European stocks trade cautiously ahead of Fed rates decision

European stocks traded cautiously for a second consecutive day on Tuesday, as investors tried to gauge the Federal Reserve’s next policy move, amid the blackout period before the central bank announces its decision on interest rates next week. 

Europe’s region-wide Stoxx 600 opened 0.1 per cent lower, while France’s Cac 40 fell 0.2 per cent and London’s FTSE 100 gave up 0.1 per cent, extending losses from the previous session. 

Germany’s Dax lost 0.1 per cent, as data from the country’s federal statistics service showed that industrial orders unexpectedly fell 0.4 per cent in the month to April, well below the forecast of economists polled by Reuters, which pointed to a 0.3 per cent rise.

Traders also awaited a report on the eurozone’s retail sales, expected to have dropped 0.3 per cent year on year in April, in a sign that high borrowing costs are weighing on the bloc’s consumers.

US futures were muted, with contracts tracking Wall Street’s benchmark S&P 500 falling 0.1 per cent while those tracking the tech-heavy Nasdaq 100 were flat ahead of the New York open. 

A day earlier, survey data from the Institute for Supply Management pointed to a slowdown in the US services sector in May, which could prompt the Fed to resist raising rates when policymakers meet next Tuesday and Wednesday. 

The majority of investors expect the central bank to halt its tightening campaign at the next meeting, before resuming in July. 

In government debt markets, the yield on the 10-year US Treasury note was down 0.03 percentage points at 3.66 per cent, and the shorter-dated two-year yield was flat at 4.49 per cent. 

Meanwhile, the Reserve Bank of Australia on Tuesday increased interest rates to 4.1 per cent from 3.85 per cent, eschewing market expectations of a pause and signalling that further tightening of monetary policy might be required.

Policymakers said that inflation had passed its peak but remained “too high” at 7 per cent, as they raised rates for a 12th time in little more than a year in efforts to bring the rate of price rises back to a 2 to 3 per cent target range.

The Australian dollar rose 0.71 per cent against the US dollar, trading at $0.67 on the day, while the S&P/ASX 200 index fell 1.2 per cent. 

Asia’s markets were muted, as Hong Kong’s Hang Seng index lost 0.3 per cent while the CSI 300 index of Shanghai- and Shenzhen-listed stocks was down 0.5 per cent.

Japan’s benchmark Topix bucked the downward trend, shrugging off early losses to rise 0.7 per cent.

Japanese real wages contracted for a 12th month, according to data released on Tuesday, reinforcing expectations that the Bank of Japan will maintain its ultra-loose monetary stance.