European shares recovered on Wednesday after two sessions of declines, with the pan-European STOXX 600 index rising 0.4% to 636.81 points by 07:05 GMT. Germany's DAX also saw a 0.4% increase. This rebound was attributed to a pause in the recent oil price rally, which helped to improve risk appetite among investors. The market is keenly awaiting the U.S. Federal Reserve's monetary policy decision later in the day.
Attention is heavily focused on the Fed's decision, with markets pricing in a 93% chance of a 25-basis-point interest rate hike. This potential hike, the first since July 2023, comes amid lingering concerns about inflation, which is still running above target, and oil prices firmly above $100 per barrel. Federal Reserve Chair Kevin Warsh faces a difficult decision, as a rate hike could draw criticism from the White House, while standing pat might lead to market dissatisfaction.
Oil prices, which had been a significant driver of recent inflation fears, saw a pause in their ascent. Brent crude was down about 0.6% to around $108 a barrel, and WTI was down 0.9% to slightly below $105 a barrel. This moderation in oil prices followed industry data showing an unexpected build in U.S. crude inventories. Despite the slight pullback, prices remain near multi-month highs due to ongoing concerns about potential disruptions to Saudi Arabian oil flows. Gold, conversely, rebounded by 0.8% to approximately $4330 per ounce after a two-day decline, and the U.S. 10-year Treasury bond yield slipped to 4.9875% in Asian trade after briefly breaching the 5% mark.
U.S. stock index futures edged higher following two consecutive days of losses on Wall Street, where the S&P 500 declined half a percent and the Dow fell 0.6%. European stocks had previously dropped to three-month lows on Tuesday due to oil-driven inflation fears and intensifying tensions in the Middle East. The updated economic forecasts and rate projections from the Fed, along with Chair Kevin Warsh's press conference, are expected to provide further clues on the future trajectory of interest rates.
