By Harry Robertson
LONDON (Reuters) – European shares struggled for direction on Wednesday while U.S. futures ticked up after a selloff on Wall Street, as investors waited for the Federal Reserve rates decision later in the day.
Meanwhile, Turkish stocks, bonds and the lira all slid, helping boost the safe-haven U.S. dollar, after authorities detained President Tayyip Erdogan’s main political rival on Wednesday.
The pan-European STOXX 600 index was last flat after rising for the three previous sessions, boosted by Germany’s overhaul of its debt rules to spend far more on defence and infrastructure.
Germany’s DAX index fell 0.3% after hitting a record high on Tuesday.
U.S. equity indices slid on Tuesday as investors continued to worry about a slowdown in growth. The S&P 500 shed 1.1% and tech stocks were particularly hard hit with the Nasdaq index falling 1.7% on Tuesday.
Futures pointed to a higher open on Wall Street on Wednesday with S&P contracts ticking up 0.3%.
U.S. stocks have tumbled this year as U.S. President Donald Trump’s stop-start tariffs have sown uncertainty among companies, households and investors.
European shares have fared much better, thanks to plans to ramp up defence spending in response to Trump’s more isolationist policies, the major fiscal changes in Germany, and hopes of an end to the war in Ukraine.
“There’s still a continuation of the notion of a U.S. growth slowdown relative to expectations,” said Tim Graf, head of EMEA macro strategy at State Street.
“There’s a realisation that growth will probably get worse before it gets better.”
Investors were also keeping an eye on geopolitics, after Israeli airstrikes on Tuesday pounded Gaza and killed more than 400 people, and Russian President Vladimir Putin refrained from endorsing a full 30-day ceasefire in Ukraine.
In currencies, the dollar index ticked up 0.3% to 103.61 after dropping to a five-month low of 103.19 on Tuesday as the euro rallied on the approval of the German spending bill by parliament’s lower house. Flows out of Turkey boosted the U.S. currency, analysts said.
The dollar rose against the yen after the Bank of Japan held rates as expected and was last up 0.4% at 149.83.
Attention now turns to the Fed, which traders expect will hold rates in the 4.25%-4.50% range. Investors will focus on new economic projections amid tumbling stock markets and signs of tightening credit.
Markets are pricing in almost 60 basis points of easing this year from the Fed, with the first cut fully priced in for July, LSEG data showed.
TURKISH SELL-OFF
The Turkish lira slid in its biggest daily fall since the peak of the country’s most recent currency crisis in June 2023 and last traded at around 38 per dollar, down around 4%.
Investors ditched Turkish assets after authorities detained Ekrem Imamoglu, the Istanbul mayor, on Wednesday on charges including corruption and aiding a terrorist group. The main opposition party called the arrest “a coup against our next president”.
Turkey’s main stock index was last around 7% lower and government bond prices dropped as analysts said the arrest raises concerns about economic reforms in Turkey.
“Traders had become increasingly complacent, and that spell has now been broken, with dramatic results as traders reprice Turkey’s political risk premia, triggering this morning’s sharp lira selloff,” said Nick Rees, head of macro research at Monex Europe.
Asian stocks struggled for direction overnight, with Japan’s Nikkei 225 index down 0.25% but China’s CSI 300 inching slightly higher.
(Reporting by Harry Robertson in London, additional reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong, Jamie Freed, Lincoln Feast, Joe Bavier, William Maclean)
