- Merkel fails to win majority in German election
- ECB ready to fund banks, says Draghi
- Euro-area PMI Composite beats consensus
- Fed's Dudley backs QE decision
FTSE 100: -0.72%
CAC 40: -0.62%
FTSE MIB: 0.39%
IBEX 35: -0.91%
Stoxx 600: -0.55%
An inconclusive German election and a speech from European Central Bank (ECB) President Mario Draghi saw equities in the region move lower on Monday.
German Chancellor Angela Merkel's Christian Democratic Union (CDU) party won 41.5% of votes at Sunday's federal election - but fell short of a majority to win her third term as leader of Europe's largest economy.
Merkel will need to find another coalition partner as her current partner, the Liberal Democrats, failed to gain the 5% minimum threshold required to be represented in parliament.
She will have to build a new coalition with either the Social Democrats which won 25.7% or the Green party which won 8.4%.
"With the Social Democratic party making clear their reluctance to form a coalition, the negotiations between the two main parties may not be as smooth as people had hoped, which could force some market jitters," according to Max Cohen, Financial Sales Trader at Spreadex.
"Negotiations to form German governments usually last from four to six weeks."
Markets also reacted to remarks from Draghi who said the ECB stands ready to deploy another long-term refinancing operation (LTRO) to provide funds to Europe's banking system if needed.
"While repayment of central bank credit is certainly a sign of normalisation, the resulting reduction in excess liquidity can reinforce upward pressures on term money market rates," Draghi told the European Parliament in Brussels today.
Meanwhile, euro-area services and manufacturing activity grew at the fastest pace in more than two years in September. Markit's Purchasing Managers' Index (PMI) Composite, covering both sectors, rose to 52.1 from 51.5 in August, beating the 51.8 estimate and the 50 reading that signals expansion.
Fed's Dudley defends stimulus decision
New York Fed President William Dudley on Monday defended the Federal Reserve's shock decision to keep its monetary stimulus unchanged.
The Fed surprised investors last week by saying it would maintain its monthly $85bn in asset purchases until it sees further recovery.
In a speech, Dudley argued that any changes to quantitative easing must be based on the most recent measures of economic growth.
He pointed out the drag from the recent rise in longer-term interest rates, higher taxes, lower public spending and questions over the US debt ceiling.
His comments come after James Bullard, head of the St. Louis Fed, said that a tapering could come in October.
Chemicals firm Croda was in the top spot after Credit Suisse upgraded its recommendation from 'neutral' to 'outperform' and hiked its target price from 2,600p to 3,000p.
Aberdeen Asset Management advanced after saying it expects underlying profit before tax for the full year to reach the top end of its range estimate between £431m to £477m.
National Grid declined after UBS downgraded the shares
to 'neutral' from 'buy'.
Centrica's shares declined after announcing a £240m non-cash write off on gas storage projects.
Other asset classes slide
The euro fell 0.24% to the 1.3492 US dollar.
Brent crude futures slipped $1.073 to $108.060 per barrel on the ICE.