Global Market: European shares recover as oil rally pauses ahead of Fed decision

European shares recovered on Wednesday after two consecutive sessions of losses, as a pause in the recent oil price rally helped ease pressure on risk assets ahead of the U.S. Federal Reserve's monetary policy decision.

The pan-European STOXX 600 gained 0.4% to 636.81 points by 0705 GMT, while Germany's DAX also advanced 0.4%. Most major European markets traded higher as investors assessed the outlook for interest rates and inflation.

Investor focus remained firmly on the Federal Reserve, with markets pricing in a 93% probability of a 25-basis-point interest rate hike. Expectations for tighter monetary policy have strengthened as the conflict involving Iran has pushed energy prices higher and raised concerns about renewed inflationary pressure.


Read more: US market: Fed’s Warsh faces tough rate call as inflation remains sticky

Oil prices take a breather

Oil prices eased on Wednesday after a strong two-day rally, providing some relief to European equities. Reuters reported that Brent crude and US West Texas Intermediate fell after an unexpected increase in US crude inventories added pressure to prices.

The decline in oil prices helped sectors that had been hit by concerns over higher energy costs to recover. Banks were among the biggest gainers, with Barclays rising 1.4% and Standard Chartered advancing 1.7%.

The two banking stocks had been among the contributors to the STOXX 600's decline to a three-month low in the previous session.

Fed decision in focus

Markets are closely watching the Fed's policy announcement later on Wednesday, with investors assessing not only the expected rate move but also signals on the future path of monetary policy.

Rising oil prices and geopolitical disruptions have complicated the inflation outlook. The benchmark US 10-year Treasury yield had also moved above 5% on Tuesday, its highest level since 2007, although it eased back below that threshold on Wednesday.

The combination of elevated energy prices, higher bond yields and expectations for tighter monetary policy has increased volatility across global markets.

Babcock shares rise

Among individual stocks, Babcock International gained 2.5% after the British defence and engineering company retained its annual forecast. Reuters reported that the company's outlook was supported by momentum across its marine, nuclear and land businesses amid higher defence spending.

The update helped reinforce investor confidence in the company's near-term outlook.

Barratt Redrow gains despite target cut

Barratt Redrow shares climbed 5.1% despite the housebuilder reducing its home completions target for fiscal 2027.

The company cited planning delays and a lower number of new sales outlet openings for the reduction. The positive share-price reaction suggested investors were focusing on the company's broader outlook despite the adjustment to its completion target.

European markets now await the Fed's decision, with movements in oil prices, bond yields and central-bank guidance likely to remain key drivers of investor sentiment in the near term.

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