Investors are eagerly waiting for the US Federal Reserve to announce its decision on interest rates later in the day, and European stocks continue to rise in preparation. The Stoxx 600 and Dax both increased by 0.5%, while London’s FTSE 100 gained 0.3%, and France’s Cac 40 rose by 0.7%. This follows an overnight rally on Wall Street, with the S&P 500 index rising 0.7% and Nasdaq Composite gaining 0.8%. The US consumer price data released shows a slowdown in headline inflation to a year-on-year rise of 4%. This reinforces the expectation that the Fed will keep interest rates steady on Wednesday. Mohit Kumar, Jefferies’ chief Europe financial economist, noted that the inflation report “did not provide the reason” to alter the Fed’s current view.
At present, markets project a 92% probability for the Fed to hold interest rates steady during its monetary policy meeting. However, Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, expects the policymakers to give a clear message to the markets that at least one more rate hike is possible at a later meeting. The US commerce department is also set to release its producer price index later in the day; economists polled by Reuters expect the growth in prices paid by businesses to have fallen to 1.5% year-on-year in May.
Meanwhile, the European Central Bank is expected to raise its deposit rate by another 0.25 percentage points at its meeting on Thursday, according to economists. In Asia, Japan’s benchmark Topix index increased by 1.3%, while China’s CSI 300 index remained flat, and Hong Kong’s Hang Seng index declined by 0.6% after China’s short-term lending rate was lowered by the People’s Bank of China. Analysts at Goldman Sachs anticipate this move could suggest the start of additional monetary policy easing, expecting the PBoC to cut its one-year medium-term lending facility rate on Thursday by 0.1 percentage points, which serves as the floor for China’s benchmark prime loan rate.
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