European Stock Futures Edge Lower; Caution Ahead of Fed Meeting

By Peter Nurse - European stock markets are expected to open marginally lower Monday, with activity likely to be limited with the U.K. on holiday and ahead of the week’s central bank meetings, including that of the Federal Reserve.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 0.3% lower, CAC 40 futures in France dropped 0.5%, while the FTSE 100 futures contract in the U.K. was closed.

Investors are likely to be cautious Monday ahead of the two-day U.S. Federal Reserve meeting, starting on Tuesday, which is widely expected to result in another 75 basis point interest rate hike.

There remains the possibility of a surprise 100 bps hike by the Fed, given the stubbornness of U.S. inflation, and this is likely to limit moves before Wednesday’s official announcement.

However, losses are likely to be limited with sentiment in Europe helped by the news that the People’s Bank of China cut a repo rate and also increased cash injections into the economy.

The central bank is seeking to boost growth in the second largest economy in the world, a major regional growth driver, which has been hit hard by COVID-19 lockdowns.

Additionally, the U.K. market is on holiday for the funeral of Queen Elizabeth II.

The Fed isn’t the only central bank in play this week.

The Bank of England meets on Thursday, with its gathering delayed by a week after the death of Queen Elizabeth II, and is expected to hike rates by another 50 basis points. This comes ahead of a mini-budget by the new Chancellor of the Exchequer Kwasi Kwarteng on Friday.

Thursday will be a busy day, with the Swiss National Bank, the Bank of Japan and Norway’s central bank also holding policy-setting meetings.

The economic data slate is largely empty Monday, but the first look at European business activity in September comes on Friday with the release of PMI data from the Eurozone and the U.K.

The Eurozone PMI has already spent two months below the 50 level that separates contraction from expansion, and the risk of a euro-area recession has reached its highest level since July 2020.

Economists polled by Bloomberg now put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey.

In corporate news, Volkswagen (ETR:VOWG_p) is targeting a valuation of up to 75 billion euros ($75.1 billion) for luxury car maker Porsche, it said on Sunday, in what will be Germany's second-largest initial public offering in history.

Oil prices edged higher Monday, helped by the easing of some COVID-19 restrictions in China, increasing optimism over the recovery of demand in the world’s largest importer of crude.

China has started easing curbs in Chengdu, a southwestern city of more than 21 million people and the biggest city to face lockdowns after Shanghai earlier this year. The move is expected to boost economic activity in the city.

By 02:00 ET, U.S. crude futures traded 0.1% higher at $85.82 a barrel, while the Brent contract rose 0.3% to $91.59.

Additionally, gold futures fell 0.5% to $1,675.50/oz, while EUR/USD traded 0.4% lower at 0.9980.

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