UK inflation rises before Fed rate decision; European stock futures show mixed signals
The opening of European stock markets is anticipated to be mixed on Wednesday as investors analyze U.K. inflation data and wait anxiously for the Federal Reserve’s latest decision on interest rates. At 03:00 ET (07:00 GMT), Germany’s DAX futures contract traded 0.2% higher, the U.K.’s FTSE 100 futures contract increased by 0.1%, while France’s CAC 40 futures dropped 0.2%. Global equity markets have improved sentiment after U.S. Treasury Secretary Janet Yellen said she was prepared to intervene to safeguard depositors in smaller banks, calming investor’s nerves.
Following the weekend’s rescue of troubled lender Credit Suisse (SIX:CSGN) by its Swiss rival UBS (SIX:UBSG), brokered and supported by the Swiss government, investors’ attention now shifts to the Federal Reserve’s interest rate decision later today. Central bank policymakers need to balance fighting inflation and pacifying a banking crisis. Although investors broadly anticipate the Fed to increase interest rates by 25 basis points, there is significant uncertainty about future monetary policy given that inflation remains elevated, and concerns about the banking system’s stability could restrict the central bank’s hawkish stance.
The latest U.K. figures show continued evidence of inflationary pressures, with consumer prices rising by 1.1% in February, up 10.4% year-on-year. The Bank of England meets on Thursday and is expected to raise interest rates by 25 basis points to 4.25%. Governor Andrew Bailey has indicated he may be willing to pause rate increases. The European Central Bank raised its benchmark rates by 50 basis points last week, and Bundesbank President Joachim Nagel said more hikes were needed to combat inflation.
On Tuesday, oil prices fell as industry data revealed an unexpected increase in U.S. inventories, indicating weakening fuel demand in the world’s largest consumer. Late Tuesday, the American Petroleum Institute released data showing U.S. crude stocks rose by approximately 3.3 million barrels last week, contradicting expectations of a drawdown of around 1.6 million barrels. The official inventory data, which will be released later in the session by the U.S. Energy Information Administration, would indicate that inventories have grown for 12 of the past 13 weeks if a rise is confirmed. At 03:00 ET, U.S. crude futures traded 0.7% lower at $69.19 a barrel, while the Brent contract dropped 0.6% to $74.84. Gold futures rose 0.2% to $1,945.05/oz, and EUR/USD traded flat at 1.0766.