US and European stocks rise as investors prepare for interest rate decisions

US stocks rose on Wednesday as trader sentiment turned bullish ahead of the Federal Reserve meeting next week to set interest rates for the world’s largest economy.

Wall Street’s S&P 500 added 0.3 per cent, extending a rally that has pushed the benchmark up by nearly a fifth since a low last October. The tech-focused Nasdaq Composite added 0.6 per cent, remaining at its highest point since last April.

The gains also lifted European indices. The region-wide Stoxx 600 rose 0.3 per cent and France’s Cac 40 climbed 0.1 per cent. London’s FTSE 100 traded flat after recouping early losses.

The moves came as investors prepared for the Fed’s two-day meeting, 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.

The majority of investors expect that the US central bank will refrain from raising interest rates as policymakers meet next week, but many believe the tightening campaign might resume in July.

Germany’s Dax was flat 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 7.2 per cent to a new record low of 23.2 against the dollar as Turkey eased its long-running battle to defend the currency.