Markets steady ahead of Fed decision

Markets Dow Jones Newswires

(Reuters)

Stocks, bonds and currency markets were mostly steady Wednesday ahead of a closely watched announcement from the Federal Reserve and fresh readings on the U.S. economy. 

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Futures suggested the S&P 500 would open 0.1% higher, after a recovery in the shares of tech giants helped send the S&P 500 and Dow Jones Industrial Average to records on Tuesday. Markets in Asia ended a touch lower, while the Stoxx Europe 600 was up 0.6% midday, led by the tech sector and a 12% jump in shares of Hexagon AB after The Wall Street Journal reported the industrial-technology company has held talks on a possible sale. 

The Fed is widely expected to raise its benchmark short-term interest rate by a quarter percentage point later Wednesday and release new projections for the economy and interest rates. Fed officials have also said they were discussing how to reduce the balance sheet, and could announce the adoption of the plan as soon as Wednesday. 

"Everyone is expecting a [rate] hike but what's more important is what happens next," said Mitul Patel, head of rates at Janus Henderson. The market seems to be expecting this to be the last interest rate rise for a while in light of lackluster inflation readings, but the Fed had signaled otherwise, he said. 

Investors currently see a more than 99% chance of a rate rise on Wednesday but just under half expect a further rate increase by the end of the year, according to Fed-fund futures tracked by CME Group. 

Many investors are skeptical that the U.S. central bank will act aggressively following a recent patch of softer U.S. economic data, particularly around inflation, as well as signs that fiscal stimulus may be less likely than initially anticipated. 

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"I'm becoming a bit more concerned about where the U.S. economy is heading," said Ed Keon, multiasset portfolio manager at QMA, which manages $120.5 billion in assets. 

"We are not going to see tremendous [stock] gains from here absent good growth of earnings, and in the long run earnings growth is driven by economic growth," he said. 

New readings on U.S. retail sales and consumer prices are due later Wednesday and could shed light on whether recent subdued readings on the U.S. economy, particularly inflation, prove temporary. 

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was last flat but not far from its lowest level this year, while yields on 10-year Treasurys edged down to 2.198% from 2.206% Tuesday. 

The euro was flat against the dollar even as data showed eurozone industrial output rose for a second straight month in April, while the British pound fell 0.2% to $1.2734. 

Earlier, stocks in South Korea and Japan edged down 0.1%, but Australia's S&P/ASX 200 added 1.1%, buoyed by strength in banking and materials companies. 

The Shanghai Composite Index fell 0.7% amid concerns about heightened Chinese regulatory scrutiny after media reports that the chairman of high-profile Chinese financial firm Anbang Insurance Group was taken away in recent days by Chinese authorities. Late Tuesday, Anbang said its chairman, Wu Xiaohui, can't perform his duties temporarily and has turned them over to other executives. 

The moves came even as official data showed industrial output in China rose 6.5% in May from a year earlier, suggesting Beijing's efforts to prevent growth from slowing too rapidly may be working. 

In commodities, Brent crude oil was down 1.1% at $48.28 a barrel amid signs of rising oil and gas stockpiles, while gold was unchanged at $1,269 an ounce. 

Ese Erheriene, Michael S. Derby, Yifan Xie and Mark Magnier contributed to this article. 

Write to Riva Gold at riva.gold@wsj.com