LONDON May 24 World stocks inched lower on
Wednesday after China's sovereign credit rating was downgraded
and as investors eyed a pause in Wall Street's four-day winning
streak, the longest in over three months.
The dollar and bond yields were steady, with investors
growing gradually more confident that the Federal Reserve will
raise U.S. interest rates next month, while oil rose for a sixth
straight day in anticipation of an OPEC-led output cut on
Wednesday that may be extended to the first quarter of 2018.
The biggest loser among major currencies was the Australian
dollar, which is often regarded as a proxy for China due to the
country's status as a major trading partner. It posted its
biggest fall in two weeks.
But markets were mostly quiet on Wednesday, lacking impetus
from fresh economic or corporate drivers. Investors shrugged off
the rise in Britain's terror threat level to maximum in the wake
of Monday's attack in Manchester, and the slide back in market
volatility helped put a floor under European and U.S. stocks.
"There's been a cautious start in Europe this morning with
stocks in the red following a downgrade in the Chinese credit
rating from Moody's," said David Cheetham, chief market analyst
at brokerage XTB.
"After being very much at the front and centre of global
risk sentiment at the beginning of last year, the Chinese
slowdown story has been almost forgotten, with politics
throughout Europe and the U.S. taking the limelight."
Europe's index of leading 300 shares was little
changed in early trading on Wednesday at 1,541 points, supported
by a 0.3 percent rise in financials but weighed down by
a 0.5 percent fall in basic resources stocks.
Germany's DAX was down 0.1 percent, France's CAC 40
was flat and Britain's FTSE 100 was up 0.1
MSCI's broadest index of Asia-Pacific shares outside Japan
slipped 0.1 percent, while Japan's Nikkei stock
index ended 0.7 percent higher. MSCI's index of global
shares fell 0.1 percent.
U.S. stock futures pointed to a flat open on Wall Street
. On Tuesday the S&P 500 and Dow Jones Industrials
edged higher for the fourth day in a row, their longest
winning streak since February.
In its first downgrade of the country in nearly 30 years,
Moody's cut China's rating by one notch to A1 from Aa3, saying
it expects the economy's financial strength to erode in coming
years as growth slows and debt continues to rise.
China's massive debt has been at the centre of concerns
among economists and Beijing is walking a fine line as it tries
to contain financial risks.
Moody's has no specific timetable for revisiting China's
rating but will monitor conditions on a regular basis, Marie
Diron, associate managing director of Moody's Sovereign Risk
Group, told Reuters. She said the risks to China's financial
system were "broadly balanced."
The Shanghai stock index and blue-chip CSI300 index
both shed around 0.5 percent on the news but had
recouped almost all these losses by the close of trade.
The Australian dollar lost nearly half a percent on the news
but in early European trade had recovered to trade just 0.2
percent lower at $0.7460.
The U.S. dollar pulled away from recent 6-1/2 month lows as
investors pored over President Donald Trump's first full budget
plan. Containing no major surprises, the plan called for an
increase in military and infrastructure spending but also cuts
to social spending in areas such as healthcare and food
U.S. Treasury Secretary Steven Mnuchin said he hoped to get
tax reform passed this year, though this would not happen by
Investors also were awaiting the minutes of the U.S. Federal
Reserve's latest policy meeting, scheduled to be released at
1800 GMT on Wednesday. Fed funds futures show that traders now
see a 75 percent chance that the U.S. central bank would will
raise interest rates at its June meeting.
"Our U.S. economists expect the minutes to come down on the
hawkish side and continue to expect the Fed to hike in June and
September and announce balance sheet reduction in December,"
Citi analysts wrote on Wednesday.
The dollar index, which tracks the greenback against a
basket of six major rivals, was flat on the day at 97.33.
The greenback was up 0.1 percent against the yen at 111.90
and the euro was steady at $1.1184.
Oil prices rose again on strengthening expectations of an
extension to OPEC-led supply cuts. U.S. crude was up 0.6
percent on the day at $51.79 per barrel and Brent crude futures
were up 0.7 percent at $54.52.
Spot gold was flat at $1,250 an ounce.
(Editing by Catherine Evans)