Stocks Tread Water as Traders Await Fed; Oil Flat: Markets Wrap

Bloomberg.com — European stocks drifted and Asian shares edged higher alongside U.S. equity futures as markets largely entered a holding pattern before the Federal Reserve’s rate decision. The dollar was steady and U.S. Treasury yields hovered near the seven-year highs reached in May.

The Stoxx Europe 600 Index traded sideways as a slump in automakers weighed on the gauge. Japan’s Topix index erased virtually all of the days losses to end just below its highest point in almost eight months. Stocks rallied in Hong Kong as traders returned from a holiday, while Chinese shares rose after MSCI Inc. said it’s considering increasing the weight of the equities in its global indexes from next year. The pound showed little reaction after Theresa May doubled down on her Brexit stance, while Italian bond yields edged up as the anti-establishment Five Star Movement threatened to block the country’s 2019 budget unless spending is ramped up.

While investors are treating another Fed rate hike as all but certain on Wednesday, the outlook for future policy as signaled by the dot plot and any comments from Jerome Powell will be key to whether bond markets extend their recent selloff. Ten-year Treasury yields of 3.09 percent are just below their year-to-date peak, while two-year yields are at a decade high.

“The U.S. domestic economy is trotting along nicely; the rest of the world is not in the same place and there’s no doubt that global investor caution is continuing to increase as the trade war between the U.S. and China appears to be heating up,” Nick Twidale, chief operating officer at Rakuten Securities Australia, wrote in a note. “Analysts will be watching closely to see if the Fed acknowledges this and its potential impact on the U

Elsewhere, the New Zealand dollar climbed even with news that the country’s monthly trade deficit hit the widest on record; traders instead focused on a rebound in business confidence from a 10-year low. South Korea’s markets were closed for a holiday. Brent stabilized near a four-year high, while metals were mixed and range bound.