European stock markets were muted on Wednesday, ahead of the latest policy statement from the US Federal Reserve later this evening.
The FTSE 100 (^FTSE) in London underperformed, falling 0.4%. The index was hit by a rallying pound. Around 70% of FTSE 100 earnings are made in dollars, so a strengthening pound makes share prices more expensive.
In the UK, data showed inflation slipped to just 0.2% in August as a government meal subsidy scheme pushed down prices.
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Investor attention was largely focused on the US Fed, which began its two-day policy meeting on Tuesday and will make a policy statement at 7pm UK time.
Jim Reid, a senior strategist at Deutsche Bank, said the statement would be “the highlight of the day for investors.”
“No changes in policy are expected at today’s Fed meeting, with the recent speech by Fed chair Jerome Powell at the Jackson Hole virtual symposium still fresh in the memory,” said Michael Hewson, chief market analyst at CMC Markets.
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“His comments that the Fed was now looking at implementing a new policy of AIT or ‘average inflation targeting’. This means that central bank policymakers would be prepared to tolerate prices rising above 2% for periods of time to compensate for other periods of time when inflation is running below target.
“This raises a number of key questions, firstly in how you determine the average benchmark, given the Fed has struggled to get anywhere near its existing 2% target for most of the last 20 years now.”
Asian stocks mostly fell overnight. The Shanghai Composite (000001.SS) dropped 0.4%, the Shenzhen Component (399001.SZ) fell 1.1%, and the Hong Kong Hang Seng index (^HSI) was flat. Japan’s Nikkei (^N225) was flat and the Korean KOSPI (^KOSPI) dropped 0.3%.