Global Equity Markets: Asia Mixed, Europe Higher as Investor Focus Shifts to Fed Events

The major European stock markets are trading higher at the mid-session and Asian shares finished mixed as investors await the release of the minutes from the U.S. Federal Reserve’s July monetary policy meeting. Additionally, there are reports that President Trump may be weighing measures to boost the U.S. economy.

Perhaps keeping a lid on the markets are lingering concerns over U.S.-China relations after Trump “reiterated on Tuesday that he was not prepared to make a trade deal with China amid the current standoff, with Chinese communications giant Huawei still firmly in Washington’s cross hairs,” according to CNBC.

At 12:29 GMT, the U.K.’s FTSE 100 Index is trading 7204.24, up 79.24 or 1.11%. Germany’s DAX is at 11796.94, up 145.76 or 1.25% and France’s CAC is at 5428.22, up 83.58 or 1.56%.

In local news, Italy Prime Minister Giuseppe Conte resigned on Tuesday, setting off negotiations between President Sergio Mattarella and party leaders in hope of a solution to the political crisis. Italy’s FTSE MIB Index shrugged off political uncertainty to jump 1% in the early trade.

European investors are also reacting to reports that the European Central Bank plans to cut interest rates and restart its quantitative easing at its September monetary policy meeting. Talk of more fiscal spending in Germany is also providing support.

In the U.K, the primary focus for FTSE traders was British Prime Minister Boris Johnson’s trip to Berlin to meet Chancellor Angela Merkel for talks over Brexit.

Today’s strength in the FTSE 100 Index could have been driven by positive expectations from the meeting with Merkel after the German Chancellor raised the possibility of practical solutions to the so-called backstop, or the insurance policy for the Irish border after Brexit, which London opposes.

Asia Pacific Shares Mixed

The major Asia Pacific stock indexes finished mixed on Wednesday, mostly in reaction to Tuesday’s weak performance on Wall Street. Some analysts said that investors were also spooked by problems ranging from Italian politics to Brexit to the U.S.-China trade dispute.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a morning note, “Global policy-makers do not appear to have plans that make the cut for resolving these (problems).”

Japan’s Nikkei 225 Index finished at 20618.57, down 58.65 or -0.28%. South Korea’s KOSPI Index settled at 1964.65, up 4.40 or +0.22% and Hong Kong’s Hang Seng Index closed at 26270.04, up 38.50 or +0.15%.

China’s Shanghai Index finished at 2880.33, up 0.33 or +0.01%. Australia’s S&P/ASX 200 settled at 6483.30, down 61.70 or -0.94%.

Fed Minutes in Focus

The Fed lowered its benchmark interest rate by a quarter point on July 31 as an insurance policy not against what’s wrong with the economy now, but what could go wrong in the future. It was also the first rate cut by the central bank since 2008.

In approving the rate cut, the Federal Open Market Committee cited “implications of global developments for the economic outlook as well as muted inflation pressures.” The FOMC called the current state of growth “moderate” and the labor market “strong,” but decided to loosen policy anyway.

The minutes are not expected to deviate too much from what the Fed did and what it said in its policy statement. We could actually see a limited reaction in the U.S. stock markets to the minutes as traders prepare for Friday’s speech at the central bankers’ symposium in Jackson Hole, Wyoming.

The markets have already fully-priced a quarter-point rate cut next month, and over 100 basis points of easing by the end of next year.

According to IG Markets analyst Kyle Rodda, “The minutes are going to set up a foundation of what to expect, and then Jackson Hole will provide clarity as to whether the Fed is finally coming to the party with potential monetary policy support.”