By PAN PYLAS
Investor studies share prices during the afternoon trading at a private stock market gallery in Kuala Lumpur, Malaysia, Monday, Nov. 4, 2013. Global stocks markets were mixed Monday, clouded by persistent fears that the U.S. may tighten its monetary policy by January. In Asia, markets opened the week on a pessimistic note but European stocks edged higher ahead of a key European Central Bank meeting that could potentially cut rate following recent appreciation in the euro. (AP Photo/Daniel Chan)
LONDON (AP) — A forecast-busting survey of the U.S. services sector weighed on stocks Tuesday but gave the dollar a further lift as investors concluded it makes it more likely that the Federal Reserve will start reducing its monetary stimulus sooner than anticipated.
The October nonmanufacturing index from the Institute for Supply Management rose to 55.4 in October from 54.4 in September and was ahead of market expectations for a modest decline to 54.0. The increase came despite the partial shutdown of the U.S. government and a last minute deal to raise the country’s debt ceiling.
“It appears, as is becoming increasingly apparent, that the overall impact of the disruption to business will be short-lived,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.
The survey comes ahead of Friday’s publication of the delayed nonfarm payrolls report for October. The payrolls figures are usually the most important economic release of the month. If they are strong, many in the markets may think the Fed could reduce its monetary stimulus as soon as December.
The economic news out of the U.S. is being viewed through the prism of the Fed’s stimulus. The Fed’s $85 billion in monthly asset purchases have supported economic recovery by keeping interest rates low and have been one of the reasons why many stock indexes, including the main U.S. markets, have struck record highs this year.
The prospect of an early withdrawal following the ISM survey fueled a sell-off in stock markets in Europe and the U.S.
In Europe, the FTSE 100 index of leading British shares was down 0.6 percent at 6,720 while Germany’s DAX fell 0 .7 percent to 8,972. The CAC-40 in France was 1.2 percent lower at 4,236.
In the U.S., the Dow Jones industrial average was down 0.6 percent at 15,546 while the broader S&P 500 index fell the same rate to 1,758.
The dollar was making further gains, in particular against the euro, which was down 0.5 percent at $1.3460. The dollar also more or less erased earlier losses against the yen to be trading 0.1 percent lower at 98.44 yen.
The focus won’t just be on the U.S. this week, though.
In Europe, investors will be bracing for the monthly policy meeting of the European Central Bank. Until last week’s news that the annual inflation rate in the 17-country eurozone fell to just 0.7 percent in October, no change in policy was expected. Now, many economists think the ECB will either reduce its main interest rate to a record low of 0.25 percent or hint at future easing given that the central bank’s main policy target is to keep inflation just below 2 percent.
And in China, leaders are scheduled to meet in Beijing from Nov. 9-12 to craft a new blueprint for the world’s No. 2 economy as its state-led growth model runs out of oomph.
Earlier in Asia, Japan’s Nikkei 225 closed 0.2 percent higher at 14,225.37 while Hong Kong’s Hang Seng shed 0.7 percent to 23,038.95. China’s Shanghai Composite gained 0.4 percent at 2,157.24. Australia’s S&P/ASX 200 added 0.8 percent to 5,431.96.
