European stock markets showed upward momentum on Wednesday, buoyed by a slowdown in U.K. inflation, while market participants awaited the latest monetary policy pronouncements from the U.S. Federal Reserve.
As of 03:40 ET (07:40 GMT), Germany’s DAX index was up 0.5%, France’s CAC 40 had climbed 0.1%, and the U.K.’s FTSE 100 had gained 0.6%.
U.K. Inflation Pulls Back in August
Data released earlier on Wednesday revealed that U.K. consumer inflation increased by 0.3% on a monthly basis in August. Surprisingly, the year-on-year headline figure edged lower to 6.7% from July’s 6.8%.
The Office for National Statistics attributed this decline to reduced hotel prices and airfares, often subject to volatility, as well as food prices rising less than the same period last year.
While expectations had been for inflation to reach 7.0% due to higher energy prices, the Bank of England is still widely anticipated to announce another 25-basis-point interest rate increase at its Thursday meeting. However, slowing growth may prompt the central bank to signal that the end of its rate-hiking cycle is approaching.
Fed Rate Decision in Focus
Nonetheless, market attention on Wednesday will primarily be directed towards the U.S. Federal Reserve, which will conclude its two-day policy-setting meeting later in the day.
The U.S. central bank is widely expected to maintain interest rates within a range of 5.25% to 5.50%, following a series of 11 rate hikes out of its past 12 meetings aimed at curbing inflation.
Uncertainty surrounds the Fed’s actions in upcoming meetings this year, particularly in light of rising energy prices that could potentially reignite elevated inflation levels.
China’s PBOC Holds Rates Steady
The People’s Bank of China (PBOC) also decided to keep its benchmark loan prime rates at record lows earlier on Wednesday. This move reflects an attempt to strike a balance between supporting economic recovery and stemming further weakness in the yuan.
EU Car Sales on the Rise
In corporate news, recent data revealed that EU car sales surged 21% in August, marking the thirteenth consecutive month of sales growth as the auto industry rebounds from pandemic-related supply chain disruptions.
The European Automobile Manufacturers Association reported that just over one in five new cars sold in the European Union in August was fully electric, with sales of zero-emission models more than doubling.
Crude Oil Retreats Despite U.S. Inventory Drawdown
Oil prices experienced a decline on Wednesday, retreating from 10-month highs as markets processed expectations of a significant drawdown in U.S. crude inventories ahead of the Federal Reserve’s interest rate decision.
Data from the American Petroleum Institute, released on Tuesday, indicated a decrease of over 5 million barrels in U.S. crude inventories for the previous week. Official government data is expected later on Wednesday.
However, despite this substantial draw, traders opted to secure profits ahead of the crucial Fed decision after concerns of a significant supply deficit this year had driven prices to their highest levels since November of the prior year.
At 03:40 ET, U.S. crude futures traded 1% lower at $89.56 per barrel, while the Brent contract dropped 1% to $93.38.
In addition, gold futures declined by 0.2% to $1,950.05 per ounce, and the EUR/USD pair edged 0.1% higher to 1.0690.