Markets stabilise ahead of Fed minutes

Traders are coming to terms with the fact interest rates will need to go higher to bring inflation down. ©AFP

London (AFP) - Equity markets stabilised ahead of the publication of the minutes from the last US Federal Reserve policy meeting, with investors hungry for clues on interest rates.

Wall Street stocks were edging higher in late morning trading, while European stocks finished mixed with Frankfurt flat, Paris dipping 0.1 percent and London dropping 0.6 percent.

Stocks sank on Tuesday and in Asian trading on Wednesday as strong economic data fanned expectations that US borrowing costs will continue to rise and stay high for some time.

"The higher (US) interest rates stay, the less relative appeal stocks have -- particularly as we are about to hit some serious earnings headwinds," Neil Wilson, analyst at trading firm Finalto, told AFP.

The minutes will be closely scrutinised "in the wake of data showing a more resilient (US) labour market and stickier inflation than many had expected", he added.

Briefing.com analyst Patrick O'Hare noted that the meeting was held before the latest inflation and employment data, which showed inflation only slowly coming down and the labour market to be robust.

"Accordingly, the market should be more sensitive to views in the minutes that emphasize a need to take rates higher, and leave them at higher levels for longer, than it is to views with a softer-sounding approach," said O'Hare.

The recent data has essentially put to bed any talk of the Fed pausing its rate hikes and even cutting rates by the end of the year.

"A tight labour market and resilient consumer demand could goad the Federal Reserve to maintain its rate hiking campaign into the summertime," said Jeffrey Roach, chief economist for LPL Financial.

"Investors should expect volatility until markets and central bankers come to agreement on the expected path for interest rates."

Adding to the dark mood on Tuesday were downbeat 2023 projections from retail titans Walmart and Home Depot, which noted the impact of inflation and higher interest rates on consumer spending.

The dollar rose against the euro and pound but dipped against the yen ahead of the release of release of the Fed minutes.

Oil prices fell on renewed recession risks.

"Crude oil prices look set to fall for the second day in a row over concerns that sharply higher rates could prompt a slowdown in demand," said Michael Hewson at CMC Markets.