By David Hodari 
   -- Fed rate announcement, guidance in focus 
 
   -- Stocks quiet in Europe, Asia-Pacific 
 
   -- Dollar edges back from recent gain 

Global stock markets wavered Wednesday, as investors moved carefully ahead of the Federal Reserve's interest rate announcement expected later in the day.

The Stoxx Europe 600 fell 0.2% in early trading, with the index's influential banking sector down 0.5%. Credit Suisse slid 1.2% and Italy's Banco BPM was down 1.2%. The Stoxx 600's biggest faller was home-improvement firm Kingfisher, which dropped 8.1% after reporting a sharp fall in full-year profit.

The moves in Europe followed placid trading in Asia, where early gains softened amid muted trading volumes, partly because of a Japanese public holiday.

U.S. stock futures pointed to 0.2% falls for the S&P 500 and the Dow Jones Industrial Average, as market participants sharpened their focus on the Federal Open Market Committee's decision on interest rates, expected later Wednesday.

Market expectations of a rate rise were almost universal. Data from CME Group last put the probability of an increase at 94.4%.

Also of interest will be the future guidance given by new Fed Chairman Jerome Powell during his scheduled press conference. A steady rise in inflation has prompted some observers to question the Fed's official guidance of three interest rate increases for 2018.

Speculation about the prospect of four increases in 2018 have in recent weeks been bolstered by stronger-than-expected labor market data and resilient inflation figures.

"The more interesting part [of the announcement] will be the new economic projections and the press conference by the new chairman. I think the market is anticipating a somewhat hawkish view and either a raise in the pace of hikes or a higher long-term Fed funds target rate," said Alvin Tan, a foreign-exchange strategist at Société Générale.

"Our view is that the median dot will remain at three hikes... [if that is the case] there will be a dollar pullback, although the recent falls in European yields mean there is only so much a falling dollar can do for euro-dollar," Mr. Tan added.

U.S. 10-year Treasurys had last risen to 2.891% from 2.881% late Tuesday, and German 10-year government bond yields had last fallen to 0.595% from 0.726% late Tuesday. Yields move inversely to prices.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was last down 0.2%, although was still up 0.5% over the past five days.

Beyond Wednesday's central bank announcement, observers were keeping an eye on U.S. political risk, with the Trump administration's tariffs on steel and aluminum imports set to go into effect on Friday, the day after the White House is expected to announce a new raft of punitive measures aimed at China, including levies worth at least $30 billion.

The new tariffs have sparked growing fears that the U.S. could become embroiled in a trade war with other major global economies. Finance ministers from the Group of 20 countries failed to reach a fresh agreement on trade at a meeting this week in Buenos Aires, in a sign that the U.S. and other countries remain split on the matter.

A Bank of America Merrill Lynch survey released Tuesday revealed that 30% of global fund managers see a trade war as the greatest risk to markets.

"It will be difficult to speculate about the impact of tariffs on inflation until we see the details and what Europe does in return. [However] having lower trade barriers is good from an economic perspective -- there is no argument about that," said David Zahn, head of European fixed income at Franklin Templeton Investments.

On top of those tariff concerns, the U.S. Congress must pass a government spending bill worth $1.3 trillion by late Friday to avert what would be the third partial government shutdown so far in 2018.

In commodities, gold was up 0.8% at $1,316.10 a troy ounce. Iron ore prices extended their month-to-date losses to 15%, settling at their lowest level since December 2017 according to FactSet.

Hong Kong's Hang Seng Index reversed its morning climb and was last down 0.4%. China's Shanghai Composite Index was down 0.3% and Shenzhen's tech-heavy composite index was down 0.7%.

Australia's ASX closed 0.2% higher, while indexes in Indonesia and India rose by 1.1% and 0.4%, respectively. New Zealand's main benchmark closed 1.4% higher at a record high.

Kenan Machado contributed to this article.

Write to David Hodari at David.Hodari@dowjones.com

 

(END) Dow Jones Newswires

March 21, 2018 06:48 ET (10:48 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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