World markets edge higher as Fed statement looms; Japanese stocks weighed down by yen strength

World markets mostly up as Fed statement looms

LONDON — World stock markets mostly rose Monday as investors waited to learn whether the U.S. Federal Reserve will announce further stimulus measures following a run of downbeat economic data.

In Europe, the FTSE 100 index of leading British shares closed up 78.13 points, or 1.5 percent, at 5,410.52 while Germany’s DAX rose 91.97 points, or 1.5 percent, to 6,351.60. The CAC-40 in France ended 61.32 points, or 1.7 percent, higher at 3,777.37.

In the U.S., the gains were muted — the Dow Jones industrial average was up 39.66 points, or 0.4 percent, at 10,693.22 around midday New York time while the broader Standard & Poor’s 500 index rose 4.13 points, or 0.4 percent, to 1,125.77.

Wall Street was underperforming Europe because it enjoyed a late rally Friday after Europe’s markets had closed sharply down in the aftermath of figures showing that the U.S. economy shed 131,000 jobs in July, double market expectations.

“Although day to day volatility remains reasonably high, stock markets are struggling to make much headway at current levels and the weaker payrolls have done nothing to help investor confidence even though fears of a double dip recession appear to be an exaggeration at the moment,” said Will Hedden, a sales trader at IG Index.

Further insights will likely emerge Tuesday after the Fed’s latest rate-setting meeting — most economists, though, think the Fed will hold fire but indicate in its statement that the U.S. economy has lost momentum at a time when inflationary pressures are easing.

“While the market did move towards pricing in a Fed ease in the aftermath of the jobs data there is a strong force of opinion that the Fed is unlikely at this stage to announce significant new policy measures,” said Jane Foley, research director at Forex.com.

“This opinion appears to be based both on the notion that the Fed has no incentive to shock the market and on the view that despite the weak labour data, most other economic indicators continue to suggest expansion, albeit at a moderating pace,” Foley said.

While the Fed is facing some pressure to announce new policy measures, the European Central Bank is seemingly better positioned to continue withdrawing emergency programs introduced during the recession and the government debt crisis. That seeming divergence between the policy positions of the two central banks is one of the reasons why the euro has clambered up from four-year dollar lows over the last six or so weeks.

German trade data earlier showed Europe’s economic powerhouse increasing exports by a massive 3.8 percent in June — another sign that the country is enjoying a strong export-led recovery.

Figures on Friday are set to show that the eurozone is growing at a faster pace than the U.S., largely because of the strong rebound in Germany — the consensus in the markets is that the 16 countries that use the euro grew by 0.8 percent in the second quarter from the previous three month period, even though some, like Greece, continue to contract. The figures on Friday are also set to show that Germany on its own grew by a quarterly rate 1.7 percent, a 20-year high.

In the current climate of uncertainty surrounding the Fed’s policy, the dollar has taken a real drubbing in the foreign exchange markets, falling to multi-month lows against the euro and the yen.

Though the euro had given up some of Friday’s post payrolls gains, it remains within striking distance of the three-month high of $1.3333. By late afternoon London time, the euro was down 0.4 percent at $1.3240.

The dollar also won some respite against the yen. Though it’s up 0.4 percent at 85.75 yen, the dollar is not far off breaking below last November’s 15-year low 84.81 yen.

The yen’s rapid appreciation is clearly beginning to cause some concern in Japan. Finance chief Yoshihiko Noda has warned that the monetary authorities in Tokyo are watching developments in the foreign exchange markets closely — that’s a hint that something may be done to stem the export-sapping appreciation in the yen.

The upward pressure on the yen was evident earlier with the news that China bought more Japanese government bonds (JGBs) than it sold in June for the sixth straight month.

“China’s sudden interest in JGBs in particular has been cautiously welcomed by Japan, but the likely damage such flows are doing is adding to the Ministry of Finance’s headaches,” said Geoffrey Yu, currency strategist at UBS.

The yen’s appreciation continued to harm stocks — the benchmark Nikkei 225 stock average ended 69.63 points, or 0.7 percent, lower at 9,572.49.

Stocks elsewhere in Asia mostly rose. Hong Kong’s Hang Seng advanced 0.6 percent and the Shanghai Composite Index rose 0.5 percent. South Korea’s Kospi gained 0.4 percent and Australia’s S&P/ASX 200 climbed 0.6 percent.

Benchmark crude for September delivery was up 55 cents at $81.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.31 Friday following the disappointing U.S. jobs data to settle at $80.70.