Market consensus suggests the Fed will keep interest rates unchanged, marking the third consecutive pause this year. Consequently, attention will focus on commentary regarding the impact of the Iran war on the economy and, specifically, on prices.
'We will be watching the statement, which could incorporate higher inflationary pressures and a still resilient labor market. Depending on how the situation evolves going forward, we could see some rate cuts in 2026 to bolster employment (given its dual mandate of controlled inflation and full employment) and bring rates closer to the neutral level (vs none currently discounted by the market and 3 cuts discounted pre-conflict)', Renta 4 analysts noted in their morning report.
Part of the focus, however, will be on the future of Jerome Powell, in what is expected to be his final meeting as chairman of the central bank. Powell has the option to remain at the central bank for the remaining two years of his term as governor, though he has so far given no indication of his intentions amid pressure from U.S. President Donald Trump to leave the institution.
Meanwhile, the geopolitical backdrop continued to weigh on investor sentiment. Efforts to end the war with Iran were at a standstill after the Wall Street Journal indicated that Trump is dissatisfied with Iran's latest proposal to end the war between the two countries, demanding that nuclear issues be addressed from the outset.
The same newspaper noted that the president had ordered his advisors to prepare for a prolonged blockade of Iran.
On the corporate front, some concern over AI persisted after artificial intelligence-linked stocks fell on Tuesday following a report revealing that OpenAI had missed its internal growth targets.
Nevertheless, the U.S. earnings season offered a more encouraging picture overall: with just over a third of the S&P 500 having reported, 81% of companies had beaten analyst estimates.
This Wednesday will see the release of results from tech giants Microsoft, Alphabet, Amazon, and Meta Platforms, which will test the AI-driven rally.
'Investors will scrutinize their accounts and, especially, the strength of AI demand and the capex (investment) associated with its development, as well as their ability to generate cash and monetize these high investments', said Renta 4 analysts.
In the Spanish market, Santander rose 1.16% and traded at the top of the Madrid selective index after publishing its first-quarter results.
The Eurozone's largest bank by market capitalization increased its profit by 12.5% year-on-year, as revenue growth and cost reductions helped offset an increase in provisions, partly related to a compensation plan for mis-sold car finance loans in the UK.
At 0705 GMT on Wednesday, the Spanish blue-chip IBEX 35 was down 30.30 points, or 0.17%, at 17,744.60 points, while the FTSE Eurofirst 300 index of major European stocks advanced 0.17%.
In the banking sector, BBVA gained 0.64%, Caixabank was unchanged, Sabadell rose 0.40%, Bankinter shed 0.25%, and Unicaja Banco climbed 0.22%.
Among non-financial heavyweights, Telefonica retreated 0.10%, Inditex yielded 0.71%, Iberdrola dropped 0.55%, Cellnex fell 0.31%, and oil major Repsol lost 0.14%.
(Reporting by Tomas Cobos; editing by Benjamin Mejias Valencia)
