Global shares slip ahead of central bank moves
The euro hovered near an eight-week high on Wednesday, with investors reluctant to push it higher ahead of a speech by the U.S. Federal Reserve chairman and before seeing the European Central Bank's plan to tackle the region's debt crisis.
But global growth worries weighed on equity markets, dragging world shares lower, while oil prices eased after Hurricane Isaac in the Gulf of Mexico looked set to spare local production facilities from significant damage.
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US stock index futures pointed to a slightly lower open on Wall Street on Wednesday.
Moves in major risk asset markets are being limited by hopes that Fed Chairman Ben Bernanke will signal an easier U.S. monetary policy in a speech to international central bankers gathering in Jackson Hole, Wyoming, at the end of the week.
There is also rising optimism that the ECB, which will meet on September 6, is close to producing a decisive bond-buying plan to bring down high Spanish and Italian borrowing costs, and ease Europe's three-year-old debt crisis.
But with the risk of disappointment on both fronts high, investors were adopting a cautious approach.
"We've got the prospects of further quantitative easing in the United States and a rate cut in Europe, but against that we've got a worsening economic outlook, so we're in limbo for the time being," said Richard Griffiths, associate director at Berkeley Futures Ltd.
Concerns about the global economic outlook were firmly outweighing any potential positive impact of central bank actions in the equity markets, pulling the FTSEurofirst 300 index down 0.4 percent to 1,083.80 points.
The euro area's blue-chip Euro STOXX 50 index was also down 0.6 percent at 2427.95 points.
A mixed session in Asia, where evidence of slowing activity in China has been weighing on sentiment, left the MSCI world equity index facing a sixth day of losses. It was down 0.1 percent at 323.27 points.
Emerging stocks also hit their lowest levels in nearly four weeks due to the sharp drop in Chinese shares, which are the largest component of the index.
Central bank balance sheets: http://link.reuters.com/jyh34s
Oil prices since 2008 peak: http://link.reuters.com/wub57s
ITALIAN AUCTION TEST
In the debt markets the approach of Bernanke's speech and a lack of fresh details on the ECB's plan for containing the euro area's debt crisis, which is expected to involve new sovereign debt purchases, kept most key rates steady.
U.S. Treasury bond yields and German government bonds were little changed across the curve.
Investors are looking ahead to Thursday's sale of up to 6.5 billion euros of new Italian five- and 10-year bonds, which is seen as a guide to the market's view on how successful the ECB plan is likely to be.
The auction is the first sale of longer-term debt since ECB President Mario Draghi said in late July he was ready to do whatever it took to preserve the euro.
In an opinion piece written for a German newspaper on Wednesday, Draghi defended the central bank's proposed bond buying plan, saying it must employ "exceptional measures" at times to fulfil its mandate of delivering stable prices.
The comments were seen as a retort to German officials who have criticised the bank for considering what they see as a scheme that amounts to outright financing of governments, which is outside its remit.
"The ECB (is) basically trying to convince policy makers in Europe that this action (bond buying) is required to repair the monetary policy transmission mechanism," said Ian Stannard, head of European FX Strategy at Morgan Stanley.
"And I think the policy might be very difficult for policymakers to disagree with," he said.
Isaac blow subdued
Oil markets were more focused on Hurricane Isaac, which is moving along the coastline of the Gulf of Mexico, a region that accounts for about 23 percent of all U.S. oil output.
Oil production dropped by more than 90 percent on Tuesday as coastal refineries shut down in a precautionary move ahead of the approaching Category 1 hurricane.
But as Isaac left local oil production facilities without significant damage, Brent crude futures for October slipped $1 to $111.58 a barrel, and U.S. light crude was down 80 cents at $95.53.
"Oil prices are slightly down this morning because it is expected that oil production in the Gulf of Mexico will quickly return to normal," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.