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While you were sleeping: Equities fall with commodities

Wednesday 16th March 2016

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Equites moved lower with commodity prices, including oil and gold, as the US Federal Open Market Committee began its latest two-day meeting. 

While the Federal Reserve is not expected to announce a rate hike on Wednesday, Chair Janet Yellen is expected to flag that there are rate increases ahead.

“The most prominent risk in January—the tightening in financial conditions at the start of the year—has receded,” wrote Goldman Sachs economists Zach Pandl and Jan Hatzius, Reuters reported. “As a result, Chair Yellen will likely indicate that the committee remains on track to raise rates again next quarter.”

Even so, inflation remains subdued. A Labor Department report showed US wholesale prices fell 0.2 percent in February, after a 0.1 percent increase the prior month. In the 12 months through February, the producer price index was steady.

A separate report showed that US retail sales fell 0.1 percent last month, following a 0.4 percent decline in January that was previously reported as a 0.2 percent increase.

“The economy's engines are not going into reverse ... but at the moment, it is hard to see GDP with a 2 percent handle,” Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters. “Based on today's lacklustre sales report, policymakers will be in no hurry to raise interest rates.”

Wall Street moved lower. In 1.50pm New York trading, the Dow Jones Industrial Average fell 0.1 percent, while the Nasdaq Composite Index declined 0.5 percent. In 1.36pm trading, the Standard & Poor’s 500 Index slid 0.3 percent.

The Dow fell as declines in shares of Pfizer and those of Chevon, last down 1.5 percent and 1.2 percent respectively, outweighed gains in shares of Apple and those of Wal-Mart Stores, last up 2.1 percent and 1.1 percent respectively.

In Europe, the Stoxx 600 Index ended the session with a 1.1 percent retreat from the previous close, led by a decline in commodity and energy stocks. The UK’s FTSE 100 Index slid 0.6 percent, as did Germany’s DAX Index, while France’s CAC 40 Index dropped 0.8 percent.

Meanwhile, Bank of Japan policy makers kept monetary policy unchanged after a two-day review, maintaining negative rates and an asset purchase program, as most economists had expected, but seemed more pessimistic about the outlook.

"We're clearly seeing the effect of the [negative rate] policy on interest rates,” Bank of Japan Governor Haruhiko Kuroda told a news conference, Reuters reported. “The effect will spread to the economy and prices from now on.”

Japan’s Nikkei 225 Index closed 0.7 percent lower in Tokyo.

"Overall, the impression we get from the BOJ's latest policy statement is that the central bank is already de-emphasising negative interest rates as a policy tool, in response to its poor reception by markets and the public," HSBC said in a research note, according to Reuters.

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