European stocks edge higher; banking sector leads ahead of Fed

European stock markets rose on Wednesday, as generally favourable reports from the banking sector bolstered confidence ahead of the critical Federal Reserve policy meeting.

At 07:55 GMT, the DAX index in Germany was 0.5% higher, the FTSE 100 in the United Kingdom was 0.5% higher, and the CAC 40 in France was 0.5% higher.

The quarterly earnings season has given European investors something to chew on as they await the Federal Reserve’s next policy announcement later in the afternoon.

Worries over the soundness of the U.S. banking sector in the aftermath of First Republic Bank’s bankruptcy over the weekend, the greatest U.S. bank failure since the 2008 financial crisis, culminated in severe losses on Tuesday.

However, the mood in Europe is upbeat, with the region’s banking sector looking much healthier.

UniCredit shares gained more than 6% after Italy’s largest bank upped its full-year outlook after recording stronger-than-expected first-quarter earnings.

The shares of BNP Paribas increased 0.4% as the eurozone’s largest bank’s first-quarter sales exceeded market expectations, aided by its thriving trading unit.

Lloyds shares increased 0.3% after the British lender reported a pretax profit of £2.26 billion (£1 = $1.2515) in the first quarter, which was more than expected, despite smaller loan impairments.

However, gains are limited Wednesday as markets await the Federal Reserve’s announcement on interest rates and a subsequent press conference later in the session.

The Federal Reserve of the United States is largely expected to raise interest rates by a quarter point, so investors will be paying close attention to Fed Chair Jerome Powell’s comments to see if cuts are probable this year, as well as his views on the status of the banking system.