U.S. Futures Drop With Silver Before Fed; European Shares Swing

New York (Dec 16)    U.S. equity futures dropped with silver and Asian stocks headed for a three-month low before a two-day Federal Reserve meeting starting tomorrow and as a survey showed China’s manufacturing expansion slowing. European shares erased an early drop and the yen rose.

Standard & Poor’s 500 Index futures lost 0.2 percent and the MSCI Asia Pacific Index dropped 0.7 percent. The Stoxx Europe 600 Index increased 0.2 percent at 8:37 a.m. in London, with about the same number of companies rising as falling. Japan’s Topix declined 1.3 percent as the yen advanced against all 16 major peers. Gold and silver lost at least 0.5 percent. Brent crude rose 0.4 percent as rebels refused to open Libya’s ports, while natural gas sank 1.5 percent.

Economists see an increased chance Fed policy makers will begin reducing stimulus amid signs of improvement in the U.S. labor market and after lawmakers passed a bipartisan budget. Private surveys on French and Chinese manufacturing missed estimates ahead of other reports today that may signal growth in factory activity in the euro region and the U.S., according to Bloomberg surveys.

“Tapering is all that the market cares about at the moment,” said Khiem Do, Hong Kong-based head of Asian multi- asset strategy at Bartin Asset Mangement Ltd., which oversees about $60 billion. “Some are predicting the Chinese economy will continue to slow down, perhaps in a more sustainable path.”

Chinese Manufacturing

The Shanghai Composite Index dropped 1.6 percent, decreasing for a fifth day in the longest stretch of losses since June. The preliminary reading of the Purchasing Managers’ Index by HSBC HOLDINGS and Markit Economics missed the 50.9 median estimate in a Bloomberg News survey. The gauge has signaled expansion since August.

The government will maintain continuity and stability in its macro-economic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy, China Central TV reported, citing a statement from the annual Central Economic Work Conference that ended Dec. 13.

Japan’s Topix Index fell for a fourth day, the longest losing streak in 10 weeks. Large Japanese businesses pared their projections for capital spending this fiscal year, a Bank of Japan report showed. The Tankan index of sentiment among large manufacturers beat estimates, indicating confidence is at the highest since 2007.

Yen Climbs

The yen climbed 0.3 percent to 102.92 per dollar and advanced 0.3 percent to 141.52 per euro. The Bank of Japan, which buys more than 7 trillion yen ($68 billion) of the nation’s government bonds every month to end deflation, starts a two-day meeting on Dec. 19.

Australia’s dollar slipped 0.2 percent to 89.51 U.S. cents after a 1.5 percent drop in the five days to Dec. 13 capped its eighth straight weekly decline, the longest slump since 1985.

Reserve Bank of Australia Governor Glenn Stevens signaled last week a preference for supporting the economy via a weaker currency than with further rate cuts. An exchange rate of 85 U.S. cents is “closer to the mark” than 95 cents, he said in an interview with the Australian Financial Review.

Brent futures rose to $109.27 a barrel after falling 2.5 percent last week. Libyan rebel leader Ibrahim Al Jedran told a news conference yesterday that three key oil ports closed since the end of July will remain shut after the government rejected demands that included a share of crude revenue.

Natural gas futures dropped to $4.284 per million British thermal units as meteorologists predicted moderating temperatures that would curb demand for the heating fuel after frigid weather last week.

U.S. Stocks

Silver slipped 0.7 percent to $19.555 an ounce, while gold lost 0.6 percent to $1,231.86 before the Federal Open Market Committee meets tomorrow. The Fed may begin reducing its $85 billion of monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists in a Dec. 6 Bloomberg survey, up from 17 percent in a Nov. 8 poll.