World stocks and US bond yields extended almost three weeks of steady gains on Tuesday, as markets prepared for the Federal Reserve to formally end six years of aggressive, crisis-driven monetary stimulus.
The Fed kicks off a two-day meeting later with analysts wagering that it will try to soothe the recent market volatility by reinforcing that, while stimulus is being wound up, it could wait quite a while before raising interest rates, Reuters reported.
With the euro zone hobbled and China’s giant economy struggling to regain pace, the prospect of a world without the crutch of US stimulus has troubled markets, but they finally seem to be getting used to the idea.
European shares rose for the fourth time in six days, helped by better-than-expected results from pharmaceutical group Novartis and Swiss bank UBS, as the dollar, commodity markets and US yields also nudged higher.
“In the last few days we have had a reality check,” fund management group Hermes’ chief economist, Neil Williams, said. “The world is certainly not a happy place at the moment but it hasn’t got that much worse in recent weeks.”
Markets currently expect the Fed to make the first tentative increase at the end of next year; but with US inflation weak, Europe stumbling and the dollar on the rise, the big question is to what extent it acknowledges risks to the US recovery.
Helping fill the wait for the Fed, markets have a heavy set of economic data to digest including industrial production, home prices and consumer confidence that will give the latest temperature reading of the world’s largest economy.
In tandem with rising stocks, gold recovered its footing after falling to its lowest in nearly two weeks, while emerging market stocks, which are also seen as vulnerable to reduced stimulus, rose 0.7 percent as hopes of more reforms of state-owned firms helped Chinese stocks jump 2 percent.
Crown Slips
Sweden’s crown slid to a four-year low against the dollar and a four-month trough against the euro after the central bank, the Riksbank, surprised markets with a cut in interest rates to zero.
Like many advanced economies, Sweden is fighting the threat of deflation. Most analysts had forecast the bank would lower rates to 0.1 percent from 0.25 percent, but it went a step further and also forecast an even lower future rate path.
But the firmer commodity prices did little for Russia’s rouble, which fell 0.7 percent to another record low against the dollar despite interventions from the central bank and the chance of further action when it meets on Friday.
