Uncertainty ahead of US Fed meeting announcement

Uncertainty ahead of US Fed meeting announcement

Uncertainty ahead of US Fed meeting announcement

After the 2008 financial crisis and ensuing recession, the Fed took the unprecedented step of beefing up its holdings of government bonds and mortgage-related securities from $900 billion to $4.5 trillion in an effort to turn the economy around.

These are riskier than USA government bonds (or Treasuries, as they are known) but play a vital role in the real world because they enable lenders to package up risk and sell it on to others, in the process enabling homeowners to buy property. Banks benefit from higher bond yields because it means they can charge higher interest rates on loans. Economists had expected housing starts to jump by 1.7 percent.

S&P 500 e-minis were up 8 points, or 0.32 percent, with 48 contracts changing hands. The Dow Jones industrials added 41 points, or 0.2 percent, to 22,412. It would start with reductions of $10 billion a month - $6 billion in Treasurys and $4 billion in mortgage bonds - and raise the amount quarterly until it reached $50 billion a year later.

While the Fed has lifted interest rates three times since December, 10-year yields have fallen as expectations for faster inflation and fiscal stimulus from the Trump administration proved to be short-lived. Rio Tinto lost 1.2 percent and Fortescue Metals Group tumbled 1.8 percent.

And if interest rates rise as the Fed pares its holdings, the effect of the Fed's pullback may be amplified.

In commodities, crude oil prices rose, remaining buoyant ahead of Friday's meeting between the Organization of the Petroleum Exporting Countries and non-OPEC producers to discuss the state of their 1.8-million barrel-per-day supply cut deal.

Higher prices for gasoline and some other items "in the aftermath of the hurricanes will likely boost inflation temporarily".

The pound dipped back below $1.36 but is still sitting close to its highest levels since Britain voted to leave the European Union in June a year ago.

The Nikkei 225 Index edged up 11.08 points or 0.1 percent to 20,310.46. This index measures the annualized change in prices for consumer goods and services, excluding the more volatile and seasonal food and energy prices.

As well as plans for balance sheet unwinding, the Fed's Summary of Economic Projections and dot-plot are expected garner much of the attention, as investors are keen to assess whether the slowing pace of inflation has altered the central bank's longer-term view on interest rates. Johnson Controls rose 3 percent and American Airlines rose 2.3 percent. Oil stocks have also gained while there is a slight drop in major miners such Fortescue Metals and Rio Tinto following its announcement that chief financial officer Chris Lynch will retire next year.

"The stock has become significantly more attractive from a valuation perspective". Several packaged food companies also declined.

Bed Bath and Beyond plunged 15 percent after reporting earnings and sales that missed analysts' forecasts.

In Mumbai, Bharti Airtel recovered from an intraday fall of 6% to close 0.4% higher.

However, Asian shares traded to a ten-year high on Monday in anticipation of the upcoming Federal Reserve meeting. Brent crude, used to price global oils, was up $1.05, or 1.9%, to $56.19 a barrel in London.

Retail sales volume including auto fuel advanced 1 percent from July, the strongest growth in four months and up from July's increase of 0.6 percent.

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