonds. Energy firms account for about 6% of debt
outstanding in the high-yield market.
Meanwhile, the Federal Reserve later Wednesday is expected to
cut its short-term benchmark interest rate by a quarter percentage
point, following a cut of the same amount in July. The central bank
is seeking to balance domestic concerns, such as a relatively tight
labor market, against a slowdown in global trade.
"Whatever has happened in the last week or two hasn't changed my
view that there will be a 25 basis-point cut today. To not
introduce a cut would introduce volatility to the market that it
can't afford," said Seema Shah, chief strategist at Principal
Global Investors.
After its Wednesday meeting, the Fed is also expected to release
more details on the likely future course of interest rates.
Data on construction in the U.S. was also released Wednesday.
The figures showed home building had risen last month to the
highest level since June 2007, following three straight months of
decline.
The yield on 10-year U.S. Treasurys ticked down to 1.779%, from
1.805% Tuesday. Yields fall as bond prices rise.
Gold prices slipped 0.3%.
Write to Anna Isaac at anna.isaac@wsj.com
(END) Dow Jones Newswires
September 18, 2019 09:14 ET (13:14 GMT)
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