TSX, US stock markets steady ahead of Fed interest rate decision

Charles Rex Arbogast  AP

US crude prices settled down 1.4 percent at $47.72 a barrel, touching their lowest point since Nov 30.

Asian traders moved cautiously Tuesday ahead of a much-anticipated Federal Reserve policy meeting, which they hope will provide clarity on the United States central bank's interest rate plans for the rest the year.

The Straits Times Index was unfazed, gaining 0.44 per cent yesterday, following the 0.21 per cent rise in the Dow Jones Industrial Average last Friday. Investor expectations changed and short-term rates rose.

The price of oil has been slipping on concerns that supplies will outweigh demand.

The stock market has shown little signs of budging even as the options-implied probability of a Wednesday Fed hike increased to a virtual certainty from about 50 percent at the end of February.

Weakness was evident in the energy sector, as crude oil futures extended steep recent losses.

Petroleum-linked shares fell, with Chevron losing 1.2 per cent and Halliburton 3.2 per cent.

The Fed has a remit to control inflation, but also to mintain high levels of employment.

During January-October a year ago, BI cut its benchmark rate six times by a total of 150 basis points (bps) to 4.75 percent. One-year CDs have not paid 1 percent since 2009, according to Bankrate.com. The Russell 2000 of small-cap stocks lost 0.6 percent, double the decline of the S&P 500 index of the largest stocks.

A USA rate hike at this point would serve as a signal that the financial markets are on track to more normal conditions after a prolonged period of abnormally low rates following the Global Financial Crisis.

Expectations began to rise as several Fed officials, including Chair Janet Yellen, spoke in support of raising interest rates sooner rather than later.

The Fed is betting businesses will shrug off the extra cost of borrowing, continue to invest in the U.S. economy and create jobs. That's not happening this time.

Bond-market investors won't be taken by surprise when the Fed raises on Wednesday because it has telegraphed its next rate move effectively.

Barring unexpected outcomes, the widely anticipated rate increase in less than a week would be followed by two more hikes later in 2017, 20 dealers said in the poll.

However, there are still plenty of risks on the horizon for the markets, Piegza said. But with Donald Trump's election victory, the Times said, companies in manufacturing and other industries "have become more confident about the outlook since late a year ago, at least in part because of hopes that tax cuts and other favorable policies will be coming from the new Trump administration and his party that controls Congress". The euro fell to $1.0666 from $1.0692.

In corporate news, Valeant Pharmaceuticals shares tanked in pre-market trade after Bill Ackman's Pershing Square Capital Management said it sold its 10% stake in the company.

The nonpartisan Congressional Budget Office said late Monday that the Republican proposal would result in 24 million more uninsured people over a decade, while trimming the federal deficit by $337 billion. Scotland's first minister, meanwhile, called for a referendum for Scotland to break free of the United Kingdom. The German DAX slipped 0.1%, while France's CAC 40 index rose 0.2% and the UK's FTSE 100 added 0.4%.

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