European stocks waver before Fed rate call

LONDON: Europe's main stock markets wavered on Wednesday, with investors tracking inflation concerns before a US interest rate decision.

Nearing midday, London stocks edged up 0.1 percent, trimming earlier gains on news of soaring UK inflation.

The pound rose as a jump in UK inflation to 2.1 percent in May added fuel to prospects of higher interest rates sooner than expected.

Sterling's gain in turn weighed on share prices of London-listed multinationals earning in dollars.

Paris stocks meanwhile rose 0.1 percent while Frankfurt slid 0.2 percent in early afternoon eurozone deals.

"The Federal Reserve takes centre stage later, with investors on high alert for any changes in outlook," said Richard Hunter, head of markets at Interactive Investor.

"The accompanying comments from the Fed meeting will be closely scrutinised, with further evidence of a strengthening recovery and inflationary pressures guiding the next steps."

US central bankers have made clear they will not alter monetary policy until they see lasting signs that employment and inflation have recovered from the unprecedented economic damage caused by the Covid-19 pandemic.

Markets mostly fell in Asia following a tepid lead from Wall Street, where a forecast-busting US inflation reading also spooked investors just as the Fed kicked off its latest two-day meeting.

Traders have been keeping their powder dry ahead of the closely watched gathering of US central bank officials, who are discussing plans for their ultra-loose measures in the face of a blistering economic recovery from last year's coronavirus-induced collapse.

Fed largesse and colossal government spending have been key to spurring the rebound and a more than one-year equities rally, with the rollout of vaccines and easing of containment measures providing extra fuel.

But there is a fear that the support -- including vast Fed bond-buying and record low interest rates -- will prove to be a double-edged sword as prices soar and the economy overheats, leading to a sharp hike in borrowing costs.

Bank officials have consistently sought to assure markets that the expected surge in inflation will be temporary and monetary policy will be kept accommodative for as long as the economy needs it.

However, traders remain sceptical, especially after the latest batch of US data, which showed the producer price index hit 6.6 percent in May, above forecasts and the highest since current records began in 2010, fuelling concerns the rises could filter through to shops.

Tuesday's reading came days after the US consumer price inflation came in at a 13-year high.

Oil prices meanwhile extended their advance, with Brent sitting at a two-year high and WTI touching levels not seen since late 2018 thanks to an expectation that demand will continue to improve this year and next.

"It has been a direct path up for oil for a month now, fuelled by optimism over rising consumption as global vaccination continues in earnest," said economist Howie Lee of Oversea-Chinese Banking Corp.

Key figures at 1145 GMT -

London - FTSE 100: UP 0.1 percent at 7,179.62 points

Frankfurt - DAX 30: DOWN 0.2 percent at 15,704.26

Paris - CAC 40: UP 0.1 percent at 6,645.88

EURO STOXX 50: UP 0.1 percent at 4,147.28

Tokyo - Nikkei 225: DOWN 0.5 percent at 29,291.01 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 28,436.84 (close)

Shanghai - Composite: DOWN 1.1 percent at 3,518.33 (close)

New York - Dow: DOWN 0.3 percent at 34,299.33 (close)

Euro/dollar: UP at $1.2127 from $1.2126 at 2100 GMT

Pound/dollar: UP at $1.4117 from $1.4083

Euro/pound: DOWN at 85.88 pence from 86.11 pence

Dollar/yen: DOWN at 109.92 yen from 110.08 yen

Brent North Sea crude: UP 0.2 percent at $74.15 per barrel

West Texas Intermediate: UP 0.2 percent at $72.24 per barrel