- ECB announces interest rate decision
- US debt ceiling fears
- Italy's Letta faces confidence vote
FTSE 100: -1.01
CAC 40: -0.98%
FTSE MIB: -0.13%
IBEX 35: -0.58%
Stoxx 600: -0.76%
Stocks in the euro-area slid as investors waited for the European Central Bank's (ECB) rate decision and continued to weigh a partial US government shutdown.
The ECB is expected to keep its monetary policy and bank rate unchanged but markets will be eager to hear what President Mario Draghi has to say.
Draghi will hold a press conference shortly after announcing the ECB's interest-rate decision, which is forecast to hold at 0.5%, at 12:45.
"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."
He is also likely to face questions over the political instability in Italy.
Prime Minister Enrico Letta faces a confidence vote in the coalition 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.
A day before the vote, leading PDL figures defied Berlusconi, saying they would back Letta.
US debt ceiling seen as biggest threat to growth
The US government began a partial shutdown for the first time in 17 years on Tuesday after failing to reach a deal on the budget by the Monday midnight deadline.
Markets yesterday seemed to shrug off the news but economists warned that while the effects to US growth were minimal, the biggest threat was failure to reach a deal on the debt ceiling.
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."
Tesco's half year figures disappoint
Tesco declined 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.
KappAhl fell after the clothing retailer proposed paying no dividend this financial year.