By Nikhil Sharma and Purvi Agarwal
(Reuters) – European shares closed slightly higher on Wednesday, after logging gains in the previous session when Germany inched closer to plans for a massive spending surge, while investors were focussed on the U.S. Federal Reserve’s interest-rate decision.
The continent-wide STOXX 600 was up 0.2%, extending gains to a fourth session.
Investors eagerly anticipated comments from Fed policymakers later in the day, against the backdrop of a global trade war and concerns of a recession in the world’s biggest economy.
The central bank is expected to leave interest rates unchanged at this meeting.
“Investors will be looking at the dot plot to see where the median Fed member believes rates will go. The consensus is it will show two more cuts this year… anything that’s different from two cuts implied by the median dot plot would move markets, either three cuts or one,” said Nicholas Brooks, economist at ICG.
German equities had jumped on Tuesday after the country’s lower house approved plans for a massive spending surge to revive economic growth and scale up military spending.
Mid-caps and small-caps in the country underperformed peers on Wednesday, falling 1.1% and 0.7% respectively. Germany’s blue-chip index fell 0.4%.
Analysts, however, say execution is critical for the funding to materialize into long-term growth. Barclays raised its year-end target for the STOXX 600 index, citing German fiscal reform raising long-term growth prospects for the region.
“(The passing of the package) has already been fully discounted by the market. What’s quite critical is how these funds are used. There’s going to be a lot of discussion and structuring on how to implement these,” said Brooks.
In Europe, industrials and energy shares were the biggest boosts to the index. Retail stocks gained 1.6%, the most among sectors, while telecommunication companies ended at the bottom.
Data showed Eurozone inflation was lower last month than first estimated, easing concerns that unexpectedly strong price pressures could prevent further ECB interest rate cuts.
Trump said on Wednesday he had discussed Russian and Ukrainian requests as well as needs for a peace deal in a call with Ukrainian President Volodymyr Zelenskiy, raising some hopes of positive developments in the conflict.
Turkey also saw some political uncertainty after authorities detained President Tayyip Erdogan’s main political rival on charges including corruption and aiding a terrorist group.
The Bank of England is set to keep interest rates on hold on Thursday.
Softcat jumped 6.5% after the IT services provider raised its full-year operating profit growth forecast.
Britain’s M&G rose 2% after the savings and investment company reported a surprise growth in annual profit.
(Reporting by Nikhil Sharma and Purvi Agarwal in Bengaluru; Editing by Rashmi Aich and Maju Samuel)
