World stock markets tentative ahead of Fed decision on stimulus reduction

BEIJING, China – World stock markets were tentative Friday as investors prepared for the U.S. Federal Reserve’s decision next week on whether to reduce its monetary stimulus.

Asia’s heavyweight market benchmark, Tokyo’s Nikkei 225, rose 0.4 per cent to 15,403.11 and Hong Kong, Taiwan and Sydney also rose. Shanghai and Seoul declined.

In Europe, London’s FTSE 100 shed 0.1 per cent to 6,440.29 and France’s CAC 40 was down 0.1 per cent at 4,066.75. Germany’s DAX added 0.1 per cent to 9,022.77.

“The unwinding of unconventional monetary policy is a good thing long term. However it will cause short-term vibrations,” said Evan Lucas, a strategist for Australia’s IG Markets, in a report.

Futures augured gains on Wall Street, with Dow futures up 0.2 per cent.

In Asia, Singapore gained but markets fell in Thailand, Malaysia and Jakarta, which might be more exposed if a reduction in the Fed’s stimulus hurts U.S. demand for imports or sparks short-term capital flight from Asian economies.

Hong Kong’s Hang Seng rose 0.1 per cent to 23,245.96. Taiwan’s Taiex added 0.2 per cent to 8,376.44 and Sydney’s S&P/ASX 200 gained 0.7 per cent to 5,098.4. China’s benchmark Shanghai Composite Index shed 0.3 per cent to 2,196.07.

Strong U.S. retail sales and signs of an imminent budget agreement in Congress have reinforced expectations that the Federal Open Market Committee meeting on Dec. 17-18 might decide to start reducing its $85 billion worth of monthly financial asset purchases.

The U.S. stimulus has buoyed stocks over the past few years, and its potential reduction has jolted markets in recent months. However, any tapering is expected to be accompanied by a renewed commitment by the Fed to keep interest rates low. That, analysts say, helps explain why stock markets are still trading at relative highs and why bond markets aren’t too volatile.

The focus will likely remain on the Fed until its decision next Wednesday.

The future of the Fed’s stimulus has been the main driver across all markets since May, when chairman Ben Bernanke first mooted the possibility.

Benchmark crude oil for January delivery was off 1 cent at $97.49 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 6 cents on Thursday to settle at $97.50.

In currency markets, the dollar rose to 103.56 yen from 103.56 yen. The euro gained to $1.3767 from $1.3745.