Volkswacht Bodensee - Stocks steady, dollar dips before Fed rate decision

Recession fears linger as central banks worldwide hike borrowing costs to fight soaring inflation.

Against this background, triggering concerns of slowing demand for energy, the US benchmark oil contract WTI traded under $70 per barrel Wednesday for the first time since OPEC+ cut output a month ago in a bid to bolster prices.

"Caution is set to take centre stage ahead of the Fed's interest rate decision later (Wednesday), as investors mull what's ahead for the mighty US economy," said Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown.

Wall Street stocks were little changed in late morning trade in New York, with the rate decision to be announced in the afternoon.

European equity markets finished the day higher ahead of the European Central Bank's rate decision on Thursday.

Ahead of the announcements, data Wednesday showed unemployment in the eurozone hit a record low of 6.5 percent in March. Private US employment jumped higher as did a US services sector survey.

Interest rate worries and falling confidence in regional banks on Tuesday had sent Wall Street stocks tumbling, with losses that bled over into Asia on Wednesday.

The rapid hike in interest rates is blamed in part for the collapse of SVB bank, the first of three regional banks to collapse last month.

Analysts tip the Fed to hike rates by another quarter percentage point on Wednesday before pausing, particularly as the banking concerns are having a similar impact in slowing lending.

"We've now reached a stage in which every rate hike could have unwanted and unintended consequences," said market analyst Craig Erlam at OANDA trading platform.

Briefing.com analyst Patrick O'Hare said Fed Chair Jerome Powell will have a difficult task at his post-meeting press conference "trying to temper concerns about financial stability risk while ensuring it doesn't sound as if it is going soft on fighting inflation, which is still well above the Fed's 2.0 percent target, yet not pre-committing to further rate hikes."

Also weighing on investor sentiment were fears that Democrats and Republicans could fail to reach a deal on raising the US debt ceiling, triggering a default by the world's largest economy as early as June 1.

"It is a key event risk in the next few weeks and possibly a month or two," BNY Mellon Investment Management's Aninda Mitra told Bloomberg Television, adding that the impasse "feeds into our overall defensiveness".

Stephen Innes of SPI Asset Management said that even if a crisis were averted, it may create a drag on markets.

"As we have seen in the past, a resolution to the debt limit is likely to occur," he noted.

"The problem for risk markets is a negotiated deal may include a pullback in government spending that could negatively impact US growth."

Innes added that "downward price pressure could persist in oil markets until it becomes clear that a significant recession will be avoided and growth in global oil demand won't be stunted".

IG analyst Chris Beauchamp said "it seems OPEC will have to think about another cut in production fairly soon if a move below the March lows is to be avoided."

WTI slipped below $67 per barrel in March, with OPEC and other producers cutting back production at the beginning of April.

- Key figures around 1530 GMT -

New York - Dow: DOWN 0.2 percent at 33,621.93 points

London - FTSE 100: UP 0.2 percent at 7,788.37 (close)

Frankfurt - DAX: UP 0.6 percent at 15,815.06 (close)

Paris - CAC 40: UP 0.3 percent at 7,403.83 (close)

EURO STOXX 50: UP 0.4 percent at 4,310.18 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 19,699.16

Tokyo - Nikkei 225: Closed for holiday

Shanghai - Composite: Closed for holiday

Euro/dollar: UP at $1.1058 from $1.1005 on Tuesday

Pound/dollar: UP at $1.2548 from $1.2470

Dollar/yen: DOWN at 135.12 yen from 136.55 yen

Euro/pound: DOWN at 88.11 pence from 88.23 pence

West Texas Intermediate: DOWN 4.6 percent at $68.40 per barrel

Brent North Sea crude: DOWN 4.2 percent at $72.14 per barrel

burs-rl/bp

M.Odermatt--BTB