- Federal Reserve meeting begins
- German investor confidence rises
- UK CPI grows at slower rate
FTSE 100: -0.36%
CAC 40: -0.34%
FTSE MIB: -0.06%
IBEX 35: -0.64%
Stoxx 600: -0.48%
Traders showed their nerves ahead of the Federal Reserve's two-day policy meeting, sending European stocks sliding.
The meeting begins in the US later Tuesday when the central bank will debate over whether the economy has improved enough to start scaling back its monetary stimulus.
According to analysts at Barclays Research, the Fed is likely to taper monthly asset purchases from $85bn to $70bn this week. However, they note that the announcement of tapering by $10-15bn in itself is unlikely to move the market.
"We think the key to gauge the market reaction would be: 1) the Fed's updated economic forecasts, especially its forecast for end-2016 to be included for the first time; and 2) the tone in the Chairman Bernanke's press conference regarding the pace/conclusion of tapering," Barclays Research explained.
Global stocks started the week higher following news Lawrence Summers bowed out of the race for the position of Federal Reserve Chairman, paving the way for current Vice Fed Chair Janet Yellen.
Yellen is favoured by investors as she is expected to support a slow tapering of quantitative easing.
"Summers, a former Treasury secretary, would have tightened central bank policy more than Fed Vice Chairman Janet Yellen," said Max Cohen, Financial Sales Trader at Spreadex.
"With the more dovish Yellen, we can expect to see less volatility than what economists expected with the appointment of Summers."
German investor sentiment improves
Economic expectations for Germany increased 'considerably' in September, according to the ZEW indicator published on Tuesday. The ZEW indicator of investor sentiment for Europe's biggest economy jumped 7.6 points in September to 49.6, beating the consensus estimate of 46.
"The financial market experts hold the view that the German economy is still gaining momentum," ZEW President Clemens Fuest explained.
UK inflation grew at a slower pace in August compared to the previous month, the Office for National Statistics (ONS) revealed on Tuesday. The Consumer Price Index (CPI), the headline measure of inflation, rose by 2.7% on the year, down from 2.8% in July, and in line with market expectations.
UK government sells Lloyds stake
Lloyds slumped after the UK government sold a £3.2bn stake in the lender.
Debenhams rose after the UK retailer said like-for-like sales rose 0.8% in the 26 weeks to August 31st, beating estimates for a 0.5% increase.
Glencore Xstrata fell as UBS lowered its rating on the miner from 'buy' to 'neutral'.
Continental declined after Schaeffler AG and Schaeffler Verwaltungs GmbH sold a combined stake of about 4% in in European car-parts maker.
Brent crude oil
Brent crude futures dropped $0.447to $109.580 per barrel on the ICE.
The euro rose 0.22% to the 1.3363 US dollar.