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World shares slip ahead of Fed interest rate decision

AP – World shares were mostly lower yesterday as investors waited for a decision by the Federal Reserve on interest rates.

Central banks in many countries are raising rates as inflation squeezes businesses and consumers. To counter that, regulators are gradually increasing costs for borrowing that had dipped to record lows during the pandemic.

Fed policymakers are expected to raise the United States (US) central bank’s benchmark rate by twice the usual amount this week, ramping up their fight against inflation that is at a four-decade high. The Fed already raised its key overnight rate once, the first such increase since 2018, and Wall Street is expecting several big increases over the coming months.

“All eyes are peering toward the FOMC meeting and a rate hike is an absolute given,” ACY Securities Chief Economist Clifford Bennett said in a commentary.

Germany’s DAX edged down 0.1 per cent to 14,028.26 while the CAC 40 in Paris lost 0.2 per cent to 6,465.03. Britain’s FTSE 100 shed 0.3 per cent to 7,536.42. The futures for the S&P

500 and the Dow industrials both were 0.2 per cent higher.

In Asian trading, Hong Kong’s Hang Seng dropped 1.1 per cent to 20,861.27 while the Kospi in Seoul lost 0.1 per cent to 2,677.57. Australia’s S&P/ASX 200 gave up 0.2 per cent to 7,304.70.

India’s Sensex lost one per cent to 56,425.88. Taiwan’s benchmark rose and most other regional markets were closed, including those in Japan and mainland China.

A currency trader at a foreign exchange dealing room in Seoul. PHOTO: AP

The higher lending rates may crimp economic growth as they come at a time when surging prices are squeezing consumers’ capacity to spend.

Market players might pick up bargains on the assumption that the rate increase has already been taken into account, Bennett said. But he added that “this excludes the on-going shock to consumers and particularly mortgage holders that will reverberate in an accelerating fashion throughout the economy. This ‘pain’ process will likely continue for the next one to three years in the real world”.

Adding to that are the uncertainties brought by Russia’s invasion of Ukraine.

Russian forces unleashed artillery fire on towns in eastern Ukraine, killing and wounding dozens of civilians, and were storming a bombed-out steel mill containing the last pocket of resistance in Ukraine’s besieged port city of Mariupol as over 100 civilians evacuated from the bombed-out plant reached relative safety in Ukrainian held territory.

Oil prices rose as the European Union (EU)said it was preparing new sanctions against Russian energy over the war in Ukraine, though Slovakia and Hungary said they would oppose such measures.

Newly proposed sanctions drafted by the EU’s executive branch, the European Commission, could include a phased-in embargo on Russian oil. That could strain supplies and push prices still higher.

Benchmark US crude rose USD2.81 to USD105.22 per barrel in electronic trading on the New York Mercantile Exchange. It gave up USD2.76 on Tuesday.

Brent crude oil, the basis for pricing international oils, gained USD2.70 to USD107.67 per barrel.

Wall Street advanced on Tuesday on hopes that the Fed won’t shock the markets with more aggressive monetary tightening plans than expected. Investors will be watching to see how Fed Chair Jerome Powell frames the future outlook, analysts said.

The S&P 500 ended 0.5 per cent higher and the Dow Jones Industrial Average rose 0.5 per cent. The Nasdaq inched up 0.2 per cent, while the Russell 2000 added 0.9 per cent.

Investors have been closely reviewing the latest round of company earnings to get more details on how inflation is impacting business and consumer activity.

They also are getting some updates on the labour market, which was slow to recover from the pandemic initially, but has grown stronger. The Bureau of Labor Statistics reported on Tuesday that employers posted a record 11.5 million job openings in March, meaning the United States now has an unprecedented two job openings for every person who is unemployed.

Tomorrow, the Labor Department is expected to report that the economy generated another 396,000 new jobs in April, according FactSet. That would mark an unprecedented 12th straight month that hiring has come in at roughly 400,000 or more.

The US dollar fell to JPY130.05 from JPY130.11 on Tuesday. The euro was unchanged at USD1.0522.