US and European stocks fall ahead of interest rate decision

US stocks fell on Wednesday as markets struggled to find direction while investors waited for the Federal Reserve to set interest rates for the world’s biggest economy next week.

Wall Street’s benchmark S&P 500 fell 0.3 percent, giving up early gains. The tech-heavy Nasdaq Composite fell 1 percent.

European indices followed Wall Street lower. The region-wide Stoxx 600 ended the day down 0.2 percent, while France’s Cac 40 fell 0.1 percent. London’s FTSE 100 was trading flat.

The move came as investors prepared for a two-day Fed meeting next week, with the market pricing the Fed’s target range of 5.25-5.5 percent unchanged.

Many believe the tightening campaign will resume in July as strong economic data put the Fed under pressure to reduce demand enough to get inflation under control.

Until then, markets have adopted a “wait and see” approach, hoping the deflationary narrative is well in place, said Sami Char, chief economist at Banque Lombard Odier and C SA.

Meanwhile, the Russell 2000 index of small-cap companies rose 1.7 percent, pushing the benchmark to its highest level since the US regional banking crisis in March.

The index is up nearly 8 percent since the end of May, outperforming the S&P 500 and Nasdaq Composite, which both gained 2 percent during the same period.

“Small-cap stocks are rising mainly due to a recovery in US regional bank stocks,” said Francesco Pesole, who re-entered the investment-grade bond market this week. FX Strategist at Ing.

The KBW Regional Banking Index added 2.8 percent on Wednesday, extending its rally from the previous session.

Germany’s DAX declined 0.2 percent after data showed industrial production in the eurozone’s biggest economy rose 0.3 percent in April, reversing the previous month’s contraction, but missing economists’ expectations of a 0.6 percent rise. Was

The move comes a day after a European Central Bank survey showed consumers were steadily lowering their expectations for inflation in the eurozone.

The data is being closely watched by traders ahead of the ECB’s meeting next week, which is expected to raise its deposit rate from the current level of 3.25 per cent to curb inflation.

Annual consumer prices in the 20-nation single currency bloc rose 6.1 percent in the year to May, falling from 7 percent in April, but investors expect they will remain high enough to prevent policymakers from raising rates.

“While the ECB would welcome a drop in inflation expectations, its job is not done,” said Mohit Kumar, chief financial economist for Europe at Jefferies.

Asian equities were mixed, with Hong Kong’s Hang Seng index rising 0.8 per cent, but Japan’s Topix off 1.3 per cent.

China’s CSI 300 lost 0.5 percent after data showed Chinese exports contracted more than expected in May, further denting hopes of a strong economic rebound from the country’s Covid-19 pandemic.

Exports contracted 7.5 percent from the same period a year earlier, well behind forecasts of analysts polled by Reuters, who had expected a contraction of 0.4 percent.

The Turkish lira fell 7.6 percent against the dollar to a new record low of 23.2 as Turkey eased its long-running battle to defend the currency.

US stocks fell on Wednesday as markets struggled to find direction while investors waited for the Federal Reserve to set interest rates for the world’s biggest economy next week.

Wall Street’s benchmark S&P 500 fell 0.3 percent, giving up early gains. The tech-heavy Nasdaq Composite fell 1 percent.

European indices followed Wall Street lower. The region-wide Stoxx 600 ended the day down 0.2 percent, while France’s Cac 40 fell 0.1 percent. London’s FTSE 100 was trading flat.

The move came as investors prepared for a two-day Fed meeting next week, with the market pricing the Fed’s target range of 5.25-5.5 percent unchanged.

Many believe the tightening campaign will resume in July as strong economic data put the Fed under pressure to reduce demand enough to get inflation under control.

Until then, markets have adopted a “wait and see” approach, hoping the deflationary narrative is well in place, said Sami Char, chief economist at Banque Lombard Odier and C SA.

Meanwhile, the Russell 2000 index of small-cap companies rose 1.7 percent, pushing the benchmark to its highest level since the US regional banking crisis in March.

The index is up nearly 8 percent since the end of May, outperforming the S&P 500 and Nasdaq Composite, which both gained 2 percent during the same period.

“Small-cap stocks are rising mainly due to a recovery in US regional bank stocks,” said Francesco Pesole, who re-entered the investment-grade bond market this week. FX Strategist at Ing.

The KBW Regional Banking Index added 2.8 percent on Wednesday, extending its rally from the previous session.

Germany’s DAX declined 0.2 percent after data showed industrial production in the eurozone’s biggest economy rose 0.3 percent in April, reversing the previous month’s contraction, but missing economists’ expectations of a 0.6 percent rise. Was

The move comes a day after a European Central Bank survey showed consumers were steadily lowering their expectations for inflation in the eurozone.

The data is being closely watched by traders ahead of the ECB’s meeting next week, which is expected to raise its deposit rate from the current level of 3.25 per cent to curb inflation.

Annual consumer prices in the 20-nation single currency bloc rose 6.1 percent in the year to May, falling from 7 percent in April, but investors expect they will remain high enough to prevent policymakers from raising rates.

“While the ECB would welcome a drop in inflation expectations, its job is not done,” said Mohit Kumar, chief financial economist for Europe at Jefferies.

Asian equities were mixed, with Hong Kong’s Hang Seng index rising 0.8 per cent, but Japan’s Topix off 1.3 per cent.

China’s CSI 300 lost 0.5 percent after data showed Chinese exports contracted more than expected in May, further denting hopes of a strong economic rebound from the country’s Covid-19 pandemic.

Exports contracted 7.5 percent from the same period a year earlier, well behind forecasts of analysts polled by Reuters, who had expected a contraction of 0.4 percent.

The Turkish lira fell 7.6 percent against the dollar to a new record low of 23.2 as Turkey eased its long-running battle to defend the currency.