Shares Slip Ahead of the Fed's Meeting

Joanna Estrada
March 21, 2018

The euro slumped 0.78 percent overnight and continued its spiral during Wednesday's Asian session, trading at $1.2263. Investors are also awaiting the first Federal Reserve meeting under the new chairman, Jerome Powell, and anticipating the first rate increase of the year. "If they start to decay, then it may leave investors wondering what's left to become the new leader to resume the bulls' advance", said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Facebook pushed losses farther, plummeting 6.8 percent, as it faced demands from United States and European lawmakers to explain how a consultancy managed to gain improper access to the data of over 50 million Facebook users. The S&P 500 index rose 0.1 percent to 2,716.94.

Investors are keeping a close watch on the Fed's meeting this week, seeking clues about its timetable for tightening monetary policy.

The scandal at the social media giant further fuelled anxiety among investors already fretting over possible United States interest rate rises and Donald Trump's protectionist rhetoric, which has sparked talk of a global trade war.

"Only a confident sounding outlook wouldn't shake the dollar out of its ranges as there seems to be more structural headwinds at play, but if we see many voices leaning towards four rate hikes, that might be a game changer in the short term", said Richard Falkenhall, senior FX strategist at SEB.

Additionally, the Trump government is set to reveal as much as $60 billion in new tariffs on Chinese import on Friday.

MSCI's broadest index of Asia-Pacific shares excluding Tokyo slid 0.4 percent, while Japan's Nikkei dropped 1.0 percent.

USA businesses were alarmed with several large US retail companies, including Wal-Mart Inc and Target Corp, on Monday urging Trump not to impose massive tariffs on goods imported from China.

Share markets were stuck on their worst run since November on Monday, as caution gripped traders in a week in which the Federal Reserve is likely to raise USA interest rates and perhaps signal as many as three more lie in store this year.

The dollar made ground on the euro, though, as bond traders saw the gap between 10-year German and USA government yields, referred to as the "transatlantic spread", ratchet out to its widest since December 2016.

The 10-year Treasury yields were little moved at 2.857 percent.

But the yield on two-year notes hit a 9 1/2-year high of 2.32 per cent on Monday as the Fed appears set to bump up its policy interest rates to 1.50-1.75 per cent from the current 1.25-1.50 per cent. That decline helped sour investors on other technology stocks, which have led the market higher over the last two years.

Still, with a Fed rate rise already fully priced in, the dollar barely gained from the prospect of a rate hike.

Any nod to four hikes would normally be considered as bullish for the USA dollar, yet the currency has shown scant correlation to interest rates in recent months, falling even as policy tightened.

Instead it was the euro that stole the spotlight after Reuters reported that European Central Bank officials were shifting their debate from bond purchases to the expected path of interest rates. It was a fraction firmer against a basket of currencies at 90.303, while the euro eased 0.2 per cent to $1.2264.

The British pound touched a one-month high of $1.4088 following the agreement between Britain and the European Union over a 21-month post-Brexit transition period, along with a potential solution to avoid a "hard border" for Northern Ireland.

The yen was little changed at 106.37 per dollar, with traders wary of any new developments in a cronyism scandal that has eroded support for Japanese Prime Minister Shinzo Abe.

Other reports by Click Lancashire

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