LONDON — Financial markets were lackluster yesterday as investors paused for breath ahead of key testimony from Federal Reserve Chairman Ben Bernanke.
Bernanke's comments on Wednesday to lawmakers in Congress could set the tone in markets for the rest of the summer. In particular, investors will be looking for any further guidance on when the Fed will start to reduce its monetary stimulus.
The Fed is currently spending $85 billion a month buying financial assets in the hope of keeping long-term borrowing rates low and stimulating the US economy. The new money created in recent years has been one of the key drivers of markets.
US economic figures are being largely viewed through the prism of Fed policy. yesterday's batch of number did little to affect expectations. The 0.3 percent monthly rise in industrial production during June was in line with expectations while the uptick in the annual inflation rate to 1.8 percent from 1.4 percent was largely discounted because it was due to a sharp rise in gasoline prices.
"It's certainly possible that they could begin tapering their bond purchases later this year, but the absence of higher inflation and the stubbornly high jobless rate suggests that it may not need to do so in the near-term, particularly if those growth expectations fail to materialize," said Jim Baird, chief investment officer for Plante Moran Financial Advisors.
In Europe, the FTSE 100 index of leading British shares fell 0.5 percent to close at 6,556.35 while Germany's DAX dropped 0.4 percent at 8,201.05. The CAC-40 in France ended 0.7 percent lower at 3,851.03.
In the US, the Dow Jones industrial average was down 0.3 percent at 15,439.11 while the broader S&P 500 index fell 0.5 percent to 1,674.37. On Monday, both closed at record highs while the S&P posted its eighth straight day of gains, its longest such streak since January.
yesterday's run of corporate news had little impact despite solid earnings from Goldman Sachs and Johnson & Johnson. Coca-Cola's, though, were disappointing as it reported falling profits and weak volume growth, particularly in North America.
Once Bernanke's appearance before lawmakers is over, markets, particularly in the US, may return their focus to the earnings reports.
"Corporate earnings season is going to play a much bigger part in driving market sentiment in the coming weeks, than it has over the last couple of years," said Craig Erlam, market analyst at Alpari. "With investors no longer able to rely on the Fed to drive equity markets higher, they have to make do with focusing more on the fundamentals, and nothing gives us a better overview of these than company earnings reports and their expectations for the coming quarters."
Earlier in Asia, South Korea's Kospi fell 0.5 percent to 1,866.36 while Hong Kong's Hang Seng was flat at 21,312.38. China's Shanghai Composite Index rose 0.3 percent to 2,065.72.
In currency markets, the euro was up 0.6 percent at $1.3143 while the dollar fell 0.5 percent to 99.35 yen.
Oil prices were steady, with the benchmark contract in New York down 23 cents at $106.09 a barrel.
Markets drift lower ahead of Bernanke comments
Japan's Nikkei 225 added 0.6 percent to 14,599.12. Weaker-than-expected U.S. retail sales sent most Asian stock markets lower Tuesday as investors awaited congressional testimony from Federal Reserve chairman Ben Bernanke later in the week. (AP Photo/Azusa Uchikura)