European Shares Opened Wednesday Higher
European shares opened slightly higher Wednesday, as investors erred on the side of caution ahead of the U.S. Federal Reserve rate decision and key U.K. growth figures.
London’s FTSE 100 Index was up 0.2% to 5722.32, Germany’s DAX increased 0.5% to 6625 and Paris’s CAC 40 Index rose by 0.2% to 3175.5.
“Ahead of the Federal Open Market Committee outcome today trading is likely be relatively restrained, with the risk rally struggling to make much headway,” said Crédit Agricole Corporate & Investment Bank.
Still, Crédit Agricole doesn’t expect the meeting to throw up any material changes in the monetary policy outlook. There will likely be small adjustments to the Fed’s economic projections, including lower unemployment and higher near-term inflation, said Crédit Agricole. However, it doesn’t believe the changes will be significant enough to suggest a shift in policy. “We believe the FOMC supports the current exceptionally accommodative policy stance but there is little sentiment for additional stimulus at the current time.” The FOMC announcement is due after the European closing bell, at 4.30 p.m. GMT.
There is also reason to be cautious in the U.K., where the first release of first-quarter gross domestic product data is due at 8.30 a.m. GMT. “The U.K. economy will likely avoid a technical recession, though by a slim margin and underlying growth will remain flattish,” said Crédit Agricole. It expects the data to show a 0.2% rise on the quarter.
As well as these two events, traders noted simmering concerns about the euro-zone crisis. “For now, the impact of the European Central Bank’s LTROs [Long-Term Refinancing Operations], the Greek debt restructuring and technocrat-led governments in Italy and Greece have eased tensions over the euro-area sovereign crisis,” said Standard Chartered. “However, near-term political risks remain high, with a general election in Greece and France, state election in Germany and a referendum on ratifying the ‘fiscal compact’ in Ireland all in May-June.”
Standard Chartered added that economic recession will make it difficult to cut fiscal deficits and stabilize government debt in line with targets agreed with the EU Commission.
Although the opening calls are subdued, the European technology sector may get a boost from solid second-quarter earnings from U.S. technology giant Apple Inc AAPL Results released after the U.S. closing bell showed the company’s profit nearly doubled, as it reported strong iPhone and iPad sales. Apple posted a second-quarter profit of $11.62 billion, up 94% from $5.98 billion a year earlier.
In the European foreign exchanges, the euro was a little weaker against the dollar. By 0600 GMT, the single currency was trading at $1.3188 from $1.3198 late Tuesday in New York. The dollar was at ¥81.36 from ¥81.32.
Data have been compiled by Wall Street Journal.
