Caution prevails in world markets ahead of Fed By Reuters

By Dhara Ranasinghe

LONDON (Reuters) – Caution declined in markets on Wednesday, as global stocks held below recent all-time highs as investors waited to see if the US Federal Reserve would point to a quicker path to decline. policy normalization than expected.

The US central bank wraps up a highly anticipated two-day meeting later in the day, following a sharp rise in US Treasury yields this year on expectations for growth and growth. stronger inflation.

The Fed is expected to forecast that the US economy will grow in 2021 at the fastest rate in decades. But investors who expect the more optimistic projections to translate into any change in monetary policy are likely to be disappointed.

“This is one of the most important Fed meetings we have had in some time and the impact will be felt across all asset classes,” said Seema Shah, chief strategist at Principal Global Investors.

“Markets are expecting the Fed to assure them that rising bond yields are not something to worry about, and that takes a bit of steam out of the bond market.”

Before the Fed’s statement at 1800 GMT, world markets were calm.

The MSCI World Equity Index fell 0.1% but kept last month’s all-time highs in sight.

European stocks were slightly softer, while in Asia, an index of regional stocks excluding Japan fell 0.4%. 225 floor closed.

There was good news for AstraZeneca (NASDAQ :), as Australia’s pharmaceutical regulator said that the launch of the company’s COVID-19 vaccine would continue, despite many European nations having stopped vaccines to investigate reported side effects.

Futures for US stocks pointed to a flat open on Wall Street, after losing 0.16% on Tuesday.

DOVE?

Benchmark 10-year Treasury yields were slightly higher at 1.63%, staying close to the 13-month highs reached on Friday. They have risen 72 basis points so far this year. That compares with a 24 basis point increase in German peers and a 7 basis point increase in Japanese borrowing costs.

Inflation expectations have also risen with the equilibrium rate of 10-year Treasury Inflation Protected Securities (TIPS) on Tuesday rising above 2.3% for the first time since July 2014. The equilibrium rate of 30-year TIPS reached 2.24%, the highest since September 2014.

Chart: Inflation Hump Tolerated? – https://fingfx.thomsonreuters.com/gfx/mkt/xegpbgaedvq/tolerated.PNG

“We hope (Fed Chairman Jerome) Powell will notice that the FOMC has the tools to intervene if the bond market becomes disorderly or limits economic recovery,” wrote analysts at the Commonwealth Bank of Australia (OTC :).

“But we hope that Powell refuses to talk about policy tightening due to the large slack in the labor market … US bond yields and the US dollar could rise if the post-FOMC statement and Powell’s statement do not they are considered moderate enough. ” “

An index that tracks the dollar against six major pairs was around 91.92. The euro was weaker on the day at $ 1.1892. The dollar was up about 0.1% at 109.13 yen.

The forex market caution may extend all week, with the Bank of England meeting on Thursday and the Bank of Japan concluding a policy review on Friday, in which it may phase out a numerical target for asset purchases.

Elsewhere, oil prices fell for a fourth day as concern over weaker demand in Europe topped an industry report that showed stocks unexpectedly fell last week.

futures fell 27 cents to $ 68.12 a barrel and US crude futures fell 14 cents to $ 64.65.