European stocks bounce as oil and Treasury yields slide before Fed decision

European equities began Wednesday's session on a positive note, recovering somewhat from a selloff that had been fuelled by rising crude prices and a steep increase in bond yields.

• Eurostoxx rose 0.5%
• Germany's DAX gained 0.3%
• France's CAC 40 added 0.3%
• UK FTSE climbed 0.4%
• Spain IBEX advanced 0.6%
• Italy FTSE MIB increased 0.6%

The upbeat start followed a slight reduction in the stress from the two main sources of market anxiety.

Crude oil retreated after a recent rally, with Brent falling to below $108 in early trading, while the 10-year US Treasury yield dropped back under 5%, having briefly crossed above that level on Tuesday. The latter, arguably, helped ease some immediate pressure on equity valuations.

These factors are enabling European equities to bounce back from Tuesday's three-month low, a day when banks and other rate-sensitive stocks were under significant selling pressure.

Wednesday's recovery was widespread, yet it felt more like a pause rather than a full reversal, as market participants focused on the Federal Reserve's interest-rate decision due later in the session.

US stock futures also indicated a modest advance, with contracts on the S&P 500 rising 0.3% and those on the Nasdaq gaining 0.5% at the start of the session. This represented a slight recovery after US markets declined on Tuesday amid rising oil and bond yields.

Overall, the move appears to be a relief rally rather than a genuine return to risk appetite. Trading is centred on the Fed's decision, with a quarter-point rate increase widely expected. The key uncertainty is what the central bank indicates regarding further tightening, given that price pressures remain high.