European markets tread water before Fed minutes

European equities traded broadly flat yesterday, despite gains across most of Asia, as dealers waited on news from the Federal Reserve’s most recent policy meeting.
Meanwhile, oil prices dipped despite data showing a drop in crude stockpiles in the US and progress by Opec as well as non-Opec producers – including Russia – towards extending production cuts for nine months.
London’s stock market eked out a small gain of 0.4% to 7,514.90 points, while Frankfurt slid 0.1% to 12,642.87 and Paris slid 0.1% at 5,341.34 at close yesterday.
Wall Street stocks were showing small gains in late morning trading, near record levels, with the Dow up 0.2%.
Most Asian indices rose, with Shanghai recovering from early selling after Moody’s cut China’s credit rating on worries about its growing debt mountain.
“We have not seen any major moves today as dealers are waiting to see the minutes from the Federal Reserve meeting earlier this month,” said market analyst David Madden.
Investors hope to get a handle on the Fed’s plans for interest rate rises following a number of weak indicators lately.
Among the weak points is inflation, which Minneapolis Fed president Neel Kashkari described as going in the wrong direction.
Moody’s ratings agency said its downgrade of the world’s number-two economy was prompted by the likelihood of a “material rise” in debt throughout the economy and as potential growth slows.
Beijing has tried to address a toxic brew of unregulated and risky lending, which is increasingly seen as a threat to global financial stability.
“Markets have largely shrugged off Moody’s downgrade of China’s credit rating overnight, with even Chinese stocks and the yuan being relatively unfazed,” noted Oanda analyst Craig Erlam.
“We saw some initial weakness in Chinese stocks and the currency immediately following the announcement but both quickly reversed the moves to trade positive on the day.
“This sentiment has been shared by investors elsewhere who have also shrugged off the downgrade, with the possible surprise factor being offset by the fact that concerns about Chinese debt and growth are not exactly new.”
China’s economy grew last year at its slowest pace in a quarter of a century and there are expectations it will continue to ease in coming years.
Oil prices briefly pushed higher after US government data showed commercial crude inventories fell by 4.4mn barrels in the week ending May 19, more than double the average of 2mn barrels expected by analysts surveyed by Bloomberg.
But they fell back after oil producers within and outside Opec moved towards an agreement maintaining cuts in output into next year after a joint committee recommended a nine-month extension.
Late last year 24 countries, including those in the Opec and Russia, agreed to cut production by 1.8mn barrels per day through June in order to reduce a global supply glut.
The producers were expected to agree to the committee recommendation at a meeting at Opec headquarters in Vienna today.
Market analyst Fawad Razaqzada said oil prices, which have been rising over the past month, could pull back as speculators take profits after a deal is certain.
“But if there are any surprise announcements then the reaction of oil prices may well be very different,” he added.