Shares, dollar sag ahead of Fed minutes
London (Nov 20) Investors locked in some of the recent gains by world stocks and bonds on Wednesday as they waited to see what the mood was at the most recent meetings of the U.S. Federal Reserve and the Bank of England.
European shares fell for a second straight day, then stabilized. Overnight losses on Wall Street and in Asia, along with concerns about company earnings, kept investors cautious.
Focus was largely on events later in the day. The Bank of England will publish minutes of its recent meeting at 0930 GMT (4:30 EDT). Then come U.S. retail sales data and eagerly awaited October minutes from the Fed.
Fed Chairman Ben Bernanke set the tone on Tuesday when he said the U.S. central bank will keep monetary policy ultra-easy as long as needed.
The dollar .DXY sagged after the comments but began firming up as European trading gained pace. The euro still hovered near a three-week high.
"It confirms our view that the Fed will be extremely careful in taking away accommodative monetary policy and that tapering will begin by March at the earliest," said Elwin de Groot, an economist and strategist at Rabobank.
"Even though it feels like things may not go further, this policy will simply sustain it. And it is difficult to fight against it, so we could see a further narrowing of spreads and riskier asset prices going higher."
After an opening dip, Britain's FTSE .FTSE, Germany's DAX .GDAX and Paris's CAC 40 .FCHI all recovered to trade virtually flat by 0900 GMT (4:00 EDT). Earlier falls in Asia kept MSCI's world share index .MIWD00000PUS a shade lower.
Bond markets in the region also lacked conviction. Minor selling occurred as they tracked this week's uptick in U.S. Treasury yields, a move based on the view the Fed will eventually scale back its stimulus.
Commodities from oil to gold and copper held in tight ranges before the Fed minutes.
PBOC SEEN WIDENING YUAN TRADING BAND
In another closely watched move, the Chinese central bank set the yuan's mid-point for Wednesday trading at 6.1305 per dollar, its highest since the landmark revaluation in 2005.
Zhou Xiaochuan, head of the People's Bank of China, said in a book about the reforms published on Tuesday that China will gradually expand the yuan's foreign exchange trading band to make the currency more flexible and market-driven.
That does not necessarily mean China will move the trading band overnight, but some analysts think the yuan could gain in the near term on speculation of a wider trading band. For the wider market, it should mean Beijing is less likely to buy U.S. dollars to keep its currency in check.
The yuan was little changed in onshore trading, changing hands at 6.0923 per dollar compared with 6.0927 at the local close on Tuesday.