US stocks fell on Wednesday, as markets struggled to find direction while investors awaited for the Federal Reserve to next week set interest rates for the world’s largest economy.
Wall Street’s benchmark S&P 500 lost 0.3 per cent, giving up early gains. The tech-heavy Nasdaq Composite fell 1 per cent.
European indices followed Wall Street lower. The region-wide Stoxx 600 ended the day down 0.2 per cent while France’s Cac 40 fell 0.1 per cent. London’s FTSE 100 traded flat.
The moves came as investors prepared for the Fed’s two-day meeting next week, with the market pricing in no change from the Fed’s target range to 5.25-5.5 per cent.
Many believe the tightening campaign will resume in July after strong economic data put the Fed under pressure to damp demand sufficiently to get inflation under control.
Until then, markets have adopted a “wait-and-see approach, hoping that the disinflationary narrative is well in place”, said Samy Chaar, chief economist at Banque Lombard Odier and Cie SA.
Meanwhile, the Russell 2000 index of small-cap companies rose 1.7 per cent, pushing the benchmark to its highest level since the US regional banking crisis in March.
The index has risen almost 8 per cent since the end of May, outperforming the S&P 500 and the Nasdaq Composite over the same period, which have both risen 2 per cent.
“Small-cap stocks are rising primarily on the back of the recovery in US regional bank stocks, which have re-entered this week 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 added 2.8 per cent on Wednesday, extending its rally from the previous session.
Germany’s Dax finished 0.2 per cent lower after data showed that industrial production in the eurozone’s largest economy rose 0.3 per cent in April, rebounding from the previous month’s contraction but missing economists’ expectations of a 0.6 per cent rise.
The moves come a day after a European Central Bank survey showed that consumers were steadily lowering their expectations for inflation in the eurozone.
Data is being closely watched by traders ahead of an ECB meeting next week in which it is expected to raise its deposit rate from the current level of 3.25 per cent, to ward off lingering inflation.
Annual consumer prices in the 20-country single currency bloc rose 6.1 per cent in the year to May, declining from 7 per cent in April, but investors expect they will remain too high to convince policymakers to stop raising rates.
“While the ECB would welcome the drop in inflation expectations, its job is far from done,” said Mohit Kumar, chief Europe financial economist at Jefferies.
Asian equities were mixed, with Hong Kong’s Hang Seng index adding 0.8 per cent but Japan’s Topix off 1.3 per cent.
China’s CSI 300 lost 0.5 per cent after data showed that Chinese exports contracted more than expected in May, in a further dent to the country’s hopes for a strong economic rebound from the Covid-19 pandemic.
Exports contracted 7.5 per cent compared with the same period a year earlier, well behind the forecast of analysts polled by Reuters, who expected a contraction of 0.4 per cent.
The Turkish lira tumbled as much as 7.6 per cent to a new record low of 23.2 against the dollar as Turkey eased its long-running battle to defend the currency.