European stocks tread softly ahead of Fed

Reuters

Published Sep 20, 2017 09:47

European stocks tread softly ahead of Fed

By Kit Rees

LONDON (Reuters) - European stocks hovered in cautious trade on Wednesday ahead of a policy decision by the U.S. Federal Reserve, with rate-sensitive banking shares edging lower.

The pan-European STOXX 600 (STOXX) was flat in percentage terms, helped by buoyant energy stocks and gains among the more defensive health care (SXDP) sector, while euro zone blue chips (STOXX50E) retreated 0.1 percent.

European banking stocks (SX7P) were in particular focus, with the sector trading 0.5 percent lower as investors awaited the conclusion of the U.S. Federal Reserve's meeting for clues as to whether a third interest rate hike is on the cards for this year.

Banks, which have outperformed the broader market so far this year, are a beneficiary of higher interest rates.

"An interest rate rise would definitely be good for global banks ... there is over a 50 percent chance of one more rate rise in the U.S. before December," Rachel Winter, senior investment manager at Killik & Co, said.

She added that she would be surprised to see a rate rise in the United States today.

Deal-making was also in focus in Europe, with shares in steelmaker Thyssenkrupp (DE:TKAG) rising more than 3 percent after it struck a preliminary deal with India's Tata Steel (N:TISC) to merge their European steel operations in a 50-50 joint venture.

Though individual share price moves on the STOXX 600 were otherwise fairly muted, results spurred a 6.7 percent jump in Britain's Kingfisher (L:KGF), the biggest gainer, after the home improvement retailer reported a better-than-expected profit for the first half.

Spanish retailer Inditex (MC:ITX) fell 2 percent, however, after the Zara-owner saw gross margins eroded in the first half due to a strong euro.

Some analysts maintained their positive view on the longer-term outlook for Inditex, which is among the most richly valued stocks in the European retail (SXRP) sector.