European stocks open mixed with Fed decision, Middle East conflict in focus

The Bank of England’s Monetary Policy Committee will give an update on its key interest rate on Thursday, a day after U.K. inflation cooled slightly to 3.4%.

“Make no mistake: despite the still elevated levels of inflation, this will be welcome news for the MPC,” Deutsche Bank’s Sanjay Raja said in a note after the print was released. “The Bank’s preferred measure (excluding indexed and volatile components, rents, and foreign holidays) [dropped] below 4% y/y for the first time since February 2022.”

Danni Hewson, head of financial analysis at AJ Bell, noted that the conflict between Israel and Iran could also impact inflation moving forward.

“The price at the [gasoline] pump played a big part in the slight fall in headline inflation but the escalating conflict between Israel and Iran has impacted the oil price in the past week, with UK motorists already bracing themselves for hikes and airfares also expected to soar,” he said.

Deutsche Bank’s Raja agreed that policymakers will be monitoring the situation in the Middle East, which would “undoubtedly complicate the MPC’s task.”

“The focus now will turn to geopolitical events and the rise in energy prices,” he said. “Higher energy prices will mean higher inflation expectations. The trump card? The labour market data. The ongoing labour market loosening should give the MPC a little more confidence in its ‘gradual and careful’ approach to dialling down restrictive policy.”

Jordan Rochester, head of FICC strategy at Mizuho Bank EMEA, agreed that the British labor market could influence sentiment at the Bank of England.

“It is the labour market news that has provided the recent dovish surprise and could prove to be the justification for a dovish shift in voting/language tomorrow,” he said.

— Chloe Taylor

Sweden’s central bank cut its key interest rate by 25 basis points on Wednesday to 2% amid weakening inflation, but pointed to geopolitical risks ahead.

“The economic recovery that began last year has lost momentum, and inflation is expected to be somewhat lower than in the previous forecast,” it said in a press release, noting “favourable conditions for stronger economic activity in Sweden,” partly because of increasing real household wages.

Annual Swedish inflation most recently came in at a cooler-than-expected 2.3% in May, according to the country’s statistics office. The central bank — known as Riskbank — aims to keep inflation at a lower 2%.

Looking ahead, the central bank warned “there are substantial risks linked to trade policy and the geopolitical tensions, not least as a result of the escalating conflict in the Middle East, which could affect economic developments abroad.”

— Ruxandra Iordache

We’re around 25 minutes into Wednesday’s trading session, and so far there’s no consensus movement among regional stocks.

The pan-European Stoxx 600 was last seen marginally lower, with sectors in mixed territory.

Major bourses are also pointing in different directions, with Germany’s DAX index slightly below the flatline while the FTSE 100 and the French CAC 40 last seen up by around 0.1%.

— Chloe Taylor

Ahead of a business update on Wednesday, Airbus raised the upper end of its dividend payout ratio and confirmed its full-year guidance.

The company said that it would extend “the upper range of the dividend payout ratio to 30-50% from the current payout ratio of 30-40%.”

Shares were last seen trading 1.4% higher.

— Chloe Taylor

U.K. government bonds, known as gilts, strengthened slightly after inflation came in in line with analysts’ expectations.

The yield on the benchmark 10-year gilt was around 2 basis points lower by 7:07 a.m. in London. Yields on 2- and 20-year gilts were down by around 1 basis point, while 5- and 30-year gilt yields remained unchanged.

Bond prices and yields move in opposite directions.

— Chloe Taylor

U.K. inflation cooled slightly to 3.4% in the year to May, data from Britain’s Office for National Statistics showed on Wednesday.

The reading was in line with analyst expectations.

A month earlier, inflation unexpectedly surged to 3.5%.

— Chloe Taylor

Good morning and welcome to CNBC’s live blog covering European financial market action and the latest regional and global business news, data and earnings.

Futures data from IG suggests sharp falls across European markets at the open, with London’s FTSE looking set to open 52 points lower at 8,827, Germany’s DAX down 245 points at 23,447, France’s CAC 40 down 75 points at 7,665 and Italy’s FTSE MIB 329 points lower at 39,568.

Global investors continue to assess ongoing fighting between Israel and Iran tensions after continued missile attacks and airstrikes on Monday.

Oil prices have risen on supply worries, and the price of gold has also increased amid a flight to safe haven assets after the conflict erupted last week.

Those prices rose further overnight, and U.S. stock futures turned lower, after U.S. President Donald Trump signaled a further escalation in attacks could be coming as he urged Iranians to evacuate Tehran.

— Holly Ellyatt

The U.S. Federal Reserve’s latest monetary policy decision is due Wednesday afternoon. Fed funds futures are pricing in an almost 100% likelihood that the central bank will keep rates unchanged, as per CME’s FedWatch tool, despite U.S. President Donald Trump’s continued pressure on Fed Chief Jerome Powell for a rate cut.

Investors will be keeping a close eye on Powell’s post-meeting comments and for the central bank policymakers’ forecast on rate policy, as the Federal Open Market Committee will be sharing members’ “dot plot” of rate expectations.

In Europe, U.K. investors will be keeping a close eye on inflation data from the U.K. for May, with economists expecting the consumer price index to have risen 3.4% in the year to May. Elsewhere, Sweden’s Riksbank publishes its latest interest rate decision on Wednesday.

There are no other data or major earnings reports due.

— Holly Ellyatt