US stocks fell on Wednesday, as markets struggled to find direction as investors waited for the Federal Reserve next week to set interest rates for the world’s largest economy.
Wall Street’s benchmark S&P 500 lost 0.3 percent, giving up early gains. The tech-heavy Nasdaq Composite fell 1 percent.
European indices followed Wall Street lower. The region-wide Stoxx 600 ended the day down 0.2 percent while France’s Cac 40 fell 0.1 percent. London’s FTSE 100 traded flat.
The moves come as investors prepare for the Fed’s two-day meeting next week, which priced the market unchanged from the Fed’s target range of 5.25-5.5 percent.
Many believe the tightening campaign will continue in July after strong economic data put the Fed under pressure to dampen demand enough to control inflation.
Until then, markets have adopted a “wait-and-see approach, hoping that the disinflationary narrative is well in place”, said Samy Chaar, chief economist at Banque Lombard Odier et Cie SA.
Meanwhile, the Russell 2000 index of small-cap companies rose 1.7 percent, pushing the benchmark to its highest level since the US banking crisis in March.
The index has risen nearly 8 percent since the end of May, outperforming the S&P 500 and the Nasdaq Composite over the same period, which both rose 2 percent.
“Small-cap stocks are rising primarily on the back of a recovery in US regional bank stocks, which this week re-entered the investment-grade bond market for the first time since the beginning of the banking crisis,” said Francesco Pesole, FX strategist at ING.
The KBW regional banking index added 2.8 percent on Wednesday, extending its rally from the previous session.
Germany’s Dax ended 0.2 percent lower after data showed industrial production in the eurozone’s largest economy rose 0.3 percent in April, rebounding from last month’s contraction but missing expectations of economists of a 0.6 percent increase.
The moves came a day after a survey by the European Central Bank showed that consumers continued to lower their expectations for inflation in the eurozone.
The data is being closely watched by traders ahead of an ECB meeting next week where it is expected to raise its deposit rate from the current level of 3.25 percent, to ward off lingering inflation.
Annual consumer prices in the 20-country single currency bloc rose 6.1 percent in the year to May, down from 7 percent in April, but investors expect they will remain too high to convince policymakers to stop on raising rates.
“While the ECB welcomes the lowering of inflation expectations, its work is far from done,” said Mohit Kumar, chief European financial economist at Jefferies.
Asian equities were mixed, with Hong Kong’s Hang Seng index adding 0.8 percent but Japan’s Topix down 1.3 percent.
China’s CSI 300 lost 0.5 percent after data showed China’s exports contracted more than expected in May, further dampening the country’s hopes for a strong economic recovery from in the Covid-19 pandemic.
Exports contracted 7.5 percent compared with the same period a year earlier, below the forecast of analysts polled by Reuters, who had expected a contraction of 0.4 percent.
The Turkish lira fell as much as 7.6 percent to a new record low of 23.2 against the dollar as Turkey eased its long-running battle to defend the currency.
