European stocks are struggling to gain momentum after a slight increase in the past two sessions. Banking stocks have lifted the pan-European STOXX 600 index by 0.1%. The Federal Reserve is expected to raise interest rates by 25 basis points later in the day, which is the main focus for investors amid the turmoil in the banking sector. The Fed’s decision will arrive after a political storm over the US central bank’s oversight of recently collapsed Silicon Valley Bank. Han Tan, chief market analyst at Exinity Group, said that the Fed is caught between financial stability or price stability, causing policymakers an apparent dilemma. The odds of the Fed hiking interest rates by 25 bps are almost 90%. Traders had initially priced in a 50 bps rate hike from the Fed earlier this month. The UK’s FTSE 100 is lagging behind its European peers. Ubisoft and Marks and Spencer Group saw an increase in their stock values.
European Stocks Struggle for Momentum Ahead of Fed Outcome
After a two-day bounce, European stocks were struggling for momentum on Wednesday. Investors are looking forward to a crucial monetary policy decision from the Federal Reserve amid turmoil in the banking sector. The pan-European STOXX 600 index inched up 0.1%, lifted by banking stocks, following a series of measures to stabilise the sector in the wake of the collapse of three U.S. banks and trouble at lender Credit Suisse.
Banking Sector
The European banks index gained 0.7%, adding to a 5% jump in the past two sessions. UBS’ state-backed takeover of Credit Suisse and coordinated actions by central banks to boost liquidity lifted sentiment.
Federal Reserve
The focus shifts to the Fed, which is expected to raise interest rates by 25 basis points (bps) later in the day. The decision will land amid a brewing political storm over the U.S. central bank’s oversight of recently collapsed Silicon Valley Bank. The Fed decision is due at 1800 GMT, and Chair Jerome Powell will speak at a news conference half an hour later.
“Markets are very much aware that the Fed is stuck between a rock and a hard place, with policymakers facing an apparent dilemma between financial stability or price stability,” said Han Tan, chief market analyst at Exinity Group. “If the dot plot points to a terminal rate that’s higher than the 5.1% that FOMC officials forecast back in December, such hawkish clues may prompt another risk-off wave across the equity market.”
Traders had priced in a 50 bps rate hike from the Fed earlier this month. But turbulence in the banking system and financial markets pushed them to reduce their bets significantly. Money market traders are currently pricing in nearly 90% odds that the Fed will hike interest rates by 25 bps, according to CME Group’s Fedwatch tool. They also see rates peaking at 4.95% by May.
FTSE 100 and Other Stocks
UK’s FTSE 100 lagged its European peers after a hotter-than-expected inflation reading raised the chances of another rate increase this week from the Bank of England. Ubisoft climbed 1.8% after HSBC upgraded the French video game producer’s stock to “buy” from “hold”. Marks and Spencer Group rose 3.6% after Citi upgraded the British retailer’s stock to “buy”, saying its savings plan will help margin recovery.
Don’t miss interesting posts on Famousbio
