European stocks higher ahead of Fed rates decision

by Jonathan Adams

The Stoxx Europe 600 closed the session with a 0.7 per cent increase, near a two-week high

European stocks gained as bond yields cooled after the US slowed the pace of its planned sales of longer-term securities, while investors awaited the Fed’s interest rate decision later Wednesday. Orsted A/S plunged 26 per cent following a $4 billion writedown.

The Stoxx Europe 600 closed the session with a 0.7 per cent increase, near a two-week high. Retailers led gains as Next Plc rallied after raising profit guidance. Orsted said it dropped the development of two US wind projects and recorded impairments as the crisis in the wind industry worsens.

The Fed is poised to hold interest rates steady at a 22-year high for a second meeting, while leaving open the possibility of another hike in December with US economic growth staying strong. In the meantime, the US Treasury increased its planned sales of longer-term securities by slightly less than most major dealers anticipated, a move that signals officials may be concerned about the jump in yields over the past several months.

We are reaching the peak tightening level and the vital question is going to be what they say about when rate cuts could come, Jean Boivin, a former Bank of Canada official and the current head of the BlackRock Investment Institute, said in an interview in London. Central banks are struggling right now to figure out what a 5 per cent 10-year yield means in terms of tightening financial conditions, and markets will wait to see how much it tempers their concerns about inflation. That is a big question that could lead to some market volatility.

The European benchmark recouped some ground over this week after coming very close to wiping out all the gains made in 2023 during the October rout. Other than the Fed decision, investors are parsing earnings statements to evaluate the health of profits even as European economies slow. Traders are also monitoring developments in the Middle-East war and their effect on oil prices.

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