Economy

Caution the watchword as Fed ponders rate pace

Caution the watchword as Fed ponders rate pace

Australian shares ended higher in thin trading volumes ahead of the Federal Reserve decision on interest rates and guidance.

The Facebook losses have filtered through other tech shares in the United States and overseas, with shares in Twitter TWTR.N falling more than 10 percent on Tuesday .SPX .

But the yield on two-year notes hit a 9 1/2-year high of 2.32 per cent on Monday as the Fed appears set to bump up its policy interest rates to 1.50-1.75 per cent from the current 1.25-1.50 per cent.

"The good news is we must recall why the Fed is tightening policy".

In Asian markets, Japan's Nikkei Stock Average fell 0.47 percent, Hong Kong's Hang Seng Index dropped 0.43 percent, China's Shanghai Composite Index slipped 0.29 percent and India's BSE Sensex gained 0.42 percent. USA shares were set to open little changed, with Dow futures flat and S&P 500 futures up 0.1 percent.

Wall Street was on track for a lower opening on Wednesday as traders moved cautiously ahead of an expected Federal Reserve interest rate hike and continuing fallout from Facebook Inc's data privacy breach.

Investors will watch for new quarterly forecasts from Fed officials due at 2 p.m. (1800 GMT) on Wednesday, followed by a press conference from Jerome Powell, his first as Fed chief. It would be the first since Powell succeeded Janet Yellen as Fed chair in February. Any nod to four hikes would normally be considered as bullish for the U.S. dollar, yet the currency has shown scant overall correlation to interest rates in recent months. Analysts at JPMorgan see a risk the Fed might not only add one more rate rise for this year but for 2019 as well. Milligan said that would continue unless trade skirmishes started impacting the world economy or US growth accelerated further.

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The dollar made ground on the euro, though, as bond traders saw the gap between 10-year German and US government yields, referred to as the "transatlantic spread", ratchet out to its widest since December 2016.

Fears of a possible trade war have simmered since U.S. President Donald Trump announced plans to introduce tariffs on steel and aluminium imports.

Investors are anxious his actions could escalate into a full-blown trade war if China and other countries retaliate with similar or harsher measures, threatening global growth.

To add to these concerns, a meeting of finance ministers and central banks of the world's 20 biggest economies this week failed to diffuse the threat.

Elsewhere, the three-month dollar London interbank funding rate continued its advance, rising to 2.27 percent Wednesday, the highest since November 2008. The yen, typically bought during times of stress, rose to the day's high versus the dollar around 106.26 JPY=. The Canadian dollar CAD=D4 held at $1.3029 from Monday's low of $1.3124, a level not seen since mid-2017.

Among major commodities, oil prices were lifted by tensions in the Middle East and healthy demand.

Facebook shares gained 1.5 percent and provided some relief to the technology sector after two bruising days during which the social media company lost some $50 billion in market value over reports of data misuse that raised broader questions about consumer privacy and the need for tougher regulation.

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