by Claude Chendjou

PARIS (Reuters) – The main European stock markets are expected on a cautious note at the opening on Wednesday after two consecutive sessions of increases as the United States Federal Reserve (Fed) must make its monetary policy decisions after two days of debates.

Futures contracts on indices suggest an increase of 0.27% for the Dax in Frankfurt, 0.09% for the FTSE 100 in London and 0.22% for the EuroStoxx 50. As for the CAC 40 in Paris, it could take around 0.27% according to the first indications available.

The Fed’s monetary policy statement is scheduled for 6:00 p.m. GMT and will be followed half an hour later by a press conference by its chairman, Jerome Powell, who said this month that the evolution of the cost of credit in the United States would depend on the macroeconomic data received up to this meeting.

The turmoil around the banking sector since the collapse of the American bank SVB, followed by the rescue plan of Credit Suisse, bought out by its competitor UBS, however led some investors to speculate on a pause in the rise in interest rates from the Fed while a 50 basis point hike was almost certain before these events.

According to Goldman Sachs, a bank stress is almost equivalent to a rate hike of 25 basis points, which would justify a pause. The probability of a status quo is currently estimated by the money markets at 15%. That of a quarter-point increase is estimated at 85%, which would bring the “fed funds” target to a range of 4.75%-5%. The yield on two-year US Treasury bills, the most sensitive to variations in interest rates, stood at 4.11% on Wednesday, against more than 5% on March 9.

On the economic statistics side, the market is awaiting data on consumer prices (CPI) and producer prices (PPI) in Great Britain for the month of February at 07:00 GMT, while the Bank of England (BoE) is due to give its monetary policy decisions the next day. Traders are also torn between a 25 basis point hike and a status quo on BoE interest rates.

AT WALL STREET

The New York Stock Exchange ended sharply higher on Tuesday as fears over the banking sector faded and investors turned their attention to the Fed.

The Dow Jones Industrial Average gained 0.98%, or 316.02 points, to 32,560.60 points.

The broader S&P-500 gained 51.30 points, or 1.30%, to 4,002.87 points.

The Nasdaq Composite advanced for its part by 184.57 points (1.58%) to 11,860.11 points.

Treasury Secretary Janet Yellen said the US banking system had been stabilized thanks to decisive action by regulators, according to remarks prepared for a speech before the National Bankers Association, while warning that further action could be required.

IN ASIA

The Tokyo Stock Exchange, closed Tuesday due to a public holiday in Japan, reopened Wednesday with a Nikkei index which ended the session with a gain of 1.93% to 27,466.61 points. The broader Topix rose 1.74% to 1,962.93 points.

In China, the Shanghai SSE Composite gained 0.24% and the CSI 300 gained 0.37%.

The MSCI index comprising stocks from Asia and the Pacific (excluding Japan) rose by 1.3%.

CHANGES

The dollar, at a low of almost five weeks, was almost unchanged (+0.03%) on Wednesday against a basket of benchmark currencies before the Fed.

The euro is also stable (-0.04%), at 1.0763 dollars.

RATE

Yields on ten-year and two-year US Treasuries are heading back down to 3.57% (-3 points) and 4.11% (-6 points) respectively after their sharp rise the day before linked to the improved investor sentiment.

OIL

Oil prices are falling after two consecutive sessions of gains, hurt by higher-than-expected crude inventories last week in the United States, according to American Petroleum Institute data reported by sources.

Brent fell 0.89% to 74.65 dollars a barrel, and US light crude (West Texas Intermediate, WTI) also fell 0.92% to 69.03 dollars.

(Written by Claude Chendjou, edited by Matthieu Protard)

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