European stock markets retreated at mid-session on Wednesday, with Wall Street expected to rebound after being dampened the previous day by announcements from the Federal Reserve and the Treasury Secretary.

According to New York index futures, Wall Street is expected to rebound by 0.17% to 0.88%, following a decline of around 1.6%. In Paris, the CAC 40 lost 0.45% to 7,099.19 around 11:35 GMT. In Frankfurt, the Dax was down 0.57%, and in London, the FTSE was down 0.88%.

The pan-European FTSEurofirst 300 index gave up 0.7%, the Eurozone EuroStoxx 50 dropped 0.37% and the Stoxx 600 lost 0.73%.

In the face of recent tensions on the financial markets, the Fed opted on Wednesday for a moderate rate hike, and while the central bank hinted that the end of the rate hike cycle could be approaching, its chairman, Jerome Powell, stressed that the central scenario did not include a possible rate cut this year. He also indicated that banking tensions could trigger a tightening of credit conditions, with "significant" implications for the economy.

"The impression given by Powell has taken away from the market any hope of interest rates falling later this year," said Stuart Cole, chief macroeconomist at Equiti Capital.

"It seems that the message central banks have given so far, that returning inflation to target is their priority, remains the message they will deliver despite the bank failures."

The markets also reacted badly to statements by US Treasury Secretary Janet Yellen, who ruled out an extension of the bank deposit guarantee beyond the current limit of $250,000, a possibility that had benefited stocks in the sector recently.

Investors will be following the monetary policy decisions of the Bank of England (BoE) after those of the Swiss and Norwegian central banks, which both raised their key rates.

STOCKS IN EUROPE

Most sectors are in the red, starting with the banking sector, where the Stoxx index is down 2.05%.

Citigroup lowered its recommendation on the sector, warning that the rapid pace of interest rate hikes would continue to weigh on economic activity and earnings.

"The fundamentals of the banking sector in Europe appear sound. But the current crisis of confidence could limit banks' appetite for risk and reduce the flow of credit", said its strategists.

In Paris, BNP Paribas lost 1.73% and Société Générale 1.68%.

At the top of the CAC 40, Sanofi gained 5.29%, the pharmaceutical group having announced that Dupixent, developed with Regeneron, had met all its evaluation criteria in a Phase III trial on "smoker's bronchitis".

CHANGES

The dollar stabilized against a basket of six international currencies after five consecutive sessions of decline, reaching a seven-week low in the morning.

Federal funds rate futures incorporate a 50% probability of a quarter-point increase in the Fed's target this year, while for Europe the markets see a tightening of around half a point more.

This divergence benefits the euro, which rises to $1.087, a gain of 0.14%.

The Swiss franc climbed slightly against the dollar following the SNB's decision to raise its key rate by 50 basis points, while the Norwegian krone climbed to its highest level in three weeks after Norges Bank raised its main rate to 3%.

RATES Benchmark bond yields were down on both sides of the Atlantic, at 3.4884% for the US ten-year and 2.275% for the German Bund with the same maturity.

OIL

Following Jerome Powell's warning on US credit conditions and last week's unexpected rise in US crude oil inventories - to their highest level for two years - the oil market lost ground.

Brent crude lost 0.6% to $76.23 a barrel, and West Texas Intermediate (WTI) 0.8% to $70.33.

(Laetitia Volga, edited by Blandine Hénault)

by Laetitia Volga