World markets cautious ahead of US Fed meeting

London — Investors were generally cautious before the US Federal Reserve meeting on Wednesday, boosting the yen, as the rally that pushed up shares after Chinese and US economic data in the previous session slowed in early London trading.

Risk appetite was limited ahead of the US Fed’s policy meeting, and its statement at 6pm GMT.

European shares were mixed at the opening, but then rose, with the Stoxx 600 up about 0.3%, pushed up by gains in retail stocks.

The MSCI world equity index, which tracks shares in 49 countries, was up 0.2% at 7.24am GMT, while MSCI’s main European index was up 0.3%.

The Fed is not expected to make changes to its monetary policy at the meeting, which will be its first since it announced that it would pursue average inflation targeting. 

Although the economic projections are expected to be somewhat improved from the last round of forecasts in June, Fed chair Jerome Powell is expected to stick to his message that the road to recovery will be long and uncertain.

“While acknowledging the more rapid improvement in the economic backdrop, we expect the message to remain one of caution,” wrote RBC Capital Markets analysts in a note to clients. “There is no upside for the committee to be positive at this juncture.”

Investors will also be watching for US retail sales data, due at 12.30pm GMT, which is expected to show a robust increase.

London’s FTSE 100 lagged other European indices, down 0.4%, and the pound was down against the euro, weighed down by fears of a disorderly departure from the EU single market. 

UK inflation dropped to its lowest rate in almost five years last month, led by a large reduction in meal prices.

“We’ve already started to see the early signs of the unemployment rate starting to edge higher, and with the furlough coming to an end in October and already being tapered, this deflationary wave is likely to get worse in the short term,” wrote Michael Hewson, chief market analyst at CMC Markets UK.

The yen hit a two-week high of ¥105.250 to the dollar overnight, as investors sought safer assets, and it held close to these levels at ¥105.325 at 7.26am GMT.

Against a basket of currencies, the dollar was a touch weaker, down 0.1% at 93.005 at 7.40am GMT. The euro was up 0.1% at $1.18595.

High-rated eurozone government debt was little changed, with the benchmark German 10-year bund yield at -0.483%.

Oil prices rose for a second day, with US crude oil hitting one week highs, up 2.4% at $39.21 a barrel at 7.46am GMT.

Gold prices rose, up 0.5% at $1964.38 an ounce at 7.47am GMT.

Elsewhere, the World Trade Organisation ruled that the US had breached global trade rules with the multi-billion-dollar tariffs it imposed during its trade war with China. The decision had limited market impact as it is only the start of a legal process that could take years.

Reuters