American and European shares slide ahead of interest rate decisions
US stocks fell on Wednesday, as markets struggled to find direction as investors waited for the Federal Reserve to set interest rates for the world’s largest economy next week.
Wall Street’s benchmark S&P 500 lost 0.3 percent, giving up early gains. The technology-heavy Nasdaq Composite fell 1 percent.
European indices followed Wall Street lower. The regional Stoxx 600 ended the day down 0.2 percent while France’s Cac 40 fell 0.1 percent. London’s FTSE 100 is trading flat.
The moves came as investors prepared for the Fed̵[ads1]7;s two-day meeting next week, with the market pricing no change from the Fed’s target range of 5.25-5.5 percent.
Many believe the tightening campaign will resume in July after strong economic data put the Fed under pressure to curb demand sufficiently to bring inflation under control.
Until then, markets have adopted a “wait-and-see approach, hoping that the disinflation narrative is well in place”, said Samy Chaar, chief economist at Banque Lombard Odier and Cie SA.
Meanwhile, the Russell 2000 index of small companies rose 1.7 percent, pushing the benchmark to its highest level since the US regional banking crisis in March.
The index has risen almost 8 percent since the end of May, and has outperformed the S&P 500 and Nasdaq Composite over the same period, both of which have risen 2 percent.
“Small-cap stocks are rising primarily on the back of gains in US regional bank stocks, which this week entered the investment-grade bond market for the first time since the start of the banking crisis,” said Francesco Pesole. FX strategist at ING.
The KBW regional banking index rose by 2.8 percent on Wednesday, extending the rise from the previous session.
Germany’s Dax ended 0.2 percent lower after data showed industrial production in the eurozone’s biggest economy rose 0.3 percent in April, recovering from last month’s contraction but missing economists’ expectations for a 0.6 percent increase.
The measures come the day after a survey by the European Central Bank showed that consumers were constantly lowering their expectations for inflation in the eurozone.
Data is being closely watched by traders ahead of an ECB meeting next week where it is expected to raise the deposit rate from the current level of 3.25 percent, to head off prolonged inflation.
Annual consumer prices in the 20-nation currency bloc rose 6.1 percent in the year to May, down from 7 percent in April, but investors expect them to remain too high to convince policymakers to stop raising interest rates.
“While the ECB will welcome the fall in inflation expectations, the job is far from done,” said Mohit Kumar, chief economist for Europe at Jefferies.
Asian stocks were mixed, with Hong Kong’s Hang Seng index rising 0.8 percent, while Japan’s Topix was down 1.3 percent.
China’s CSI 300 lost 0.5 percent after data showed Chinese exports fell more than expected in May, in a further dent against the country’s hopes for a strong economic recovery from the Covid-19 pandemic.
Exports fell by 7.5 percent compared to the same period a year earlier, well below the forecast of analysts polled by Reuters, who expected a decline of 0.4 percent.
The Turkish lira fell as much as 7.6 percent to a new record low of 23.2 against the dollar as Turkey eased its long-running battle to defend the currency.
