Slight growth expected in Europe, followed by the Fed

Letitia Volga

PARIS (Reuters) – Major European equities are expected to open higher on Wednesday after several sessions in the red, but caution should cap spreads as decisions from the US Federal Reserve approach that could accelerate its rate hike against inflation.

The first available data points to a rise of 0.19% for the Paris CAC 40, 0.28% for the Dax in Frankfurt, 0.08% for the FTSE in London and 0.29% for the EuroStoxx 50.

The CAC 40 and Stoxx 600 have continued their six straight declines so far, causing them to drop on Tuesday to their lowest levels since early March.

After the publication last Friday of higher-than-expected US inflation, investors have significantly revised their expectations regarding the Fed’s rate hike. According to the Fedwatch CME Group Barometer, markets estimate the likelihood of a 75-point rate hike on Wednesday at 99%, compared to less than 4% a week earlier.

The prospect of a marked tightening of the Fed’s policy and an inversion earlier in the week of the two- and ten-year segment of the US yield curve raised fears of a recession in the US.

Fed announcements are expected at 18:00 GMT, followed by a press conference by Fed Chairman Jerome Powell half an hour later.

Before that, several indicators will revive the session, in particular retail sales in the US in May (12:30 GMT).

ON WALL STREET

The New York Stock Exchange closed Tuesday in disarray after a volatile session, ahead of a much-anticipated announcement from the US Federal Reserve (Fed) after a monetary policy meeting, investors are waiting for clues about its toughness in the face of inflation.

The Dow Jones fell 0.50% to 30,364.83, the S&P-500 shed 0.38% to 3,735.48 and the Nasdaq Composite rose 0.18% to 10,828.35.

The S&P-500 closed in the red for the fifth consecutive session, a series not seen since the beginning of January, confirming that it is in a “bear market”.

On the stock side, FedEx jumped 14.41% after raising its quarterly dividend by more than 50%, while Oracle stock rose 10.41% after posting better-than-expected quarterly results.

Futures contracts give a slightly higher opening price.

IN ASIA

The Nikkei fell 0.92% on the Tokyo Stock Exchange amid nervousness ahead of the Fed’s decision on monetary policy.

In China, the Shanghai SSE Composite rose 1.78% and the CSI 300 rose 2.45% on strong capital inflows as investors continued to bet on economic support policies.

Positive news for the market: an unexpected rise in industrial production in May and a smaller-than-expected drop in retail sales.

EXCHANGE/COURSE

The index, which measures the swing of the dollar against a base basket, was down 0.18% after hitting its highest level since December 2002 a day earlier.

“Given current market expectations… it would take a Fed rate hike of more than 75 basis points or a sign of a 100 basis point hike in July for the dollar to rise significantly. This is significant,” CBA analysts said.

Euro rises to 1.0426 dollars.

In the government bond market, 10-year US bond yields fell nearly five basis points to 3.4445% before the Fed’s decision. On Tuesday, it reached its highest level since April 2011 at 3.498%.

OIL

The oil market is developing without much change: Brent is trading up 0.22% to $121.44 per barrel, and American light oil (West Texas Intermediate, WTI) is up 0.21% to $119.18.

(Written by Letitia Volga, edited by)