Markets

Stocks at three-week highs as Fed decision looms

Europe’s main share markets grind to virtual standstill ahead of US decision

The Federal Reserve headquarters in Washington. The Federal Reserve, facing this week its biggest policy decision yet under chair Janet Yellen, puts its credibility on the line regardless of whether it waits or raises interest rates for the first time in nearly a decade. Photograph: Reuters

Thu Sep 17 2015 - 07:22

World stock prices held near three-week highs and the dollar fell on Thursday as investors awaited whether the US Federal Reserve will end its near-zero interest rate policy.

A poll by Reuters showed the majority of economists now expect no hike later on Thursday, although it remains a close call. The futures market implied traders assigned a 1-in-4 chance of such a move.

“Investors are in wait-and-see mode,“ said Art Hogan, chief market strategist at Wunderlich Securities in New York.

US Federal Reserve Board chair Janet Yellen delivers her semi-annual report on monetary policy before the Senate Banking and Urban Affairs Committee, on Capitol Hill in Washington. Photograph: Mike Theiler/Reuters

Mixed US data on jobless claims, housing starts and regional manufacturing did little to change traders’ view on the timing of the Fed’s “lift-off.”

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US two-year Treasuries yield held below a near 4-1/2 year high. Oil prices were marginally lower, while gold gave back a bit of Wednesday‘s gains.

Traders had expected the Fed to raise rates for most of this year, but those expectations faded following a bout of global market turmoil this summer on worries about China.

Joining the dots

As the Federal Open Market Committee, the Fed's policy-setting group, releases its policy statement at 7pm Irish time, it will put forth its quarterly Summary of Economic Projections (SEP), also referred to as "dot plots," that present individual forecasts of policymakers.

At 7.30pm, Fed chair Janet Yellen will hold a news conference where she will likely face a barrage of questions on the central bank's policy stance and economic outlook. The dot plots and Ms Yellen's responses will likely stir wild swings across markets, analysts said.

In early US trading, the Dow Jones industrial average fell 10.79 points, or 0.06 per cent, to 16,729.16, the S&P 500 declined 0.2 points, or 0.01 per cent, to 1,995.11 and the Nasdaq Composite shed 8.01 points, or 0.16 percent, to 4,897.24.

The pan-European FTSEurofirst 300 index was little changed at 1,428.27, while the Iseq was ahead by 0.4 per cent.

The Fed has said it will raise rates when it sees a sustained recovery in the economy.

Unemployment data

Data on Thursday showed the number of Americans filing new applications for unemployment benefits fell last week to the lowest level in eight weeks.

Other data showed that housing starts fell more than expected in August, but a rebound in building permits pointed to sustained strength in the housing market, which should support economic growth.

"We think it is going to be a very close call (for the Fed)," said Stephen Chiu, a strategist at Mitsubishi UFJ Financial Group in Hong Kong. "Communicating the future path of interest rates is very important and the Fed would be careful not to signal any excessive tightening given global markets are still very vulnerable."

The US central bank’s move is garnering such intense attention because it would be the first rise in its interest rates since 2006 and from the near zero they have been at since the height of global financial crisis in late 2008.

While the markets have expected it to hike for most of this year, those expectations have faded following a bout of global market turmoil over the last couple of months, especially in China.

Reuters

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