Wall Street wavers with all eyes on Fed meeting

·5-min read
FTSE  Federal Reserve Chair Jerome H. Powell testifies before a House Financial Services hearing on
FTSE and Wall Street traders are waiting to hear from Fed chair Jerome Powell on interest rates. Photo: Kevin Lamarque/Reuters

The FTSE 100 and European stocks were higher this Wednesday despite the unexpected rise in inflation increasing pressure on the Bank of England to raise interest rates.

The FTSE 100 (^FTSE) recovered from earlier losses and rose 0.44% to at 7,569 points during afternoon trading, while the CAC 40 (^FCHI) in Paris gained 0.53% to 7,150 points. In Germany, the DAX (^GDAXI) rose 0.56% to 15,279.

Inflation rises for first time in four months

UK inflation has surpassed forecasts and stayed in the double digits, official figures reveal.

The rate of price increases jumped to 10.4% in February, up from 10.1% in January, according to the Office for National Statistics (ONS). The surprise figures come ahead of a decision on interest rates on Thursday.

The Bank of England, will decide whether to increase, reduce or maintain interest rates at their current level as it continues its fight to ease inflation.

Victoria Scholar, head of investment at Interactive Investor, said: “This is likely to embolden the Bank of England to continue pursuing its rate hiking path despite the potentially deflationary impact of the turmoil in the banking sector.

Read more: Bank of England poised to raise interest rates to 4.25% amid inflation surprise jump

“No doubt the Monetary Policy Meeting will be keeping a close eye on the Fed’s rate decision tonight.”

Kitty Ussher, chief economist at the Institute of Directors, said the Bank of England’s job is "not yet done": “February’s CPI inflation rate is higher than expected, driven predominantly by high monthly price rises in food, hospitality and clothing. Food price inflation is now running at 18%, up from 16.7% in January, not helped by a shortage of some salad and vegetable items in recent weeks.

"Clothing prices often rise in February as fresh stock is brought in following the new year sales, but this year the change was particularly steep. Cafes and restaurants meanwhile have been hit by the triple whammy of higher wage, energy and food costs forcing a rethink of their pricing strategies.

“In recent days some have suggested that the febrile environment in the banking sector should give central banks pause for thought before raising rates further. Today’s data suggests the opposite; the Bank of England’s job is not yet done.”

US and Asia

Wall Street wavered early Wednesday as Wall Street awaits for the Federal Reserve's latest interest rate decision amid of a fast-moving banking crisis.

The Dow Jones (^DJI) opened in the red before rising 0.12% to 32,598 points. The S&P 500 (^GSPC) climbed 0.20% to 4,010 points and the tech-heavy NASDAQ (^IXIC) gained 0.22% to 11,885.

The Federal Reserve's policy-making committee, headed by Chair Jerome Powell, will take center stage Wednesday. Market expectations have skewed firmly toward a 25-basis point rate hike or no move at all. The shift has been spurred by recent turmoil in the banking sector and the European Central Bank’s decision to hike rates by 50 basis points last Thursday.

Prior to the Silicon Valley Bank fallout, policymakers were poised to hike rates by as much as 50 basis points following a flurry of data showing a resilient economy. But now many market participants forecast a smaller point increase – or none at all.

“Based on Powell’s recent hawkish shift in early March, the market is still giving the Fed room to hike 25bps at this upcoming meeting, but will not allow the Fed to get away with more tightening beyond that,” Victor Masotti, Director of Repo Trading at Clear Street, wrote in a statement.

In Asia, Tokyo’s Nikkei 225 (^N225) climbed 1.93% to 27,466 points, while the Hang Seng (^HSI) in Hong Kong gained 1.73% to 19,591. The Shanghai Composite (000001.SS) also gained ground, rising 0.31% to 3,265 points.

FTSE 100

Back in London, the blue chip was in the red following a hotter-than-expected UK inflation reading, with rate sensitive real estate stocks leading declines.

The British Land Company (BLND.L) fell 6.22% after Morgan Stanley reduced its price target on stock, with property sector peers Land Securities Group (LAND.L) and Segro (SGRO.L) falling over 2%.

Read more: Inflation rate in surprise jump to 10.4% amid record food costs

The pound (GBPUSD=X) shot up after the Office for National Statistics revealed that inflation unexpectedly increased in February, increasing pressure on the Bank of England to raise interest rates.

Against the dollar, the pound has risen 0.2% and is heading in the direction of $1.23.

Sterling has also gained nearly 0.5% against the euro, with is worth less than 88p.

Oil markets

Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $75/barrel, with crude prices falling ahead of the interest rate decision from the Federal Reserve later.

"Fears of a banking crisis and a recession have eased, brightening the oil demand outlook at least for now," City Index senior financial markets analyst Fiona Cincotta told Reuters this week, as central banks pledged more liquidity support for commercial banks.

Watch: Markets in 3 Minutes: Can Fed Hike And Still Reassure Markets?

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