* No surpises expected in Fed minutes
* Dollar near lowest level of the year vs currency basket
* Oil rises, but gold and copper prices flat on the day
By Ryan Vlastelica
NEW YORK, Feb 19 (Reuters) – Stock markets around the world
mostly dipped on Wednesday as investors held off from making big
bets ahead of the release of minutes from the U.S. Federal
Reserve’s latest meeting, though the minutes were not expected
to deliver any policy surprises.
The dollar hovered near its lowest level of 2014, while both
the euro and the yen were little changed on the day. Gold prices
were also near breakeven levels.
At 2 p.m. (1900 GMT), the Fed will release minutes of its
January policy meeting, when it decided to trim its monthly
asset buying by $10 billion, the second straight month that it
decided to reduce its bond purchases by $10 billion.
Fed Chair Janet Yellen earlier this month indicated that the
central bank was inclined to keep tapering its bond purchases,
though markets assume a recent run of soft economic data will
encourage the Fed to be cautious.
Recent U.S. data, including on the housing and labor
markets, has come in below forecasts, though many analysts chalk
the weakness up to severe weather and don’t expect the Fed to
adjust the slowing of its stimulus program as a result.
If the central bank were to slow the pace of tapering, it
could raise concerns that the economy is too weak to grow
without outside assistance.
“I don’t think the market is going to be surprised, but
there is always caution ahead of these minutes. I think the one
thing to look for is the collaboration between Bernanke and
Yellen since this was Bernanke’s last meeting,” said Randy
Frederick, managing director at Charles Schwab, in Austin,
Texas.
Ben Bernanke stepped down as Fed chairman on Jan. 31, two
days after the close of the Fed’s last policy meeting.
The Dow Jones industrial average was down 34.61
points, or 0.21 percent, at 16,095.79. The Standard & Poor’s 500
Index was down 4.46 points, or 0.24 percent, at 1,836.30.
The Nasdaq Composite Index was down 19.65 points, or
0.46 percent, at 4,253.14.
European shares rose 0.1 percent while the MSCI
World index lost 0.1 percent.
The benchmark 10-year U.S. Treasury note was up
3/32 in price, with the yield at 2.6979 percent.
The U.S. dollar index, which measures the dollar
against a basket of major currencies, rose 0.1 percent, after
hitting its lowest level in 2014 to date overnight. Both the
euro and yen were little changed against the
dollar.
“We’ve had nothing but negative economic surprises and the
excuse that it is all weather-related is going to terminate very
soon,” said Boris Schlossberg, managing director of foreign
exchange strategy at BK Asset Management in New York.
“If this reflects a more secular weakness, the Fed could take a
more dovish bent in the near term,” he said.
Nevertheless, most strategists expect the Fed to keep
tapering, barring a major economic shock, although some think
quantitative easing could continue into next year.
“Our economists expect today’s FOMC minutes to … (say)
that the tapering process remains on track and is unlikely to be
interrupted barring a significant shock to the economic
outlook,” said Adam Cole, head of G10 FX strategy at RBC
Capital, in a note. “In other words, a $10 billion reduction per
meeting should be everyone’s base case.”
UKRAINE UNREST
Dealers have been surprised by the euro’s resilience given
speculation the European Central Bank will have to ease policy
further to avert the risk of deflation.
“One could expect that if the real economy is getting up and
if we see that in Germany wage increases are quite substantial,
there might be a certain self-correcting trend” in inflation,
ECB member Ewald Nowotny told Reuters in an interview. “So we
will see whether this needs some specific action or whether …
there would be a merit for waiting.”
The emerging markets focus remained on rising unrest in both
Ukraine and Thailand. Ukraine’s sovereign bonds and
currency both tumbled as a renewed wave of violence hit the
capital Kiev, adding pressure on Russia’s ruble, which has hit
an all-time low against the euro.
The ruble’s weakness stemmed mainly from the
Finance Ministry’s plan to buy foreign currency to replenish one
of its sovereign wealth funds. Moscow shares also fell
sharply.
In Asia, Japan’s Nikkei ended off 0.5 percent,
following Tuesday’s 3 percent rally after the Bank of Japan
decided to expand a scheme to encourage more bank lending.
Dealers also kept a careful eye on China’s central bank
after it drained funds from the money market on Tuesday, though
it took no new action on Wednesday, helping the Shanghai market
bounce 1.1 percent.
The People’s Bank of China is trying to engineer a gradual
upward shift in the cost of money to encourage companies to
deleverage and discourage high-risk shadow banking activity,
though investors are anxious it could hurt growth.
In commodity markets, both gold and copper prices were
slightly lower on the day. Brent crude was flat while
U.S. crude futures rose 0.4 percent on forecasts of lower
crude and oil products stockpiles due to new pipeline capacity
and robust winter demand.
