Global share markets rise, dollar frozen ahead of Fed rate decision

World share markets rose on Wednesday, albeit in thin volume, and short-term US bond yields held near 4 1/2-year highs as investors braced for the possibility of the first interest rate hike in the United States in almost a decade.

A late 5% surge in Chinese stocks had helped Asia’s bourses finish more than 2% higher as early gains of 0.7 to 1.3% for London’s FTSE, Frankfurt’s DAX and Paris’s CAC 40 got Europe of to a solid day too.

Markets remained in a state of flux on the likelihood of a rate increase by the Fed at its two-day meeting starting later in the day, and US economic data published on Tuesday did little to either back, or douse, expectations of one.

Inflation data is due in both the US and Europe and with both likely to show it remains barely visible in either region as it has for over a year now, that is unlikely to sway many opinions either.

All the uncertainty left the dollar in frozen animation against the world’s other main currencies having rebounded from Monday’s three-week low of 95.125 to stand at 95.600. But it is essentially staying within its well-worn range of the last few weeks.

The euro traded at $ 1.1261 while the dollar inched down fractionally against the yen to 120.27 yen.

“It’s more a day for thinking about tomorrow,” said Kit Juckes, head of currency strategy at Societe Generale in London.

“Positions are coming off rather than going on. We have seen the front end (short-dated US government bond yields) rally but it hasn’t really sent the dollar roaring.”

Emerging market currencies remained under pressure near multi-year lows against the dollar amid worries that higher US interest rates could lure away foreign investors again.

However some of those hardest hit in recent months, like Russia’s rouble, Turkey’s lira and Mexico’s peso made notable gains as traders squared up in case of any Fed related surprises.

The rouble was up almost 1.5% against the dollar and 1.7% against the euro.

Oil prices also helped as it extended gains made on Tuesday. Brent climbed more than 1% to $ 48.32 per barrel and US crude hit $ 45.27, as an unexpected stockpile drawdown reported by the American Petroleum Institute (API) on Tuesday set expections for official crude inventory data later..

Gold was languishing near 1-mth lows ahead of the Fed meeting at $ 1,108 an ounce, though industrial metals including copper, nickel and tin made more minor gains as their slight recovery of the last few weeks continued. China shares had provided a boost too, as they saw a strong rally in the last hour of trading to end up 5%. Hong Kong’s Hang Seng index jumped in tandem to close 2.4% higher.

Bond markets were largely biding their time ahead of the Fed. US Treasuries’ yields sagged having jumped on Tuesday, with the policy-sensitive two-year yield rising to 0.815%, its highest level since April 2011.

It last traded at 0.7822%.

The 10-year US notes’ yield stood at 2.2616%, having risen to a 1-1/2-month high of 2.294% on Tuesday, while yields in benchmark European markets also dipped as the ECB stressed its openness to more money printing.

“The total amount that we have purchased represents 5.3% of the GDP (gross domestic product) of the euro area, whereas what the Fed has done represents almost 25% of the U.S. GDP, what the Bank of Japan has done represents 64% of the Japanese GDP and what the U.K. has done 21% of the UK’s GDP,” Constancio told Reuters in an interview.

“So we are very far from what the major central banks have done,” Constancio, 71, said. “This is not a benchmark...(but) there is scope, if the necessity is there.”

Fed expected to hold fire on rates in very close call

Reuters: The U.S. Federal Reserve will hold fire a bit longer on its first interest rate rise in nearly a decade, according to a little over half of economists in a Reuters poll who only last week narrowly predicted the Fed will pull the trigger on Thursday.

The survey of 80 economists based in North America and Europe was taken over the last 24 hours as each panelist was asked to reconfirm if they still held the same position, while a few who couldn’t be reached last week were also polled.

Trying to predict whether the Fed will hike this week after it already took a pass on a rate rise in June and July has turned out to be one of the toughest jobs in a long history of polling of central bank watchers.

Since last week’s poll, five economists have changed their call for a hike on Thursday and now expect the Fed to hold. None changed their view from a hold to a hike, suggesting that momentum is moving against a Fed move this week.

But it has gone right down to the wire, with the number of economists predicting no change in rates now outnumbering those betting on a hike by 45 to 35. Among primary dealers, 12 banks expect the Fed to hold and the remaining 10 expect a hike.

The U.S. economy has been performing relatively well, although it has been weak compared with past recoveries.

So far it has generated little inflation, even with the rates at 0-0.25% for more than half a decade and adding trillions of dollars to the balance sheet via bond purchases. The latest data due on Wednesday are expected to show a steady and weak inflation rate.

While the Fed has delayed hiking, dark clouds have gathered over China, global financial markets, and by extension, the global economic outlook which the Fed can’t ignore.

What the Fed actually will do with rates if and when it hikes is also disputed. Roughly 85% of economists say the Fed will move the 0-0.25% range higher, 15% say it will return to a point rate.

If the Fed doesn’t go on Thursday, the most likely date for lift-off is December. Only five of 80 economists don’t expect a rate hike this year.

The conviction rate was never high for the September meeting, but it has dropped compared with the poll on Sept 11. Asked what the probability of a hike on Thursday was, the median response given fell to 45% from 50-50.