LONDON: World shares and gold inched higher on Wednesday and the dollar steadied as investors wagered that the U.S. Federal Reserve would signal plans later in the day to keep its stimulus intact for several more months.
The positive sentiment looked set to lift Wall Street when trading opened even though the benchmark Dow and S&P 500 indexes are already in record territory.
Riskier assets should gain strength if the Fed keeps its massive bond-buying program unchanged when it announces its decision at 6 p.m. GMT, but analysts said the recent rally means they may not go much beyond current levels.
A report on private sector jobs growth in the United States for October added weight to expectations that the Fed’s support for the economy is needed.
Analysts warned, however, that any hint that the Fed could trim back stimulus in the near future would prompt a negative reaction, and noted that the recent rally had stretched valuations to a point that could encourage some profit taking.
“Everyone expects (the Fed) to postpone tapering into 2014. If they were to mention they were more willing to taper sooner rather than later that would be a negative surprise,” Wouter Sturkenboom, investment strategist at Russell Indexes, said.
“We’re in the camp that sees March as the earliest time a taper could happen,” he said.
Sturkenboom’s view was mirrored in a Reuters survey, which showed a majority of U.S. primary dealers believe the recent government shutdown and standoff over raising the debt ceiling had made it more likely the Fed would delay the timing of its stimulus reduction.
The strong consensus over the outcome of the Fed meeting saw the MSCI world equity index add 0.3 percent by late morning in Europe trade, taking it to a level not seen since January 2009.
Europe’s broad FTSE Eurofirst 300 index also reached its highest peak in five years, gaining 0.5 percent with help from solid corporate earnings news from the likes of carmaker Volkswagen and retailer Next.
U.S. stock index futures were pointing to more gains ahead for all major indexes, setting the stage for the S&P 500 index to test the 1,800 level if the Fed’s announcement is in line with the market consensus.
JOB MARKET SLOWS
U.S. private-sector employers added 130,000 jobs in October, against expectations for a rise of 150,000, data showed.
That buffeted the dollar, knocking it off an eight-day high against a basket of major currencies hit earlier though it settled little changed on the day.
“With the Fed event-risk people don’t want to enter new short positions,” said Chris Turner, head of currency strategy at ING.
Dollar sellers had driven the U.S. currency to nine-month lows by the end of last week, taking their lead from a steady decline in U.S. Treasury yields as investors anticipated and extended the period of Fed bond buying.
The 10-year T-note stood just below 2.5 percent on Wednesday, off from 3 percent in September before the Fed first delayed a widely expected tapering decision.
European government bond yields reflected the declines in Treasuries with fresh debt sales by Germany and Italy drawing solid demand on hopes that the Fed’s policy decision would keep liquidity conditions loose.
The euro meanwhile held firm at $1.3760, showing little reaction to data confirming that Spain’s economy had emerged from recession between July and September after contracting for nine quarters.
Commodity markets were mostly holding their ground as well with gold seen as the most exposed to any extension in the Fed’s money-printing program due its role as protector against the ravages of any future inflation.
Gold has risen 7 percent from a three-month low on Oct. 15 when investors began to price in a tapering delay and was up 0.5 percent on the day to $1,349.30 an ounce.
Brent crude oil edged above $109 a barrel with the prices expected to be supported by any announcement of a Fed delay though moves could be small.
“If (the Fed) acts as expected and there is no change in their position, it will likely support oil prices, but not cause them to be pushed up significantly,” Tetsu Emori, a commodities fund manager at Astmax Investments, said.
Conversely U.S. crude oil was falling and had dipped 85 cents to $97.35 after a bigger-than-expected increase in stocks held in the United States hurt sentiment.