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AFP

Business

Stock markets mixed before crucial Fed rate call

the US Federal Reserve US Federal Reserve Christine Lagarde Stephen Innes United States Europe London

Markets are waiting to see whether or not the US Federal Reserve goes ahead with a rate hike given recent bank failures. ©AFP

London (AFP) - Wall Street fell but European stock markets rose on Wednesday as investors awaited the US Federal Reserve's latest interest rate decision following upheaval in the banking sector.

The mixed market sentiment follows a relief rally this week after financial authorities moved to prevent contagion in the banking system in the wake of the collapse of three US regional lenders this month.

Investors were now waiting to see if the Fed will continue its rate-hike campaign against inflation later Thursday or signal a possible pause.

The market has largely priced in a quarter percentage point hike.

"There isn't a fear of that rate hike, however, because market participants also think it will be one of the last ones in the Fed's tightening cycle before giving way to at least two rate cuts in the second half of the year," said market analyst Patrick O'Hare at Briefing.com.

"Some have been prone to suggest a rate hike today can be labeled a 'dovish hike,' thinking that the Fed -- should it in fact raise rates today -- will convey a desire to pause its rate hikes to allow time to assess the impact of the banking issues," he added.

A quarter-point increase would be in line with the size of the US central bank's previous rate hike in February, and mark the ninth increase since it began tightening monetary conditions last year.

Stocks moved modestly lower after trading began on Wall Street, with the Dow edging down 0.1 percent while the S&P 500 and tech-heavy Nasdaq both shed 0.2 percent.

In Europe, the main markets were modestly higher in afternoon trading days after troubled Swiss banking giant Credit Suisse was swallowed up by UBS, while Asia's main markets closed up.

With tensions in the banking sector blamed on steep hikes in borrowing costs over the past year, pressure is building on central banks to pause their monetary tightening campaign.

Stephen Innes, managing partner at SPI Asset Management, said the markets are also looking at a quarter-point hike as a message of reassurance by policymakers about the banking sector.

"The fact that they may feel obliged to hike to convince the market that everything is fine in the banking sector is a considerable problem," said Innes.

"They are making a mistake if they don't pause to allow time to figure this out," he added.

'Downside risks'

US Treasury Secretary Janet Yellen on Tuesday reiterated support for troubled lenders in the world's biggest economy.

The downing of Silicon Valley Bank and Signature Bank forced authorities to promise customers would not lose their cash, a move aimed at preventing a run on other firms.

The Fed and other major central banks have also moved to improve lenders' access to liquidity.

"The reassurances and stability measures provided by authorities in recent days appear to be having an enduring positive effect," noted National Australia Bank analyst Rodrigo Catril.

European Central Bank chief Christine Lagarde on Wednesday said recent financial turbulence could add to "downside risks" in the eurozone.

Although Lagarde did not commit to further interest rate hikes for the eurozone, she said policymakers "still have ground to cover to make sure that inflation pressures are stamped out".

Official data showed British inflation rising again after recent falls from a four-decade high.

The UK Consumer Prices Index jumped to 10.4 percent in February, increasing the prospect of the Bank of England also raising rates on Thursday.