- ECB rate decision
- Italian parliament confidence vote
- Fears over US debt ceiling
FTSE 100: -0.89%
CAC 40: -0.81%
FTSE MIB: 0.91%
IBEX 35: -0.18%
Stoxx 600: -0.65%
European stocks were little changed as investors waited for the region's central bank rate decision and for a confidence vote in Italy's parliament.
The European Central Bank (ECB) will announce its interest rate decision at 12:45 followed by a press conference.
While the ECB is expected to keep its monetary policy unchanged, markets will be eager to hear from President Mario Draghi.
"Last month, Draghi was very careful with the message he was trying to put across and I expect more of the same time," said Alpari Market Analyst Craig Erlam.
"He'll be keen to point out the recent improvement in the Eurozone, while highlighting the risks that lie ahead in order to allay any fears of a hike in interest rates."
Speaking to the European Parliament in Brussels last month he pointed out that while the euro-area economy was recovering, unemployment at 12% remains too high.
The Eurozone jobless rate failed to budge in August, data showed yesterday.
Unemployment in Spain remains particularly worrisome with more than 25% of people without work. Even more concerning is that more than 50% of young people are still seeking jobs.
Draghi is therefore likely to face questions over the unemployment situation.
Another issue confronting Draghi is the political turmoil in Italy as Prime Minister Enrico Letta faces a confidence vote in the coalition in Wednesday.
The vote comes after Silvio Berlusconi ordered ministers in his centre-right People of Freedom party (PDL) to leave the government.
Letta rejected the resignations of the five PDL ministers and has been trying to rally up support ahead of the confidence vote to hold the coalition together and avoid elections.
US debt ceiling woes
Markets yesterday seemed unconcerned by news of a partial US government shutdown but economists warned that the failure to reach a deal on the debt ceiling will bring a greater blow.
The US government began a shutdown for the first time in 17 years on Tuesday after failing to reach a deal on the budget by the Monday midnight deadline.
The closure of the government is expected, in the worse scenario, to reduce economic growth by 0.3%.
But the debt ceiling is considered to pose a bigger threat. The government reached its $16.7trn debt ceiling in May and since then has been using emergency measures to conserve cash.
Treasury will have about $30bn in cash on hand by October 17th, barely enough to pay its bills.
"The repercussions of a deal not being done on the debt ceiling would be much worse," Erlam noted.
"With that in mind, and seeing that both sides still appear to be in no rush to broker a deal and instead appear more concerned with pointing the finger and playing politics, the next two weeks could be very tense and very negative for the markets."
Retail stocks slide
Tesco plunged after the UK supermarket chain posted a fall in half year profit that fell short of analysts' expectations.
Rival grocer Sainsbury's also slumped despite trumping Tesco with a rise in second quarter sales in line with forecasts.
A gauge of retailers posted the largest decline on the Stoxx 600 including Carrefour and Casino Guichard Perrachon.
KappAhl fell after the clothing retailer proposed paying no dividend this financial year.
Brent crude gains
Brent crude futures rose $0.028 to $107.970 per barrel on the ICE.
The euro fell 0.06% to the 1.3518 US dollar.