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Stocks firm in run-up to Fed statement
LONDON—Stocks recovered their poise yesterday as investors awaited the Federal Reserve’s latest policy statement and an announcement from the European Central Bank as to how it plans to combat Europe’s debt crisis. The consensus in the markets is that the Fed won’t do anything dramatic despite mounting signs of a sharp slowdown in the US economy.
The closely-watched monthly manufacturing survey from the Institute for Supply Management suggested the sector is contracting. Though its main index rose to 49.7 to 49.8, the index remains below the 50 threshold. Anything below indicates output is falling.
Despite the seemingly deteriorating backdrop, most analysts think the Fed will wait for more evidence, particularly from the jobs market, before it enacts another monetary stimulus. Most analysts think the furthest it will go later will be to reiterate that its Fed funds rate, its benchmark interest rate, will remain low until late 2014.
A survey from the ADP private payrolls firm showing employers added 163,000 jobs last month was fairly encouraging but analysts said it has often deviated from the official government figures, which are due for release Friday. In Europe, Germany’s DAX closed 0.3 per cent lower at 6,754.46 but the CAC-40 in France rose 0.9 per cent to 3,321.56. The FTSE 100 index of leading British shares ended 1.4 per cent higher at 5,712.82.
The euro was relatively steady, trading 0.1 per cent higher at $1.2305. In the US, the Dow Jones industrial average was 0.3 per cent higher at 13,051 while the broader S&P 500 index rose 0.3 per cent at 1,383. The Fed statement later is likely to be a prelude to what the European Central Bank does today at its monthly policy meeting. Hopes remain that the ECB will back new measures powerful enough to battle Europe’s debt crisis.
European Central Bank chief Mario Draghi vowed last Thursday to do what it takes to keep save the euro, and many expect the bank at the very least to resume its bond-buying programme to keep a lid on Spain’s and Italy’s borrowing rates. His comments sparked a bout of euphoria in the markets, which has largely lost its steam ahead of today’s meeting. On Tuesday, stocks suffered a mild reverse as investors fretted that any remedial measures won’t be enough.
Many in the markets are concerned that, as so often before in the debt crisis, the risk is that Europe’s leaders overpromise and under-deliver. Jens Weidmann, a leading ECB policymaker through his position as president of the Bundesbank, Germany’s national bank, doesn’t appear to be convinced that bond-buying is the right strategy. He continues to caution the ECB not to overstep its mandate of fighting inflation.
Earlier Asian stocks suffered a reverse after four days of gains as China’s manufacturing slowed despite government stimulus efforts China’s manufacturing remained weak in July, according to surveys released Wednesday, and analysts said weakening export demand pointed to the need for more efforts to revive growth in the world’s second-biggest economy. The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers’ index, or PMI, fell 0.1 percentage point to 50.1 in July, the slowest growth in eight months and just above the 50 level signifying expansion.
Japan’s Nikkei 225 stock average closed down 0.6 per cent at 8,641.85 while Hong Kong’s Hang Seng added 0.1 per cent to 19,820.38. South Korea’s Kospi shed 0.1 per cent to 1,879.93 In energy trading, benchmark crude for September delivery was up 82 cents at US$88.88 a barrel in electronic trading on the New York Mercantile Exchange.
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