Europe Markets: European stock index posts modest gain as investors train an eye on the U.S. Fed

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Europe’s main stock gauge was struggling Wednesday, with some losses for banks and German auto maker Daimler AG, but investors were largely sidelined ahead of the Federal Reserve decision.

What are markets doing?

The Stoxx Europe 600 SXXP, +0.30%  edged up less than 0.1% at 384.16, after Tuesday’s gain of 0.5% in the previous session.

Germany’s DAX 30 DAX, +0.09%  dropped 0.3% to 12,341.69, while France’s CAC 40 PX1, +0.61%  added 0.4% to 5,499.62. The U.K.’s FTSE 100 UKX, +0.05%  dipped 0.1% to 7,502.14.

The euro EURUSD, -0.1360%  dipped to $1.1744 from $1.1735 late Tuesday in New York, while the pound GBPUSD, -0.0455%  dipped to $1.3166 from $1.3184.

What is driving the market?

Investors are looking ahead to the outcome of the Fed’s policy-setting Federal Open Market Committee meeting, which is expected to deliver a third rate increase this year. The decision is due at 2 p.m. Eastern, followed by Chairman Jerome Powell’s news conference at half-hour later.

Read: U.S. economy could take a 2% hit in the first year of a trade war, says ECB study

The U.S. Fed’s decision is watched by European investors because monetary policy moves in the largest economy in the world influence Europe trade.

Meanwhile, the expected presentation of Italy’s budget on Wednesday was keeping some traders on edge. If the budget doesn’t adhere to European Union rules, some are worried it could cause a rift between Italy’s government and Brussels. In addition, Italy’s ruling coalition has been seeped in infighting.

Read: What the market will watch for in Italy’s crucial budget proposal this week

What are strategists saying?

“Traders are expecting two further rate increases by the end of the year plus two more for the first half of 2019. If there was to be a surprise, it should come from the FOMC wording toward its monetary policy during the press conference,” said Pierre Veyret, technical analyst at ActivTrades, in a note to clients.

As we have already argued, a final decision to implement an expansionary fiscal policy—increasing the structural budget deficit, compared with this year—to finance the measures included in the government “contract”, is likely to result in a negative market reaction and increases the chances of a confrontation with the European Commission,” said analysts at UniCredit Research, in reference to the Italy budget announcement.

Stock movers

Daimler AG DAI, +0.05%  dropped 0.7% after announcing Chief Executive Dieter Zetsche will exit his position after its annual 2019 shareholder meeting.

Banco Santander SA SAN, +0.20% SAN, -1.03%  inched up 0.4% after announcing late Tuesday that it has hired the former head of investment banking at UBS, Andrea Orcel to be its new chief executive officer. UBS UBS, +0.37% UBSG, +0.03%  shares fell 0.4%.

Deutsche Bank AG DBK, -1.10% DB, -1.32%  dropped 1.3% after a report that the German bank had looked at a potential merger with Commerzbank AG CBK, -0.75% whose shares slipped 0.4%.

Heavyweight pharmaceutical major Roche Holding Ltd. ROG, +0.25%  dropped 2%.

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