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STOXX 600 up 0.3%
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Banks up, real estate down
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Eyes on Fed policy decision
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Wall Street futures steady
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BOE'S DILEMMA: FINANCIAL OR PRICE STABILITY? (1140 GMT) As investors await for the Fed to shed light on where policy is heading after banking chaos this month threatened transatlantic financial stability, shocking UK inflation data has just made the BoE's job more complicated. Only 24 hours ago, markets were pricing a 50-50 chance of a UK rate hike this week. That's changed after the dire CPI offered the latest reminder of how price pressures remain sticky, and now markets price an over 60% chance of a quarter point hike. "Despite the recent spell of financial markets volatility, which makes central bank decisions additionally complicated, pausing tomorrow might prove a challenge," wrote Morgan Stanley economist Bruna Skarica. And for AJ Bell investment director Russ Mould, today's print was "the worst possible news" for the BoE. "The Bank has two key roles - preserving financial stability and keeping a lid on inflation. To fulfil the former, it might have considered a pause on rates," he said. "However, the continuing surge in consumer prices means it can ill-afford any sort of let-up – unless it decides the uptick in inflation can purely be attributed to the salad and vegetable shortage which struck in February," he added.
(Danilo Masoni)
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EUROPEAN STOCKS FALL AHEAD OF FED, AS UK INFLATION SURGES (0900 GMT) European stocks are just edging into positive territory, after two straight days of gains, as traders await the Fed's policy decision later in the day, while digesting stronger-than-expected inflation figures in Britain.
After high-profile U.S. bank failures beginning March 10 and the emergency rescue of Credit Suisse over the weekend, markets appear calmer this week, with some sense that actions taken by the Fed and other central banks will keep the financial system stable. But there is uncertainty around what the Fed will announce today.
The pan-European STOXX 600 index is up 0.1%, while the UK's blue-chip FTSE 100 is edging lower after data this morning showed UK price pressures picked up a lot more than expected in February, raising the risk of another BoE rate hike on Thursday.
The STOXX banks index , which has seen sharp swings recently, is up 1%, set for a third consecutive day in positive territory as fears of a wider banking crisis abated. UBS said it would buy back 2.75 billion euros ($2.96 billion) worth of debt it issued less than a week ago, seeking to boost confidence among investors rattled by its $3 billion takeover of rival Credit Suisse.
(Joice Alves)
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RED-HOT UK INFLATION SENDS FUTURES LOWER European futures turned negative after data showed UK price pressures picked up a lot more than expected in February, including inflation that excludes food and energy, raising the chances of another rate rise from the Bank of England (BoE) on Thursday.
Money markets are pricing in a 61.6% chance the BoE will raise rates by a quarter point when it meets on Thursday, up from around 57% on Tuesday. "Today’s data seals the deal on a 25bps rate rise tomorrow but also increases the pressure for the central bank to go further and consider a 50bps move," says Michael Hewson, Chief Market Analyst at CMC Markets UK. All eyes now are on rate expectations with the Fed announcing monetary policy later in the day. With strains still evident among regional U.S. banks, the Fed is in a tough position as it decides whether to raise interest rates. Having even priced in the risk of a rate cut last week, futures now imply an 86% chance of a quarter-point rise to 4.75-5.0%. Then again, a couple of weeks ago the market had been wagering on a half-point hike.
(Joice Alves)
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JITTERY MARKETS ATTEMPT RISK-ON RALLY WHILE WAITING FOR POWELL (0717 GMT) With about 12 hours still to go before the Fed announces its policy decision, investors are attempting a bit of a risk-on rally. Comments from U.S. Treasury Secretary Janet Yellen, who told bankers that she was prepared to intervene to protect depositors in smaller banks, have helped calm some of the market's nerves, even as a scramble by embattled U.S. lender First Republic Bank to secure a capital infusion kept worries about the sector alive. The collapse of Silicon Valley Bank, which sank under the weight of bond-related losses due to surging interest rates, kicked off a tumultuous 10 days for banks, with fears of a global meltdown rattling investors. And that brings us to the main event of the day: the Fed's policy meeting, which concludes on Wednesday with the 2 p.m. EDT (1800 GMT) release of a policy statement followed half an hour later by a news conference by Chair Jerome Powell. Traders are pricing in an 85% chance of a 25 basis-point interest rate hike by the Fed and a 15% chance of no increase. Just a month earlier, the market was pricing in a 24% chance of a 50 basis-point hike. The past two weeks have upended expectations, with market funding conditions tightening sharply since the collapse of Silicon Valley Bank and a rout in Credit Suisse shares that led to a shotgun takeover on Sunday by Swiss rival UBS. Whether that's enough for central banks to stop hiking remains to be seen. The MSCI ex-Japan index rose 1.3%, while the dollar and gold traded in narrow ranges. Futures indicated European stocks would likely join in on the rally. In the corporate world, GameStop posted a surprise profit for the fourth quarter, its first since early 2021, sending the "meme stock" nearly 50% higher. Shares of another meme stock, Bed Bath & Beyond, fell below $1, leaving the retailer at risk of losing additional funding from hedge fund Hudson Bay Capital Management. The retailer reached an amended agreement with Hudson last week to temporarily lower the stock price threshold to $1 until April 3.
Key developments that could influence markets on Wednesday:
Economic events: UK inflation, US Fed policy decision
(Ankur Banerjee)
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