European Stocks Gain Amid Fed Rate Decision Anticipation
European stocks experienced a boost as bond yields moderated following the U.S.’s decision to slow down the sale of longer-term securities. Investors were also on the edge of their seats as they awaited the Federal Reserve’s interest rate decision scheduled for later in the day. Orsted A/S, on the other hand, faced a significant setback with a 26% drop due to a $4 billion writedown.
The Stoxx Europe 600 closed the session with a 0.7% gain, nearing a two-week high. Retailers took the lead in the gains, with Next Plc surging after revising its profit guidance. Orsted’s troubles stemmed from its abandonment of two U.S. wind projects and impairment charges, reflecting the ongoing challenges in the wind energy sector.
Federal Reserve Interest Rate Decision
The Federal Reserve is expected to maintain its current high-interest rates, which are at a 22-year high, at its second meeting. However, it keeps the possibility of another rate hike open, possibly as soon as December, given the resilience of U.S. economic growth. The move comes as the U.S. Treasury slightly increased its planned sales of longer-term securities, a step that suggests officials might be concerned about the recent surge in yields over the past few months.
Market Sentiment and Concerns
Market analysts are closely monitoring the Fed’s statement regarding the potential timing of rate cuts, given the challenges central banks face in interpreting the impact of a 5% 10-year yield on financial conditions and inflation worries. This aspect could introduce some market volatility.
European Stocks on the Rebound
The European benchmark has been on the road to recovery this week, having come perilously close to erasing all the gains made earlier this year during the October market turbulence. In addition to the Fed’s decision, investors are scrutinizing corporate earnings reports to assess the health of profits amidst the backdrop of a slowing European economy. Geopolitical events, such as the Israel-Hamas conflict, are also being closely watched for their potential influence on oil prices.
Year-End Rally Prospects
Some experts believe that the likelihood of a year-end rally has increased due to oversold conditions, an elevated put skew, and increased shorting activity. Furthermore, the anticipation of more share buybacks in November and December adds to the optimism. Ulrich Urbahn, the head of multi-asset strategy and research at Berenberg, notes that a volatility reset often occurs after the Fed meeting, which could draw more participants into equities.
In summary, European stocks posted gains in response to moderating bond yields, while the Fed’s interest rate decision and corporate earnings statements remain pivotal factors in the market. Despite economic challenges, there’s a growing sense of optimism for a year-end rally.
