European Markets End Higher on Fed Speculation

Markets Reuters

European equities advanced in cautious trading on Wednesday on expectations that the U.S. Federal Reserve may signal after a meeting later in the day that it will continue to keep interest rates low for a longer period.

Continue Reading Below

However, British equities underperformed, as investors remained jittery ahead of Scotland's referendum on independence on Thursday. Three opinion polls showed Scottish supporters of staying in the United Kingdom were 4 percentage points ahead of secessionists.

Britain's blue-chip FTSE 100 index closed down 0.2 percent, against a 0.4 percent gain for the FTSEurofirst 300 index of top European shares to 1,385.09 points. The European index hit a two-week low in the previous day.

Sentiment on European markets was lifted after U.S. stocks turned positive late on Tuesday on a report in the Wall Street Journal which indicated the Fed could be less hawkish than markets have been expecting, traders said.

However, analysts said the U.S. central bank could start preparing the markets for an eventual rate hike at some point in 2015 and the Fed statement could provide some clues.

"The tapering will end in a couple of months and then they should raise rates somewhere in the middle of next year," said Ronny Claeys, senior strategist at KBC Asset Management in Brussels.

Continue Reading Below

"So they should start preparing for that and today would be an opportunity to change their wording to indicate that the rates will not stay low for a long time."

The U.S. central bank began its two-day policy meeting on Tuesday, and while it has said it does not expect to raise interest rates until 2015, recent strong economic data have led Fed officials to acknowledge they may need to move sooner than they previously anticipated.

"In previous statements, the Fed has stated that rates will not rise for a 'considerable amount of time' after the end of quantitative easing, which many took to mean the middle of next year or even later," Alpari analyst Craig Erlam said.

"If the FOMC decides to remove this from its statement, people will be forced to revise their forecasts for the first rate hike which would weigh heavily on equities."

Among top individual movers, engineering conglomerate Smiths Group fell 6 percent, the top decliner in the FTSEurofirst 300 index, after saying its full-year headline operating profit slumped 10 percent.

Adidas rose 3.5 percent after Eric Knight, founder of activist fund Knight Vinke, poured cold water on a report he was part of a group of hedge funds seeking to buy a stake in the sportswear maker to pressure management into sweeping changes.