European shares rise as oil pauses ahead of Fed rate decision

European shares climbed from their three-month low on Wednesday (Sep 16) as oil prices paused and risk appetite grew ahead of the Federal Reserve's policy decision, with the US central bank expected to raise interest rates for the first time since 2023. The pan-European Stoxx 600 index increased 0.5% to 637.09 points, with major regional indexes also gaining. Traders anticipate a 93% probability of a 25-basis-point rate hike by the Fed, the first increase under Chair Kevin Warsh.

The ECB raised interest rates for the second time this year last week, and markets anticipate another 25 basis point hike by year-end, according to LSEG data. However, euro zone wage growth has slowed, and wage deals suggest only a modest rise next year, providing policymakers with some comfort that price growth remains under control.

Oil prices dropped nearly 1% after a larger-than-expected increase in US crude inventories, despite ongoing Middle East supply disruptions. Energy shares experienced the largest decline among the Stoxx 600 components, while the travel and leisure sector rose 1.2% due to the prospect of lower fuel costs. Bond yields also eased from multi-month highs.

British inflation accelerated to 3.1% in August, up from 2.9% in July, just before the Bank of England's policy decision, and it is widely expected to keep rates unchanged. European banking stocks rose 0.5%, recovering some of Tuesday's losses. Chip-materials maker Soitec gained 13.4% after JPMorgan upgraded its stock to "overweight." Barratt Redrow increased by 11.7% after reporting higher-than-expected adjusted pre-tax profit. However, the company trimmed its home completions target for 2027.

Pan African Resources surged 5.5% after the miner reported a more than double increase in full-year revenue. British defence and engineering group Babcock International rose 2.8% after retaining its annual forecast.