AFP

European and US stock markets advanced while the dollar retreated on Wednesday as attention switched to the Federal Reserve and the size of its upcoming interest rate hike.

Tuesday saw a steep drop on Wall Street as traders pored over more company earnings that pointed to fallout caused by decades-high inflation.

After markets closed both Google and Microsoft reported disappointing earnings, but shares in both companies shot higher as trading got under way.

“The takeaway for many apparently is that their results and/or guidance was better than feared,” said market analyst Patrick J. O’Hare at Briefing.com.

Shares in Google climbed 3.3 percent and Microsoft stock jumped 4.0 percent.

While traders will continue to sift over company results and economic data early in the US trading session, attention will later shift to the Fed’s rate decision.

Central banks are seeking to combat runaway prices by hiking interest rates, even though that risks pushing economies into recession.

The US central bank is widely tipped to announce a 0.75-percentage-point increase in interest rates, with traders particularly interested in any indications whether it will keep up this pace of rate hikes.

“This increase in the interest rate is already very much priced in,” noted Naeem Aslam, chief market analyst at Avatrade.

He added that should the Fed indicate a plan to raise rates by another 75 basis points at its next meeting, “that would be highly bullish for the dollar”. 

Focus was also on gas prices as Russian energy giant Gazprom slashed deliveries of the fuel to Europe via the Nord Stream pipeline.

EU states have accused Russia of squeezing supplies in retaliation for Western sanctions over Moscow’s war in Ukraine.

The price of natural gas reference, Dutch TTF, rose 3.5 percent to 210.25 euros per megawatt hour, building on Tuesday gains.

On the corporate front, Switzerland’s scandal-hit banking giant Credit Suisse appointed a new chief executive as higher litigation costs and financial market volatility pushed it deeper into the red.

Ulrich Koerner, head of asset management at the bank, takes the reins from Thomas Gottstein on Monday.

The bank has been hit by a series of scandals and crises including the implosions of financial services firms Greensill and Archegos last year.

After starting the day lower on the Swiss stock exchange, Credit Suisse shares rallied more than two percent.

– Key figures at around 1330 GMT –

London – FTSE 100: UP 0.6 percent at 7,349 points

Frankfurt – DAX: UP 0.2 percent at 13,128.54 

Paris – CAC 40: UP 0.4 percent at 6,235.00

EURO STOXX 50: UP 0.6 percent at 3,595.85

New York – Dow: UP 0.5 percent at 31,915.08

Tokyo – Nikkei 225: UP 0.2 percent at 27,715.75 (close)

Hong Kong – Hang Seng Index: DOWN 1.1 percent at 20,670.04 (close)

Shanghai – Composite: DOWN 0.1 percent at 3,275.76 (close)

Euro/dollar: UP at $1.0143 from $1.0126 Tuesday

Pound/dollar: UP at $1.2049 from $1.2030 

Euro/pound: UP at 84.20 pence from 84.09 pence

Dollar/yen: DOWN at 136.87 yen from 136.95 yen

Brent North Sea crude: UP 0.8 percent at $105.23 per barrel

West Texas Intermediate: UP 1.0 percent at $95.92 per barrel

burs-rl/lcm

The Federal Reserve opened on Wednesday the second day of its policy meeting where it is set to announce another big interest rate increase, the fourth this year, in its ongoing battle to tamp down price pressures squeezing American families.

US central bankers are hoping their aggressive stance will cool red-hot inflation that topped nine percent in June, the highest in more than 40 years, without derailing the world’s largest economy.

President Joe Biden is facing political costs for surging prices, which he blames mostly on the Russian invasion of Ukraine that has sent global food and energy prices soaring. 

Biden insists the US economy will avoid a recession, but even as his approval ratings have cratered, he has supported the Fed in its battle to quell inflation.

Fed Chair Jerome Powell and others have made it clear they are willing to risk a downturn and will keep raising interest rates until they see clear evidence inflation is moving back towards the two percent goal.

The policy-setting Federal Open Market Committee is widely expected to announce another three-quarter-point increase in the benchmark borrowing rate at the conclusion of its two-day policy meeting at 1800 GMT.

From zero at the start of the year, the Fed has raised the policy lending rate to a range of 1.5 to 1.75 percent, which has pushed mortgage rates higher and slowed housing sales for five straight months.

Economists say this has been the most aggressive Fed tightening cycle since the 1980s, when stagflation — a wage-price spiral and stagnant growth — crippled the US economy.

The challenge for policymakers is to quell inflation before it becomes dangerously entrenched without sending the world’s largest economy into a recession that would reverberate around the globe.

While prices have continued to rise, with home prices hitting a new record, there are signs the pace of the increases has begun to slow, which may allow the central bank to ease up on its rate hikes.

Global oil prices are trending down, with the US benchmark WTI falling to below $95 a barrel from its peak of more than $123 in March, and gasoline prices at the pump have fallen 69 cents from the record of just over $5 a gallon in mid-June.

– Recession risk –

Meanwhile, the job market has remained strong, and surveys show inflation expectations in the months ahead have started to trend lower.

But consumer demand has not fallen dramatically, and data Wednesday showed new orders for big-ticket manufactured items continues to rise, even when discounting the massive increase in military aircraft.

Policymakers want to engineer a “soft landing,” taming inflation without causing a downturn, but economists warn they face an increasingly narrow path to success and it would be easy to overshoot by being too aggressive.

“The Fed is now stuck between a rock and a hard place, with no easy way out without the economy feeling pain,” KPMG chief economist Diane Swonk said in an analysis, noting that “Powell has started to underscore that reality by admitting a recession could occur.”

In fact, it is rare that the central bank moves so decidedly without causing a downturn, and there are signs of concern among Fed policymakers.

“Brace yourself,” Swonk said on Twitter, likening the surge in inflation to a cancer that will spread if left untreated. She said the policy rate will have to rise to a 3.75-4.0 percent range, which would mean another 150 basis points of increase in coming months.

Kansas City Fed President Esther George dissented at the June meeting, warning that going too fast could be “unsettling” and raise recession fears.

GDP in the first quarter contracted 1.6 percent, and the first reading on the April-June period is due out Thursday. Though the consensus forecast calls for modest growth, many economists expect a downturn. 

Two quarters of negative growth are generally considered a recession, although that is not the official criteria.

But Fed Governor Christopher Waller said he was prepared to move even faster, with an unheard-of full point increase if inflation continues to accelerate.

An eye-popping surge in new orders for US military aircraft in June drove a surprise increase in demand for big-ticket manufactured goods, according to government data released Wednesday.

New orders for defense aircraft and parts surged 80.6 percent compared to May, pushing the total for all durable goods up 1.9 percent in the month to $272.6 billion, the Commerce Department reported.

Economists were projecting a 0.5 percent drop in the key data point that feeds into quarterly economic growth calculations. 

Orders have increased in eight of the past nine months, and even excluding the volatile transportation segment, new orders still gained 0.3 percent.

The increase points to solid demand even as US inflation rages at a 40-year high, but economists warn uncertainty caused by the war in Ukraine may cool business investment plans, which could tamp down orders in coming months.

The US Federal Reserve is on an aggressive campaign to raise interest rates and to cool the economy and douse inflation fires — with another hike expected later Wednesday. 

Even as borrowing costs rise, firms and households still have plenty of cash and pent up demand, in part due to supply snarls throughout the recovery from the pandemic downturn.

Gregory Daco, chief economist at EY Parthenon, called it “very encouraging news from the business side,” saying “orders were still growing strongly” for goods outside the defense aircraft sector.

While civilian aircraft declined in the month, orders for vehicles and parts gained 1.5 percent.

Ian Shepherson of Pantheon Macroeconomics said he expects the volatile numbers to slow in coming months.

“The surge in the headline does not change the bigger picture of a slowdown in spending, but it has not reached recession-type proportions,” he said in an analysis.

Turkey on Wednesday formally opened a joint coordination centre for Ukrainian grain exports under a UN-backed deal aimed at resuming shipments for the first time since Russia’s February invasion of its neighbour.

Turkish Defence Minister Hulusi Akar unveiled the centre at a ceremony held five days after Moscow and Kyiv put their names on a deal designed to deliver wheat and other grain across the Black Sea from three designated Ukrainian ports.

But a Russian missile strike Saturday on Ukraine’s Black Sea port of Odessa threatened to immediately unravel the first deal signed up to by the warring parties since the war started.

“The staff working at this centre are aware that the eyes of the world are upon them,” Akar told reporters in his opening address.

“It is our hope that the centre will make the greatest contribution possible to humanitarian needs and peace.”

The centre will be staffed by civilian and military officials from the two warring parties and delegates from Turkey and the UN.

Their primary assignment involves monitoring the safe passage of Ukrainian grain ships along established routes and overseeing their inspection for banned weapons on the way into and out of the Black Sea.

Akar said ships will be inspected by “joint teams” and monitored by satellite from the centre at an Istanbul military academy.

Ukraine announced the resumption of operations at the three Black Sea ports designated by the deal at the same time as Akar formally unveiled the Istanbul centre.

Officials in Kyiv said they hope to send the first grain ships to world markets later this week.

– ‘We were worried’ –

The blockage of deliveries from two of the world’s biggest grain exporters has contributed to a spike in prices that has made food imports prohibitively expensive for some of the world’s poorest countries.

UN estimates say nearly 50 million people began to face “acute hunger” around the world as a direct consequence of the war.

NATO member Turkey has taken pride in being able to maintain open diplomatic relations with both Moscow and Kyiv throughout the conflict.

The deal came together just days after Turkish President Recep Tayyip Erdogan discussed Ukraine with his Russian counterpart Vladimir Putin in Tehran.

Erdogan is due to meet Putin again in the Russian leader’s Black Sea retreat in Sochi on August 5.

But Ankara has also issued measured criticism of Russia’s strike on Odessa last Saturday.

“The Odessa attack worried everyone. We were worried too,” Foreign Minister Mevlut Cavusoglu said in an online interview on Wednesday.

“At the end, this was not an attack that could have blocked the harbour’s functioning. But this kind of attack should not be repeated. We hope that the agreement might function without any issues.”