Bonds rally, stocks struggle as traders await Fed move

Bloomberg

Bonds rallied globally while stocks struggled for traction as investors marked time until the Federal Reserve was expected to conclude its policy meeting on Wednesday, with officials expected to cut interest rates again and possibly move further to calm overnight-loan markets. The dollar rose.
Government bonds climbed from London to Tokyo before the expected easing in the world’s biggest debt market. The surge came just hours after the Fed had to inject cash for the first time in a decade to soothe money markets — an intervention it promised to repeat on Wednesday. Treasury 10-year yields slipped for a third day, to around 1.77 percent.
Contracts on the S&P 500 Index nudged lower as Fedex shares tumbled in pre-market trading after the company slashed its profit outlook, blaming a global economy weakened by trade tensions. The Stocks Europe 600 index swung from a loss to a modest gain, led by utilities and oil companies. Equities were mixed in Asia.
Oil futures edged lower even as Saudi Arabia signalled it’s restoring production more quickly that first forecast after the weekend drone attack.
While Fed officials are widely expected to cut their benchmark rate by a quarter-point, some investors including DoubleLine Capital’s Jeffrey Gundlach are saying the central bank may also boost its balance sheet to stabilise the volatile repo market. Traders also are keeping an eye on whether a potential oil shortage weighs on the global economy, and on preparations by the US and China for top officials to meet on trade in October.
“Markets want to hear that the Fed is there if needed, the Fed is a backstop,” Alec Young, managing director for global markets research at FTSE Russell, told Bloomberg TV.
“There is concern, obviously, from trade, manufacturing, and we’re seeing that bleed into some job-growth weakness, and these are all the big questions that Chairman Powell is going to be getting.”
Elsewhere, oil ticked lower after tumbling. Saudi Aramco said it had revived 41 percent of capacity at a key crude-processing complex days after a devastating aerial attack that wrecked vital equipment and rocked global energy markets.
The pound fell as the UK Supreme Court begins a second day of hearings on the legality of the prime minister’s Brexit strategy.
The Federal Reserve is widely expected to lower US interest rates in response to slowing global economic growth and muted inflation. Chairman Jerome Powell was expected to hold a post-decision press conference on Wednesday.
The Bank of Japan monetary policy decision is on Thursday, followed by a briefing from Governor Haruhiko Kuroda. Bank Indonesia and Bank of England also decide policy on Thursday.
Futures on the S&P 500 Index dipped 0.2 percent in New York. The Stoxx Europe 600 Index climbed 0.1 percent. The UK’s FTSE 100 Index gained 0.2 percent. The MSCI Emerging Market Index advanced 0.3 percent.
The Bloomberg Dollar Spot Index increased 0.2 percent. The British pound fell 0.4 percent to $1.2447. The euro declined 0.2 percent to $1.1046. The Japanese yen decreased 0.1 percent to 108.19 per dollar.
The yield on 10-year Treasuries fell three basis points to 1.77 percent.
The yield on two-year Treasuries dipped two basis points to 1.70 percent. Britain’s 10-year yield sank five basis points to 0.651 percent. Germany’s 10-year yield declined three basis points to -0.50 percent.
West Texas Intermediate crude dipped 0.7 percent to $58.91 a barrel. The Bloomberg Commodity Index decreased 0.3 percent.