European stock markets pause before Fed update

LONDON (AFP/APP): European stock markets steadied Wednesday after the previous session’s strong rally, as investors awaited a key monetary policy update from the Federal Reserve.

The dollar was downbeat against its European rivals, while oil prices pulled back after strong gains Tuesday.

Major crude-producing countries, including Saudi Arabia and non-OPEC members like Russia, on Wednesday said they would meet in Vienna at the beginning of July to decide on whether to prolong output cuts.

Stock markets on both sides of the Atlantic had rallied Tuesday — and playing catch-up Asian indices jumped Wednesday — on twin investor-friendly developments: upbeat comments from the US and China on trade before the G20 Summit and an ECB statement hinting at a eurozone interest-rate cut.

“European markets are taking a breather in the wake of yesterday’s huge gains across the globe,” noted Joshua Mahony, senior market analyst at IG trading group.

Wall Street was steady shortly after the opening bell in New York.

Mahony added that the Fed’s rate decision Wednesday “is widely heralded as the most notable event of the week, with the recent decline in US data highlighting a shift towards another phase of easing”.

Most Fed watchers do not expect the US central bank to move interest rates at this meeting but do see it signalling that the next move would be downward — and possibly soon.

European Central Bank head Mario Draghi meanwhile on Tuesday hinted at a cut in interest rates to support the stuttering eurozone economy.

Expectations that the Bank of England will maintain its key interest rate at 0.75 percent on Thursday increased as official data released Wednesday showed that British annual inflation dipped in May.

“While we may get some hawkish noises from tomorrow’s Bank of England rate decision, there is unlikely to be a consensus for raising rates any time soon,” said Michael Hewson, chief market analyst at CMC Markets United Kingdom.