Global shares fall in muted trading ahead of Fed meeting

By YURI KAGEYAMA
AP Business Writer

TOKYO (AP) — Global shares declined in muted trading on Tuesday as investors awaited decisions on interest rates and updates on corporate earnings reports from around the world.

The Federal Reserve’s next decision on interest rates, expected Wednesday, will provide insight into whether the U.S. central bank will further ease its aggressive stance on fighting inflation.

France’s CAC 40 was little changed, inching down less than 0.1% in early trading to 7,081.34, while Germany’s DAX slipped nearly 0.3% to 15,087.53. Britain’s FTSE 100 was down 0.3% at 7,760.82. The future for the Dow industrials fell 0.3% while the contract for the S&P 500 lost 0.4%.

In a positive sign, the IMF said the global outlook has grown slightly brighter as China eases its zero-COVID policies and economies show surprising resilience in the face of high inflation, elevated interest rates and Russia’s ongoing war against Ukraine.

Meanwhile, a survey released Tuesday showed Chinese factory activity rebounded in January, adding to signs the world’s second-largest economy might be recovering from a painful slump.

Japan’s benchmark Nikkei 225 fell 0.4% to finish at 27,327.11. Australia’s S&P/ASX 200 edged down nearly 0.1% to 7,476.70. South Korea’s Kospi declined 1.0% to 2,425.08. Hong Kong’s Hang Seng lost 1.0% to 21,839.64, while the Shanghai Composite shed 0.4% to 3,255.67.

“China’s rapid reopening has boosted its domestic growth outlook, Europe’s mild weather has sharply reduced its recession risk, and a string of better inflation news has increased hopes that the Fed may be able to engineer a ‘soft landing’ in the U.S.,” said Stephen Innes, managing partner at SPI Asset Management.

“Despite these shifts, U.S. recession risk remains a major worry and may be the most significant risk to the global cyclical picture,” he said.

Separately, Japan’s index of industrial production declined slightly in December 2022, falling by 0.1% month on month, following a 0.2% increase the previous month.

“Weak external demand and semiconductor shortages remain headwinds for production over the near term,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

Markets have been veering recently on worries that the economy and corporate profits may be set for a steep drop-off, along with competing hopes that cooling inflation will get the Federal Reserve to take it easier on interest rates.

Most investors expect the Fed to announce a rate hike of just 0.25 percentage points. That would be the smallest increase since March, following a spate of hikes of 0.75 points and then a 0.50-point increase, and it would mean less pressure on the economy.

Higher rates combat inflation by intentionally slowing the economy, while also dragging down on prices for investments. Inflation has been cooling since the summer amid last year’s blizzard of rate hikes, but the economy has also been showing signs of concern.

Central banks for Europe and for the United Kingdom are also set to announce their latest increases for rates this week.

Beyond interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made in the last three months of 2022. Among them are tech heavyweights Apple, Amazon, and Google’s parent company.

Later this week, the U.S. government will also give its latest monthly update on the job market. Hiring has remained resilient across the broad economy, even as housing and other corners weaken sharply under the weight of all the Fed’s rate hikes from last year.

Economists expect Friday’s report to show that U.S. employers added 187,500 more jobs than they cut during January. That would be a slowdown from December’s hiring of 223,000.

In energy trading, benchmark U.S. crude dropped $1.00 to $76.90 per barrel in electronic trading on the New York Mercantile Exchange. It gave up $1.78 on Monday to $77.90 per barrel.

Brent crude, the international standard, dropped $1.02 to $83.48 per barrel.

In currency trading, the U.S. dollar fell to 130.15 Japanese yen from 130.43 yen. The euro cost $1.0816, down from $1.0852.

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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama