Markets stutter as stimulus hopes fade

Filomena Scalise

Filomena Scalise

Published Aug 16, 2012

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London - Fading hopes that the United States is in line for monetary stimulus kept trading in check in thin markets on Wednesday.

Stocks have enjoyed a bumper few weeks on hopes that the world's leading central banks will do more to shore up economic growth, but a round of upbeat US economic figures have reined in expectations of the Federal Reserve doing something in September.

However, investors may not get a clearer insight into Fed policy until Chairman Ben Bernanke's speech on August 31 at an annual economic conference in Jackson Hole, Wyoming. Until then, markets may drift in the traditional summer lull in Europe and the US.

Figures earlier this week showing a surprisingly big 0.8 percent increase in US retail sales in July has been followed by news on Wednesday that industrial production rose an above-forecast 0.6 percent during the month.

“It would be unwise in these volume-light times to ascribe much meaning to today's dip, but it seems that the current rally is going through a temporary pause, in the wake of economic data that perhaps lessens expectations of Fed action in September,” said Chris Beauchamp, market analyst at IG Index.

In Europe, volumes were particularly light as many countries were on holiday, though markets remained open.

Germany's DAX was 0.4 percent lower at 6,946 while the CAC-40 in France was barely changed on the day at 3,449. The FTSE 100 index of leading British shares was down 0.5 percent at 5,833, in spite of figures showing a surprise fall in UK unemployment to eight percent. The most noteworthy stock movement in Europe was Britain's Standard Chartered, which was trading four percent higher after the bank agreed a $340-million settlement with New York authorities over controversial transactions with Iran.

The subdued tone was evident in the US too, with the Dow Jones industrial average slightly down, 0.01 percent, at 13,170 and the broader S&P 500 index up 0.1 percent at 1,405.

It was a similarly quiet picture in other markets. The euro, which has recently been buoyed on hopes of European Central Bank action, was down 0.3 percent at $1.2280. The price of oil, meanwhile, was up 37 cents at $93.80 a barrel.

Despite questioning whether the Fed will decide to pump more money into the US economy, investors think the ECB and the monetary authorities will announce new policy measures in the coming weeks. While the ECB is expected to restart its bond-buying programme in order to keep a lid on the borrowing rates of Italy and Spain, the People's Bank of China is widely-tipped to cut interest rates further to shore up faltering economic growth.

Until the central banks are more forthcoming about their intentions, many analysts think the markets will likely trade in fairly narrow ranges.

“The Fed Chairman's address at the Jackson Hole conference, the next US payrolls report, and the ECB's monetary policy announcement in early September are all events that could, and should, move the markets, but the first of those is not scheduled to occur until the last day of August,” said Nick Bennenbroek, an analyst at Wells Fargo Bank.

Earlier in Asia, stock markets finished mostly lower. Japan's Nikkei 225 index closed slightly down at 8,925.04 while Hong Kong's Hang Seng fell 1.2 percent to 20,052.29. Markets in South Korea and India were closed for public holidays.

Benchmarks in mainland China also fell. The Shanghai Composite Index lost 1.1 percent to 2,118.94 while the smaller Shenzhen Composite Index lost 0.8 percent to 886.98. - Sapa-AP

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