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European stocks could open lower Thursday. Chinese stocks rise, reversing four straight sessions of losses. Dollar weakened. Oil rises, gold and metals mixed.
European stocks are set to open lower after the Federal Reserve hinted that it was getting closer to curtailing a key asset-purchasing program that has helped juice the U.S. economic recovery.
Stocks are near all-time highs, with all three indexes having closed at records Monday.
Investors have bet on strong corporate earnings, the economic rebound, and continued support from central banks' easy monetary policies. But their optimism has been tempered in recent days by concerns about the Delta variant of Covid-19, China's regulatory crackdown and the risk of inflation.
As investors expected, Fed officials left their stance on monetary policy unchanged at the conclusion of a two-day policy meeting. The Fed said in a statement that the economy has made progress toward its employment and inflation goals, and that the central bank would continue to assess its stimulus programs in the coming months.
Investors have been watching to see how soon the Fed might begin to pare back its $120 billion in monthly asset purchases. It has previously said the purchases would continue until there is "substantial further progress" on the recovery. Wednesday's statement suggested that the Fed was moving closer to winding down its bond-buying, even though it continues for now.
Fed Chairman Jerome Powell said further gains in employment would be needed before any tapering of asset purchases. "We have some ground to cover on the labor market side," he said. Mr. Powell also stuck to the Fed's position that a recent uptick in inflation was due to transitory factors.
"I don't think he could have been more dovish," said Thomas Hayes, chairman of Great Hill Capital, an investment management firm. "There's nothing that the Fed could do that would be more accommodative to the stock market."
In corporate news, Rio Tinto has refused to be pinned down on Australian iron-ore capacity after the ramp up of its Gudai-Darri project in Western Australia, but earlier long-run targets of 360 million tons a year seem "to be a fading memory," Citi said.
Citi is tipping Pilbara output of 340 million tons in 2022, followed by 345 million in 2023 and 348 million in 2024. "And with Simandou seemingly still some way off, seaborne iron-ore supply increases will likely continue to under perform market estimates," Citi said.
In Asia, Chinese stocks rose in early trade, reversing four straight sessions of losses. Investor sentiment may have been lifted by news that China's securities regulator met with global investment banks last night in a bid to calm market jitters. Miners and the new-energy sector led gains.
The greenback weakened as the Fed softens the hawkish tone struck in the previous meeting and avoids giving clear guidance about when tapering will begin.
The resurgence of Covid-19 supports the notion that monetary stimulus will remain in place at least until 2022, which some analysts consider bearish for the US currency.
Still, the Fed did say it is getting closer to monetary tightening, potentially offering some support to the dollar. Strong corporate earnings, meanwhile, offer hopes of a speedy recovery. The USD slid around 0.2% versus the euro and the pound, while strengthening slightly against the yen.
The dollar and the euro's role in global transactions could be diminished if the Fed and European Central Bank decide against launching a digital currency, Bank of America said.
"Why use the USD in international payments or transfer of funds, when it will be much faster and cheaper to just use some other country's [central bank digital currency] or the Diem instead?," BofA analysts said.
Similar arguments apply to the euro, they said. The euro has failed to threaten the dollar's dominance and if eurozone authorities want to see a higher role for the euro in international transactions and the global economy, they can't afford to lose the digital opportunity, they said.
U.S. Treasury yields remained modestly higher on Wednesday as investors assessed remarks by Federal Reserve Chairman Jerome Powell and the central bank's assessment that the U.S. economy has "made progress" on the conditions needed to taper bond purchases, but not enough to start.
The Fed's new standing repo facility appears to be a work in progress. There are a lot of moving parts and what will now kick in on July 29 is available to primary dealers under the same terms as normal repo operations, with a sister facility for foreign central banks.
This tool has been in discussion for years and it appears the tumult of the spring of 2020 and the Treasury market meltdown helped officials get over the finish line.
At the same time, the Fed also says Wednesday more firms will get access to the standing repo tool in the future. The Fed also has a cap on the facility of $500B, perhaps mindful of the massive numbers now being booked at the reverse repo facility, which regularly flirt with the $1T mark.
Oil prices edged lower in Asia trading after solids gain of about 1.0% overnight. The possible resumption of Iran's oil exports remains a key downside risk for oil prices, CBA said.
Iran's president-elect Raisi will officially take office on Aug. 5, which provides a clearer timeline for a resumption of talks to revive a nuclear deal with world powers, CBA said.
Gold rises in the morning Asian session amid an uncertain Fed outlook. The good news for gold is that Treasury yields didn't rally, which should solidify the stringent conditions required for tapering and for raising interest rates, Oanda said.
Copper rose as the threat of a strike at a major BHP-operated copper mining facility in Chile, adds to price support from falling inventories, ANZ said.
It notes ongoing labor contract discussions at the Escondida mine, where the main union is calling on members to reject the company's wage offer and go on strike.
Nevertheless, the bank says MMG's Las Bambas copper mine in Peru should have sufficient stock at port to support regional exports, potentially minimizing any short-term supply disruptions. The three-month LME copper contract rose 0.4% to $9,723/ton.
Iron ore is lower, as Chinese regulatory controls over steel production and exports continue to weigh on prices for the steelmaking material, according to ANZ. Fears of further taxes on steel exports are dragging down prices, it said, noting that the removal of steel export rebates in May likely isn't effective anymore because current prices still favor exports.
The bank added that an expected slowdown in Chinese credit growth could lead to softer construction and manufacturing activity in 2H, providing a further headwind for the ferrous metal. The most-traded September iron ore contract on the Dalian Commodity Exchange falls 0.7% to CNY1,124.5 a ton.
TODAY'S TOP HEADLINES
China Moves to Reassure Global Banks and Investors After Market Rout
SINGAPORE-China moved to contain the fallout from a regulatory assault on technology companies that has rattled international investors, with a top securities regulator privately telling global financial institutions that Beijing will consider the impact on markets when it introduces new policies in the future, according to people familiar with the matter.
Fang Xinghai, vice chairman of the China Securities Regulatory Commission, spoke to representatives of global banks including Goldman Sachs Group Inc. and UBS Group AG, as well as some investment firms on Wednesday evening, according to the people. Yi Huiman, the securities regulator's chairman, was also present at the closed-door meeting in Beijing, they added.
Fed Says Economy Has Progressed Toward Goals, Tees Up Bond Taper
WASHINGTON-The Federal Reserve inched toward scaling back the easy-money policies adopted at the start of the pandemic by signaling that the process could start later this year.
The Fed cut its benchmark interest rate to near zero in March 2020 and has been purchasing at least $120 billion a month in Treasurys and mortgage bonds to provide extra stimulus to the economy. Officials since the end of last year said those purchases would continue until they see "substantial further progress" toward their goals of low unemployment and stable inflation.
Bipartisan Infrastructure Deal Advances in Senate
WASHINGTON-A bipartisan group of senators struck an agreement on a roughly $1 trillion infrastructure package Wednesday after grinding months of talks, hammering out enough details to propel the deal past its first procedural hurdle just hours later.
The Senate voted 67-32 to begin consideration of the bill, above the 60 required and reversing a failed effort a week earlier when many specifics of the deal were still under negotiation. Republican negotiators said Wednesday they now had enough confidence in the details of the agreement to allow it to move forward. Senate Minority Leader Mitch McConnell (R., Ky) backed the motion.
Treasury Yields Edge Higher After Fed Signal on Tapering Bond Buying
U.S. government bond yields edged higher Wednesday after the Federal Reserve signaled it was getting closer to when it could start tapering bond purchases.
The yield on the benchmark 10-year Treasury note, which helps set borrowing costs on everything from mortgages to corporate debt, settled at 1.259%, according to Tradeweb, compared with 1.254% just before the Fed's policy statement and 1.235% at Tuesday's close.
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