Obama speech, Fed policy statement focus in world markets

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Obama, Fed the focus in world markets

LONDON — European stock markets recouped early losses Wednesday as Wall Street futures turned slightly higher — but investors remained cautious ahead of the latest statement from the U.S. Federal Reserve and President Barack Obama’s State of the Union address.

The FTSE 100 index of leading British shares was down 33.87 points, or 0.6 percent, at 5,242.98 while Germany’s DAX fell 14.08 points, or 0.3 percent, at 5,654.85. The CAC-40 in France fell 32.62 points, or 0.9 percent, to 3,774.42.

Wall Street was poised to open a bit higher — Dow futures were up 5 points, or 0.1 percent, at 10,143 while the broader Standard & Poor’s 500 futures rose 1.8 point, or 0.2 percent, to 1,089.

The Fed takes center stage later following a week in which investors have focused on developments in China. Reports that the monetary authorities in China were ordering banks to rein in lending hit Asian stocks hard.

Though the Federal Open Market Committee is expected to keep its benchmark interest rate unchanged at a range of zero to 0.25 percent, investors will be more interested in the accompanying statement and in particular whether there’s continued support for keeping borrowing costs “exceptionally low and for an extended period.”

Julia Coronado, an analyst at BNP Paribas, thinks there will be little change in the statement but that a number of “minor and significant tactical adjustments to policy” will likely be considered for the future which may begin to filter into the minutes and chairman Ben Bernanke’s monetary policy report to Congress in mid-February — both next month.

Investors will also be keeping a close eye on President Barack Obama’s first State of the Union address later to see if he sharpens his attacks on the banks.

“President Barack Obama is under scrutiny from all sides at the moment, and his State of the Union address really is the hot ticket tonight — not just stateside but globally,” said Tim Hughes, head of sales trading at IG Index.

“More tough yet ambiguous rhetoric on the subject of bank regulation could see the hangover for investors continue at least another day yet but a firm but reassuring tone, however, could see the markets bounce back,” he added.

Stocks around the world have been in retreat for most of the last week in the wake of Obama’s announcement that he plans to impose restrictions on banks more risky trading activities as well as mounting speculation that China is looking to rein in bank lending to prevent a nasty inflationary spike.

Investors are getting increasingly vexed over possible policy changes in China, as the country’s growth helped limit the impact of the global recession over the last year — figures last week showed that China’s economy grew an eye-catching 10.7 percent in the final three months of the year from the year before.

The worry is that tighter monetary policy in China to check inflationary pressures could kill off the limited economic recovery around the world — figures Tuesday from Britain and South Korea showed exactly how fragile the recovery is.

Those worries weighed on Asian markets earlier, with Shanghai’s main index closing 1.1 percent lower at 2,986.61.

Japan’s Nikkei 225 stock average fell 73.20 points, or 0.7 percent, to 10,252.08, with the broader market hurt by heavy selling in Toyota shares. The world’s No. 1 car company halted U.S. sales of eight models to fix a potentially dangerous gas pedal problem. Its shares tumbled 4.3 percent.

Elsewhere, South Korea’s Kospi declined 0.7 percent to 1,625.48 while Australia’s benchmark slid 1.6 percent and Taiwan’s market fell 0.5 percent.

Hong Kong had bucked the broader selling for a while before capitulating, and the Hang Seng index ended 0.4 percent lower at 20,033.07.

Oil prices were relatively flat with benchmark crude for March delivery up 16 cents at $74.87 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 55 cents to settle at $74.71 on Tuesday.

The dollar fell 0.2 percent to 89.41 yen while the euro was down 0.1 percent at $1.4059.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.