World Week Ahead: Fed meets, Brexit watch

As the US Federal Open Market Committee begins a two-day policy meeting tomorrow, few bet it will raise interest rates.

Earlier this month a report showed that US employers added a mere 38,000 jobs in May, the smallest rise in almost six years. That practically removed expectations for a rate increase.

Traders see a 2% chance the Fed will raise rates on Wednesday, and a 21% chance it will do so at its July meeting says CME FedWatch.

In further uncertainty, investors are trying to position themselves for the UK's June 23 referendum on the country's membership in the European Union, with recent signs it is too close to call.

"There isn't a ton of bearishness, and there isn't a ton of bullishness," Boston Company Asset Management senior portfolio manager John Bailer told Bloomberg.

"Investors are very uncertain about what the future is going to bring if people vote to leave the union – interest rates potentially moving up and the election. There are a lot of people sitting on their hands not making any decisions."

Last week, the Standard & Poor's 500 Index declined 0.2%, while the Nasdaq Composite Index posted a 1% drop. The Dow Jones Industrial Average recorded a 0.3% gain.

The S&P 500 has been trading close to its record closing high of 2128.28 set in July last year.

"Because we failed to break through to new highs, everybody's attention shifts back to reality, and they start looking for reasons to sell and take some profits," New York-based Boston Private Wealth chief market strategist Robert Pavlik told Reuters.

A British exit from the European Union would pose problems to the region's biggest banks, according to Felix Hufeld president of German financial regulator Bafin.

"Everyone hopes the British will decide in favour of the EU, so do I," Mr Hufeld told Germany's Tagesspiegel newspaper.

If the British were to vote in favour of a Brexit (exit), then that would be a problem for all the EU's big banks.

"The largest institutions would get the biggest problems," Mr Hufeld says. "They have the most trading activities with or in London."

Meanwhile, US Investors will eye a slew of economic data this week, especially tomorrow's report on retail sales.

There are also reports on the NFIB small business index, import and export prices, and business inventories, due tomorrow; the producer price index, Empire State manufacturing survey, industrial production, due Wednesday; the consumer price index, weekly jobless claims, Philadelphia Fed business outlook survey, current account, and housing market index, due Thursday; and housing starts, and Atlanta Fed Business expectations, due Friday.

On the global stock markets, Europe's Stoxx 600 Index posted a 2.5% slide last week, after closing 2.4% lower on Friday.

Oil ended a recent rally that took prices back above $US50 a barrel with a 3% drop on Friday, with WTI settling at $US49.07.

"A lot of the supply disruptions that drove the market to $US50 are being resolved," New York energy hedge fund Again Capital partner John Kilduff Reuters. "There are also signs that at these prices, US oil production is likely to climb."

(BusinessDesk)