Shares dip, dollar steady before Fed - Reuters

1 of 3. An investor smokes in front of an electronic board showing stock information at a brokerage house in Shanghai June 25, 2013.

Credit: Reuters/Aly Song

By Richard Hubbard

LONDON | Wed Jul 31, 2013 3:52am EDT

LONDON (Reuters) - World shares and oil dipped and the dollar held firm on Wednesday in muted trade as investors steered clear of big bets ahead of a Federal Reserve meeting and data offering a window on the health of the U.S. economy.

Global growth in the months ahead is pegged to the rate of recovery in the U.S. economy and investors are worried an early withdrawal of support from the U.S. central bank by tapering back in its bond purchases could threaten the outlook.

"Traders globally seem to be in a wait-and-see mode before the outcome of the Fed's meeting on the timing of quantitative easing tapering," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management in Tokyo.

A fall in retail sales in Europe's economic powerhouse Germany added to investor concerns there, leading the broad FTSEurofirst 300 index .FTEU3 down 0.3 percent and the euro zone's blue-chip Euro STOXX 50 index .STOXX50E down 0.4 percent in early trade.

Ahead of the Fed policy statement due at1400 ET (1800 GMT), the dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, had inched up 0.1 percent to 81.877.

The index had hit a five-week trough earlier this week as investors bet the Fed would reassure markets that interest rates would remain low for a long time even if it started scaling back stimulus this year.

Meetings of other major developed world central banks in coming days, including the European Central Bank on Thursday, and the key U.S. payrolls report on Friday are also prompting investors to stay on the sidelines.

Following a weak session for equities in Asia, the MSCI world equity index .MIWD00000PUS was down 0.25 percent. Chinese stocks .CSI300 rose 0.5 percent after the government pledged to keep growth stable in the second half of the year.

Brent crude prices eased 0.2 percent to around $106.70 a barrel, extending a 0.6 percent decline on Tuesday but remain up 4.5 percent this month and on course for their best monthly gain since August last year.

Gold gained 0.5 percent. It is up 8.2 percent so far this month, on track to snap a three-month losing run and mark its biggest monthly rise since January 2012, but it is down 20 percent since the beginning of 2013.

German bonds were lower though traders said this was largely due to investors making way for an upcoming sale of new 30-year government bonds. The selling lifted the current German 30-year yield by 2 basis points to 2.5 percent.

(Editing by John Stonestreet)

View the original article here

US economy likely lost step in second quarter; expected to regain pace - Reuters

The U.S. flag waves in the breeze above one of the entrances to the New York Stock Exchange, November 19, 2012.

Credit: Reuters/Chip East

By Lucia Mutikani

WASHINGTON | Wed Jul 31, 2013 4:29am EDT

WASHINGTON (Reuters) - U.S. economic growth likely slowed sharply in the second quarter, but it is poised to regain momentum as the burden brought on by belt-tightening in Washington eases.

Gross domestic product probably grew at a 1.0 percent annual rate, a step back from the first-quarter's 1.8 percent pace, according to a Reuters survey of economists. Some said growth could be even weaker, with forecasts ranging as low as 0.4 percent.

Tighter fiscal policy, a slow pace of inventory accumulation and sluggish global demand, which has dampened exports, are seen as having hobbled the economy in the April-June period.

"The economy only had a couple of legs to stand on, consumers and housing, but conditions are falling into place for a stronger second half of the year," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

The Commerce Department will release the second-quarter GDP report at 8:30 a.m. EDT on Wednesday.

If economists' forecasts are proved right, it would mark a third straight quarter of GDP growth below 2 percent, a pace that normally would be too soft to bring down unemployment.

But given the backward-looking nature of the GDP report, it is not likely to have any impact on monetary policy.

Federal Reserve officials, wrestling with a decision on the future of their $85 billion per month bond-buying program, will probably nod to the second quarter's weakness when they wind-up a two-day meeting on Wednesday. But they are also expected to chalk up much of the weakness to temporary factors, such as the drag from fiscal policy and a smaller build-up of business inventories.

Fed Chairman Ben Bernanke said last month that the central bank was likely to start curtailing the bond purchases later this year and would probably bring them to a complete halt by the middle of 2014, if the economy progressed as expected.

"Even with a relatively soft GDP number, the Fed still appears confident in their outlook and the prospects of the labor market going forward," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "It looks like they are positioned to make their announcement, come late this year."

SILVER LINING IN REVISIONS?

While U.S. financial markets have already priced in a weak second-quarter GDP reading, comprehensive revisions to the data might present a silver lining for the economy.

The government has implemented some changes in how it calculates GDP. For example, research and development spending will now be treated as investment, and defined benefit pension plans will be measured on an accrual basis, rather than as cash.

Economists say these changes will not only reveal a bigger economy and a higher rate of saving, but they could lead to an upward revision of 2012 growth as well.

"There's a distinct possibility that real GDP growth over the past four quarters will be upgraded," said Maury Harris, chief economist at UBS in New York.

"In addition, history suggests that the originally published personal saving rate will be revised up, which would calm some concerns about under-saving consumers holding back their upcoming expenditures."

Economists said the revisions would probably narrow the gap between a relatively strong pace of job gains and weak growth, a misalignment they said the Fed was monitoring.

Higher taxes, as Washington tries to shrink the government's budget deficit, likely constrained consumer spending in the second quarter, keeping the economy on an anemic growth pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is expected to have slowed to a less than 2 percent pace after rising at a 2.6 percent rate in the first quarter.

That could bring the contribution from consumer spending far below the 1.8 percentage points it added in the first quarter.

With domestic demand tepid, businesses likely tried to keep their inventories from bulging. Inventory accumulation is expected to have made only a modest contribution to growth.

Other details of the report are expected to show exports weighed on the economy as demand weakened in Europe and China. Trade is expected to have subtracted more than half-a-percentage point from GDP growth in the second quarter.

Good news is expected from the housing sector, with double-digit growth forecast for spending on residential construction. Housing, which triggered the 2007-09 recession, is growing strongly, helping to keep the economic recovery anchored.

Business spending on equipment and software likely continued a steady march upward, with investment in nonresidential structures rebounding from a decline in the first quarter.

Government spending, however, is expected to have contracted for a third straight quarter, largely because of the across-the-board spending cuts in Washington.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)

View the original article here

Euro surveys lift shares after China disappoints - Reuters

1 of 9. Traders work at their desks in front of the DAX board at the Frankfurt stock exchange June 20, 2013.

Credit: Reuters/Remote/Lizza David

By Richard Hubbard

LONDON | Wed Jul 24, 2013 5:07am EDT

LONDON (Reuters) - Evidence of an economic revival in the euro zone and strong sales from technology bellwether Apple lifted world shares and the euro on Wednesday, offsetting earlier disappointing factory data from China.

Factories in the currency bloc increased output for the first time in well over a year, July's PMI index showed, after activity in Germany and France hit multi-month highs.

The data drove the euro to a one-month high against the dollar, helped extend a rally in European shares .FTEU3 and sent German bond futures down 0.3 percent.

MSCI's world equity index .MIWD00000PUS edged 0.1 percent higher to be up over 9.0 percent since its late-June lows.

Chief economist Chris Williamson of data compiler Markit said the German reading, which came in above the 50 mark that separates growth from contraction, indicated Europe's largest economy could grow by up to 0.4 percent in the third quarter.

"It's a very encouraging picture, it's pretty broad-based. Germany is leading the pack followed by France but even the (euro zone) periphery ... is seeing a return to growth in manufacturing," s Williamson said.

An earlier equivalent reading from China suggested the world's second largest economy was steadily losing momentum, knocking Asian stock markets and contributing to a 55 cent per barrel drop in Brent oil prices to below $108. Brent traded at $108.02 at 0844 GMT.

"This print could reignite fears of a Chinese hard landing," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. "We expect economic growth to continue moderating towards 7 percent."

PILLAR OF SUPPORT

China, which accounts for 40 percent of global copper demand and is a major importer of other raw materials, has been the pillar of support for commodity prices in recent years.

The Australian dollar, heavily exposed to Chinese demand, slipped 0.4 percent to $0.9254, down from a near one-month high of $0.9320.

The U.S. dollar rose 0.4 percent to 99.84 yen, moving away from a one-week low of 99.13 yen touched on Tuesday.

The dollar index .DXY extended gains, adding 0.3 percent to 82.153 after skidding to a one-month low of 81.926 on Tuesday.

Worries over a slowdown in China were fanned further when Japan reported exports to its giant near-neighbor had dropped to 4.8 percent in June from 8.3 percent in May.

Apple earlier said revenues from China dived 43 percent from the previous quarter, but that did not prevent it from posting better-than-expected sales and profits after the U.S. market closed on Tuesday, helped by 51 percent sales growth for its iconic mobile phone.

The results lifted company's shares by 5 percent in after-hours trade, saw technology stocks in Europe gain .SX8P and helped set the stage for a firmer start on Wall Street when trading resumes later.

(Editing by Catherine Evans, John Stonestreet)

View the original article here