Shares climb, dollar dips as Fed prepares to ease up rates

Shares and bond markets rose and the dollar dipped on Wednesday, as investors readied for what is expected to be the first rise in US interest rates in almost a decade.

The Federal Reserve is expected to announce a hike in interest rates when its two-day policy setting meeting ends later in the day.

It will be a highly symbolic move, coming exactly seven years to the day since the US central bank cut them to zero as the post-Lehman crash financial crisis engulfed the world and sent economies spinning into recession.

“It is a foregone conclusion that the Fed is going to raise rates,” said Kully Samra, a managing director at US focused investment manager Charles Schwab in London.

"But I'm pretty sure too that Janet Yellen is going to use the word gradual (in reference to possible pace of future hikes) quite a few times during the press conference."

That hope that the Fed will stress it plans a softly softly approach was helping soothe jittery markets that have been roiled again over the last couple of weeks by a fresh slump in oil prices and fall in China’s increasingly influential yuan.

European shares opened broadly flat to consolidate sharp gains made on Tuesday and as new data bolstered signs of a gradual pick-up in bloc’s confidence.

Growth in Germany’s private sector slowed a tad this month Markit’s PMI survey showed, but it remained a high enough level to suggest Europe’s biggest economy can be confident of robust demand going into the new year.

The UK also saw its unemployment rate unexpectedly fall again.

In the currency market it was mainly fine tuning ahead of the Fed decision.

The dollar edged back from a near one-week high versus a basket of other major currencies with Citi, the FX market’s single biggest player, saying positioning in the dollar against the euro was now basically neutral following a clearout over the past fortnight.

"Markets are going into the announcement expecting a rate hike but, on the surface at least, relatively relaxed that it is priced in," added Kit Juckes, a strategist at Societe Generale in London.

The euro was buying $1.09, the dollar fetched 121.91 yen and Britain’s sterling hovered just above $1.50.

Oil prices, which have been the other main obsession for investors in recent weeks because of the pressure it puts on producers countries and global inflation, slid back again in early European trading.

West Texas Intermediate fell 60 cents to $36.77 a barrel and Brent was down 80 cents at $37.65 to leave them heading back towards Monday’s 7-year lows.

Gold rose to 1,065 an ounce and in Asia overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan had jumped 2 per cent as the region caught up the previous session’s rallies in Europe and on Wall Street.

Japan’s Nikkei surged 2.5 per cent, rebounding from a two-month low struck the day before as risk sentiment has blown hot and cold ahead of one of the most-anticipated market events this year.

Australian shares jumped 2.2 per cent, while Shanghai stocks edged up a more cautious 0.8 per cent as another tick down in the yuan kept investors guessing on Beijing’s plans for the traditionally controlled currency.

Reuters