Europe’s investors eased off the gas a few hours before the US central bank’s rate decision. The Dax was up 0.1% around midday on Wednesday at 25,437 points. The EuroStoxx50 climbed 0.3% to 6,256 points. A drop in oil prices provided support, slightly easing inflation worries.
Ahead of the US Federal Reserve’s rate decision in the evening (8:00 p.m. CEST), investors are unlikely to stick their necks out too far. In the financial markets’ view, the Federal Reserve is heading for its first rate hike in more than three years. The expectation is for the key rate to be raised by a quarter point to a range of 3.75% to 4.00%. ‘High inflation and a still-robust US economy make a move likely. But it is not a sure thing,’ said portfolio manager Thomas Altmann of asset manager QC Partners.
FOR FED CHAIR WARSH, IT IS ABOUT CREDIBILITY Strategists said the key for investors will be how Fed Chair Kevin Warsh assesses inflation risks and whether he signals further rate hikes. ‘This outlook carries the greatest surprise potential and will ruthlessly dictate the final direction for European equity markets for the rest of the week,’ said ActivTrades analyst Frank Sohlleder. Investors will also watch reactions from the White House closely. ‘If he does not raise rates tonight, that could be a problem for the Fed’s credibility, its independence, and for the stock market,’ said Michaël Nizard, chief strategist at Edmond de Rothschild Asset Management. US President Donald Trump has repeatedly argued for lower rates and said last month the US would stop trading with countries with which it runs a trade deficit if the Fed does not cut rates.
OIL SUPPLIES REMAIN IN INVESTORS’ FOCUS The dollar index was flat at 99.68 points. In bond markets, the rise in yields on the euro zone’s benchmark debt stalled. The yield on 10-year German government bonds was unchanged at 3.534%. Oil supply in the Middle East remains in focus for investors in commodity markets. Oil prices broke a two-day rally as reports about alternative supply routes from Saudi Arabia dampened concerns about the scale of regional supply bottlenecks. In futures markets, a barrel (159 liters) of North Sea Brent fell as much as 1.5%, while US crude WTI was down as much as 2%. ‘News about Saudi exports out of the Gulf suggests worries about an even bigger disruption are fading,’ said UBS analyst Giovanni Staunovo. Saudi Arabia is now offering Asian refiners more crude via ship-to-ship transfers offshore near the port of Sohar in Oman, people familiar with the matter said. The day before, futures contracts had jumped more than 3% after insiders said loadings of crude at the Saudi export hub of Yanbu on the Red Sea were suspended.
JP MORGAN BRIGHTENS SENTIMENT IN BANKS
European bank stocks rebounded from their recent slide and were among the biggest winners. Traders said sentiment was lifted by comments from executives at US banks at an industry conference. JPMorgan Chase said it expects strong growth in investment banking fees and trading revenues in the third quarter. Shares of British rivals Barclays and Standard Chartered rose 1.8% and around 2%, respectively.
Auto stocks, by contrast, were weaker: the European sector index fell 1.1%. VW shares dropped 3% and were the laggard in the Dax. Hochtief shares were in demand, rising 3.6%.
(Reported by Anika Ross, edited by Christian Goetz. For further inquiries, contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)
