European stocks fall, bonds stronger after Fed flags weak USA inflation

20 August, 2017, 07:29 | Author: Gladys Mathis
  • Dollar little changed vs. rivals with FOMC meeting minutes on tap

JPMorgan Asset Management says the wider market is mispricing the likelihood that the U.S. Federal Reserve will raise rates again in December.

In Asia, most shares trended higher on Thursday in morning session after a rally in the dollar was halted on political turbulence stateside while investors digested the Wednesday release of the Fed minutes.

U.S. Federal Reserve reported industrial production rose 0.2 percent in July following an increase of 0.4 percent in June.

Unanimously, policymakers have chose to the keep interest rates unchanged in the July 25-26 meeting and have informed that they are planning to reduce the central bank's massive holdings of bonds "relatively soon".

All 11 major S&P sectors were lower, with technology index's 1.17 percent fall topping the list. However, in regards to the timing of its next rate hike, several officials were hesitant to pull the trigger due to low inflation, which remains below the Fed's target goal.

The euro EUR=EBS rose 0.1 percent to $1.17835, extending its 0.3 percent gain overnight, after the euro zone's second-quarter growth was revised to 2.2 percent from a year earlier, from 2.1 percent previously.

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Still, analysts said, the dollar was in an unenviable position, with inflammatory news headlines from the White House weighing on its already weak position.

Meanwhile the Fed plans to defer a decision on starting to pare back its enormous balance sheet "until an upcoming meeting", giving investors a little more detail as to when it will stop buying securities under its bond purchase programme. The dollar was down 0.45 percent against the yen, to 110.17 yen, and 0.7 percent lower against the Swiss franc, at 0.9659 franc. The Australian dollar enjoyed the highest gains in early trade, up 0.25 percent.

The Canadian dollar had gained more than 1 percent on Wednesday and last stood at C$1.2622 to the dollar, near its highest level in nearly two weeks.

In Asian markets, Japan's Nikkei Stock Average fell 0.12 percent, Hong Kong's Hang Seng Index gained 0.86 percent, China's Shanghai Composite Index dropped 0.15 percent and India's BSE Sensex rose 1.02 percent.

The Fed has tightened policy twice this year in what it hopes will be a steady move to lift short term-interest rates from the super-low levels set to battle the 2007-2009 financial crisis and recession.

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