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Markets: China downgrade sends ripples; Fed minutes ahead

● Chinese markets rattled by rare rating downgrade
● Shanghai Composite near 7-month low
● European stocks steady as Wall St eyes fresh record
● Dollar recovers its poise ahead of Fed minutes
● Oil prices extend rally as Opec gathers

Chinese markets were briefly rattled after Moody’s downgraded its credit rating for the world’s second-largest economy.

The Shanghai Composite equity index at one point fell more than 1 per cent before trimming losses to 0.4 per cent. The index is still in line for its lowest close since October having been pressured of late by worries that Beijing’s clampdown on speculative excess would curtail bullish spirits.

Commodities came under pressure as investors showed concern that slowing Chinese growth would crimp demand. Iron ore futures on the Dalian exchange dropped 5.7 per cent and many London-traded base metals are down by more than 1 per cent.

What to watch
The US Federal Reserve is due to release the minutes of its May meeting at 19:00 BST. The market is currently pricing in an 83 per cent chance the Fed will increase borrowing costs by 25 basis points at its June gathering.

The market is also interested to see whether the central bank discussed when it might start shrinking its bloated balance sheet as part of the emergence from the policy of the post-financial crisis era.

Ahead of the minutes, benchmark US 10-year Treasury yields, which move opposite to the bond price, are steady at 2.28 per cent, while the dollar index (DXY), which tracks the greenback against a basket of its peers, is up 0.1 per cent to 97.45.

Forex and fixed income
Moves across major currencies are minimal, with the euro flat on the session at $1.1182.

Sterling is up 0.1 per cent to $1.2973 and the Japanese yen is 0.1 per cent weaker at ¥‎111.87 per dollar.

The Canadian dollar is 0.1 per cent softer at C$1.3528 ahead of the Bank of Canada’s monetary policy decision, due at 15:00 BST. The BoC is expected to keep its main overnight interest rate unchanged at 0.5 per cent.

The Australian dollar, which tends to be very sensitive to developments in China because of the amount of raw materials Oz exports to the Middle Kingdom, is down 0.2 per cent to US$0.7456.

Commodities
Oil prices are on track for a six-day winning streak, their longest since early April.

Brent crude, the international benchmark, is up 0.2 per cent to $54.27 and West Texas Intermediate, the main US contract, is adding 0.1 per cent to $51.60.

Prices have been buoyed of late by expectations that Opec countries will use a meeting on Thursday in Vienna to agree to extending supply cuts beyond March 2018.