Traders see 20% chance of U.S. rate increase this week Pimco, BlackRock, J.P. Morgan Asset call for December Fed hike Share on Facebook Share on Twitter Stocks rose around the world, buoyed by gains in commodities prices, and the dollar weakened on speculation the Federal Reserve will hold interest rates steady this week. Global equities were set for the biggest advance in two months, while the greenback dropped from a seven-week high as traders saw an only 20 percent chance of a Fed rate hike this week. Crude rebounded from a one-month low after fighting disrupted supplies from Libya, lifting currencies of oil-exporting nations. The overnight interbank yuan rate surged the most since January in Hong Kong amid speculation China’s central bank is intervening to fend off bearish bets on the currency. Global market volatility has picked up over the past two weeks on concern policy makers are contemplating the limits of the unprecedented measures they’ve used to support their economies. Since boosting interest rates last December, Fed policy makers have refrained from a subsequent hike, with concern over global growth staying their hand. The Bank of Japan, which also meets this week, and the European Central Bank are studying the effectiveness of their own stimulus programs. “There’s a chance for volatility to remain, simply because I don’t think the Fed is going to clear up any uncertainty about the path of interest rates,� said Bruce Bittles, the chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $110 billion. “The Fed will not raise interest rates this week, but they will be pretty aggressive in saying a rate increase is coming. They need to do that because there are only so many times they can cry wolf.� A report on August housing starts tomorrow is the last bit of significant data to offer an indication on the strength of U.S. growth before the Fed announces its rate decision on Wednesday. Reports last week offered contrasting evidence of the state of the economy: the cost of living rose more in August than projected, while consumer confidence this month held at the lowest level since April. A gauge tracking the degree to which data miss or exceed economists’ estimates is near a two-month low. Meanwhile, election polls showing the presidential race is getting tighter are seen clouding the outlook for U.S. policy beyond November’s vote. Citigroup Inc. reduced its forecast of the likelihood of a Hillary Clinton victory to 60 percent from 65 percent, with a 40 percent probability of a victory by Donald Trump, analysts led by Tina Fordham wrote in client note. “Many still believe a December rate hike is on the cards, but some might be cautious because policy makers have told the market they were ready to raise rates this year but that has not happened,� said Mizuho’s Jones. “I see politics in the U.S. as a risk. It may deter the Fed from delivering a rate increase.� The MSCI All-Country World Index rose 0.9 percent at 10:27 a.m. in New York as U.S. crude climbed 2.3 percent to $44.03 a barrel. A gauge of the dollar against major peers declined 0.4 percent. Stocks The S&P 500 Index rose 0.7 percent to 2,153.53. Banks rebounded from the worst week in two months to bolster the advance, with Citigroup Inc. and JPMorgan Chase & Co. rising at least 1.1 percent. General Motors Co. was on pace for its best gain in five months after an analyst upgraded the shares. 3M Co added 1.5 percent. European stocks recovered some lost ground after their worst weekly slides in three months as a rebound in commodities sent miners from BHP Billiton Ltd. to Anglo American Plc up more than 3 percent, while energy companies such as BP Plc and Total SA gained at least 1.5 percent. Automakers were set for their biggest jumps in almost six weeks after their worst weekly slides since April. Emerging-market shares advanced the most two weeks as optimism the Fed will delay raising interest rates revived demand for higher-yielding assets. Hungary’s stocks gained as the country won investment-grade status at S&P Global Ratings. Taiwan’s benchmark index jumped the most in a year on speculation demand for Apple Inc.’s latest iPhone model will boost earnings for the island’s suppliers. Currencies The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, was set for the biggest drop in two weeks. The greenback weakened 0.2 percent to $1.1178 per euro and fell 0.7 percent to 101.61 yen. Goldman Sachs Asset Management said it expects the U.S. central bank to forgo an interest-rate increase this week, in line with the median forecast in a Bloomberg survey, even after a report Sept. 16 showing U.S. inflation rising faster than economists forecast drove the greenback higher. “Over the medium to longer term, we continue to expect U.S. dollar weakness versus G-10 and emerging-market currencies,� the asset-management firm said in a note to clients dated Sept. 16. “We expect no move in September but anticipate the Fed will signal that a rate hike is still possible this year, while the pace of tightening will be even more shallow and gradual than previous Fed projections.� The offshore yuan funding cost, known as Hibor, jumped 15.7 percentage points in its second-biggest gain on record to 23.7 percent, according to a fixing from the Treasury Markets Association. That’s the highest since January, when the People’s Bank of China was also suspected to be mopping up liquidity to boost the exchange rate. Funding conditions tightened on Monday even after the Hong Kong Monetary Authority said Thursday banks in the city had tapped its liquidity facilities. South Africa’s rand and Russia’s ruble led gains in currencies of commodity exporters. Bonds The benchmark Treasury 10-year note yield was little changed at 1.69 percent, based on data compiled by Bloomberg. Investors have sent bonds down around the world on concern policy makers are contemplating the limits of the unprecedented measures they’ve used to support their economies. The selloff resembles the so-called taper tantrum that engulfed markets in 2013 as investors fretted the Fed was planning to reduce its asset purchases, according to Joachim Fels, the global economic adviser at Pacific Investment Management Co., which manages $1.51 trillion. “Investors, I think, are nervous that central banks may start to reconsider unconventional policies,� Fels, who is based in Newport Beach, California, said on Bloomberg Television Sept. 16. "Investors have been riding and actually surfing the wave of central bank accommodation. Now we’re seeing something like a mini taper tantrum,� he said, adding the Fed will act in December and inflation will rise toward its 2 percent target over time. BlackRock Inc. and J.P. Morgan Asset Management also said the Fed will probably raise interest rates in December and forgo action this week. The selloff in Europe’s higher-yielding sovereign bonds is abating as traders prepare for major central-bank meetings that may leave their relative appeal intact. The extra yield, or spread, that investors get for holding Italian 10-year bonds instead of German securities with a similar maturity date declined on Monday for the first time in eight days, after a rally that pushed the German yield back below zero. Commodities Oil rebounded after clashes halted what would have been the first crude shipment from Libya’s Ras Lanuf export terminal since 2014. Meanwhile, the Organization of Petroleum Exporting Countries plans to hold an informal meeting with competitor Russia in Algiers Sept. 27, fanning speculation the producers may agree on an output cap to shore up prices. “The price surge was sparked by news from Libya,� analysts at Commerzbank AG led by Eugen Weinberg in Frankfurt said in a report. “The expectation of a rapid normalization of Libyan oil exports is likely to prove illusory.� Gold and silver gained as the dollar declined.

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