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European stocks steadied on Wednesday as investors remained cautious, closely monitoring the ongoing Israel-Iran conflict and awaiting the conclusion of the latest Federal Reserve policy meeting.
As of 03:05 ET (07:05 GMT), the DAX index in Germany dropped 0.1%, while the CAC 40 in France gained 0.2%, and the FTSE 100 in the U.K. rose 0.1%.
Concerns Over Israel-Iran Conflict Escalation
The Israel-Iran war has entered its sixth day, and market sentiment remains fragile due to rising concerns that the conflict could escalate. A Wall Street Journal report revealed that U.S. President Donald Trump convened senior advisers to discuss options, including potential strikes on Iran. Trump’s remarks demanding Tehran’s “unconditional surrender” and claiming that U.S. patience was “wearing thin” added to investor anxiety.
This has heightened fears that the conflict could draw in more countries in the region, further destabilizing the Middle East and impacting global markets. The possibility of broader geopolitical risks continues to weigh on market sentiment.
Focus Shifts to Federal Reserve Policy Meeting
Investors are also cautious ahead of the conclusion of the Federal Reserve’s two-day policy meeting. While the U.S. central bank is widely expected to keep interest rates unchanged, investors are keenly awaiting comments from Fed Chair Jerome Powell and other officials. Market participants will be looking for clues on the Fed’s outlook amid challenging global economic conditions, including cooling U.S. retail sales and growing concerns about a potential recession.
Markets are still pricing in two interest rate cuts by December, but this outlook could change depending on Powell’s comments during the meeting.
U.K. Inflation Slows in May
In Europe, British inflation showed signs of cooling in May. Consumer prices rose by 3.4% year-on-year in May, down from 3.5% in April. Services price inflation, a key metric for the Bank of England (BoE), also cooled to 4.7% from 5.4% in April, aligning with the BoE’s forecast for the month.
The BoE is expected to keep interest rates on hold when it meets on Thursday, following a quarter-point rate cut to 4.25% in early May. However, markets have priced in an additional two 0.25 percentage-point cuts by the end of the year.
Sweden’s Riksbank Meeting
Later in the session, Sweden’s Riksbank is set to announce its latest interest rate decision, adding to the series of central bank meetings this week.
European stocks are navigating through heightened geopolitical risks from the Israel-Iran conflict and uncertainty surrounding the Federal Reserve’s policy stance. While market sentiment remains cautious, particularly ahead of the Fed’s decision, the slower pace of inflation in the U.K. and potential changes in global monetary policy offer a glimmer of stability. Investors will be closely monitoring both the Fed’s guidance and the ongoing geopolitical developments for further direction in the markets.
