Global stocks lower on expectation of US rate hike this year

SEOUL, South Korea – Global stock markets were mostly lower on Wednesday as comments from Federal Reserve officials strengthened expectations of a rate hike by the Fed within this year.

KEEPING SCORE: Europe started weaker. Britain’s FTSE 100 lost 0.3 per cent to 7,052.52. France’s CA 40 retreated 0.7 per cent to 4,473.83 while Germany’s DAX dropped 0.7 per cent to 10,547.10. Futures augured a tepid start on Wall Street with Dow futures staying flat. S&P futures also stayed nearly unchanged.

ASIA’S DAY: Most Asian markets finished lower. South Korea’s Kospi finished 0.1 per cent lower at 2,053.00. Australia’s S&P/ASX 200 was down 0.6 per cent to 5,452.90. But Hong Kong’s Hang Seng index gained 0.4 per cent to 23,788.31. Helped by a weaker yen, Japan’s Nikkei 225 finished 0.5 per cent higher at 16,819.24. Stocks in Southeast Asia and New Zealand finished lower. China’s Shanghai Composite Index was closed for a holiday.

FED WATCH: Comments by several Federal Reserve officials strengthened investor expectations that the Fed would increase interest rates this year. Federal Reserve Bank of Richmond President Jeffrey Lacker said rates need to be increased to keep inflation under control, echoing the view held by Cleveland Federal Reserve President Loretta Mester, who said in an interview with Bloomberg that the economy is ripe for an interest rate increase. The Fed is expected by most investors to wait until December to raise rates.

THE QUOTE: “We think Cleveland Fed President Mester’s reiteration of her hawkishness caused investors to re-interpret the implications of the previous day’s manufacturing ISM report as signalling an increased likelihood of a December rate hike,” Tim Condon, head of research in Asia at ING in Singapore, said, referring to the Institute for Supply Management manufacturing index. The index rose to 51.5 in September from 49.4 in August, indicating that U.S. manufacturing rebounded last month.

DIMMER U.S. OUTLOOK: The International Monetary Fund lowered its forecast for the U.S. economy this year to 1.6 per cent from the 2.2 per cent it had predicted in July. It blamed the U.S. investment drought on cutbacks in the energy industry, a strong dollar that’s depressing exports and policy uncertainty surrounding the November elections. The fund left unchanged its forecast for overall global growth this year at 3.1 per cent. But the world’s advanced economies are expected to grow 1.6 per cent this year, down from the 1.8 per cent the fund forecast in July, pulled down by slower expected growth in the United States. The IMF upgraded its forecast for Japanese growth to 0.5 per cent this year and for the 19 countries that use the euro currency to 1.7 per cent.

OIL: U.S. benchmark crude oil added 72 cents to $49.41 per barrel in New York. The contract fell 12 cents to close at $48.69 per barrel on Tuesday. Brent crude, the international standard, advanced 72 cents at $51.59 a barrel in London.

CURRENCIES: The euro strengthened to $1.1226 from $1.1207 and the dollar rose to 102.87 yen from 102.85.