European stocks fluctuated in a narrow range and US equity futures edged lower as investors prepared for the Federal Reserve’s much-anticipated interest-rate decision. The pound strengthened after a surprise rise in UK inflation increased pressure for action from the Bank of England.
(Bloomberg) — European stocks fluctuated in a narrow range and US equity futures edged lower as investors prepared for the Federal Reserve’s much-anticipated interest-rate decision. The pound strengthened after a surprise rise in UK inflation increased pressure for action from the Bank of England.
The Stoxx Europe 600 Index was slightly higher, with retailers and banks leading gains. Contracts for the S&P 500 and the tech-heavy Nasdaq 100 both retreated by at least 0.2%. Nike Inc. fell in US premarket trading as analysts flagged challenges the sportswear maker faces in clearing excess inventory. Virgin Orbit Holdings Inc. was set for a record surge after the satellite launch company said it was resuming some operations.
All eyes will be on the Fed later as Chair Jerome Powell tries to balance his campaign to conquer inflation against a sudden banking crisis. The complexities confronting global central banks were underscored by data from the UK on Wednesday, showing inflation unexpectedly accelerated in February, surpassing all economists’ forecasts on the eve of a rates decision from the BOE.
The pound extended gains against the dollar as traders firmed up bets on a quarter-point hike on Thursday, while UK bonds fell. A Bloomberg index of dollar strength was little changed. Treasury yields fell slightly after a surge on Tuesday that added 19 basis points to the two-year maturity and 12 basis points to the 10-year benchmark.
“Whatever flexibility the Bank of England may have thought it would have tomorrow was wiped out by this morning’s inflation data and once more, the topic of conversation has shifted to whether 25 basis points will be enough,” Craig Erlam, a senior market analyst at Oanda Europe Ltd., wrote in a note.
Investors were again focused on UBS Group AG after the bank said Wednesday it wanted to buy back some of its euro-denominated senior unsecured bail-in notes in the wake of its rescue of Credit Suisse Group AG.
Traders placed greater odds that the Fed will raise interest rates 25 basis points after market pricing was split between a hike and a pause earlier in the week. Officials at the central bank were set to issue updated rate projections for the first time since December, offering guidance on whether they still expect any additional increases this year.
“The failures of banks that we’ve seen so far are idiosyncratic,” Yuting Shao, macro strategist for State Street Global Markets, said in an interview with Bloomberg Radio. She expects the Fed to increase interest rates by 25 basis points on Wednesday. “Once we look beyond the current volatility, restrictive policy staying for a bit longer is still warranted.”
Every stock in a measure of US financial heavyweights climbed Tuesday. Shares in First Republic Bank fell about 9% in after-hours trading after the stock surged almost 30% in its best day ever. The gain came amid optimism over a new plan under discussion to aid the regional lender. Further intervention to shore up the bank may include US government backing, people with knowledge of the situation said.
Read: Fed Caught Between Inflation and Bank Crisis: Decision-Day Guide
Still, many see more problems ahead. Michael Wilson, Morgan Stanley’s chief US equity strategist, said the risk of a credit crunch is increasing materially. Bank of America’s latest global survey that polled fund managers between March 10-16 showed a systemic credit event has replaced stubborn inflation as the key risk to markets.
Meanwhile, European Central Bank President Christine Lagarde said the ECB will take a “robust” approach that allows it to respond to inflation risks as needed but also aid financial markets if threats emerge.
“Bringing inflation back to 2% over the medium term is non-negotiable,” Lagarde told a conference on Wednesday. “We will do so by following a robust strategy that is data-dependent and embeds a readiness to act, but that does not entertain trade-offs around our primary objective.”
Elsewhere in markets, crude oil slid, trimming some of its gains from rallies on Monday and Tuesday. Gold was marginally higher.
Key events this week:
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 was little changed as of 9:15 a.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures fell 0.3%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index rose 1.5%
- The MSCI Emerging Markets Index rose 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0790
- The Japanese yen rose 0.1% to 132.35 per dollar
- The offshore yuan fell 0.1% to 6.8868 per dollar
- The British pound rose 0.6% to $1.2286
Cryptocurrencies
- Bitcoin was little changed at $28,149.6
- Ether fell 0.7% to $1,787.76
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.58%
- Germany’s 10-year yield advanced three basis points to 2.32%
- Britain’s 10-year yield advanced nine basis points to 3.46%
Commodities
- Brent crude fell 0.5% to $74.97 a barrel
- Spot gold rose 0.2% to $1,944.83 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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