European markets closed little changed yesterday while Wall Street was largely flat as investors waited on a widely expected US interest rate cut to give a clear lead.
Continued uncertainty about the US-China trade stand-off despite some positive commentary added to the sense of caution after interest rate speculation drove sharp gains in Asian trade.
The main focus initially was on comments by John Williams, the influential vice chairman of the Fed’s policy-setting board, who said central banks should move quickly to support the economy even when borrowing costs were already low.
He pointed to studies suggesting that when there are few stimulus options available, officials should “move more quickly than you otherwise might,” rather than waiting “for disaster to unfold”. While a spokesman later clarified that Williams was not outlining Fed policy and was not flagging a half-point cut, analysts said the remarks provided an insight into how officials were thinking.
Markets have been wavering this week over how big the Fed’s expected reduction would be, with 25 basis points priced in but some traders hoping for 50.
Capital Economics said in a research commentary that central banks generally are signalling an easing in monetary policy so as to offset a slowing economy but that may not be enough for stocks.
“We have been here before...The assumption that central banks will prevent much economic damage has sometimes supported equities for a surprisingly long time, before a correction further down the line once it became clear that economic weakness would last,” it said.
“Even though we are not forecasting a downturn anywhere close to the financial crisis, we do think that the likely scale of further weakness in the global economy is being widely underestimated.”
Oil was firmer but then slipped back off early highs made as the United States and Iran continued to trade brickbats, with President Donald Trump saying a US navy vessel downed an Iranian drone in the strategic Strait of Hormuz, a claimed strongly denied by Tehran.
“With the situation...turning into a powder keg again, Brent crude prices will remain propped up,” noted Fiona Cincotta, an analyst at City Index trading group.
On the corporate front, the world’s leading brewer AB InBev said it was selling its Australian unit Carlton & United Breweries for A$16bn ($11.3bn). AB InBev, a Belgian-Brazilian behemoth, is saddled with more than $100bn in debt from previous acquisitions and so the news gave the shares a sharp boost of more than 5%.
In London, the FTSE 100 closed up 0.2% to 7,508.70 points; Frankfurt — DAX 30 ended up 0.3% to 12,260.07 points and Paris — CAC 40 ended flat at 5,552.34 points yesterday.
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