STOXX 600 hits one-week low as banks, insurers slide

FRANKFURT: European shares fell more than 1 percent at close on Tuesday, weighed down by rate-sensitive sectors, as investors turned cautious in the run-up to the US Federal Reserve’s highly anticipated monetary policy verdict on Wednesday.

The pan-European STOXX 600 index closed down 1.15 percent to 550.73 - a one-week low - with financials, banks and insurance carrying losses between 2 percent and 2.1 percent.

Germany’s DAX, France’s CAC 40 and Britain’s FTSE 100 also incurred steep losses.

The Fed’s two-day policy meeting is widely expected to conclude in a 25-basis-point interest rate cut on Wednesday, potentially the first dovish policy verdict this year following signs of a weaker US job market. Some traders even see a potential 50-bps cut.

“If the Fed did (cut by) 50 bps, you could interpret that things were worse than we thought they were, that the jobs market was slowing down or there was something happening with economic figures that we weren’t seeing,” said Rebecca Chesworth, a senior equities strategist at State Street Investment Management.

“That could be interpreted either way because we’re in a market which can flip very quickly,” she said.

The decision will also come at a time when investors have also been worried about political interference in the US central bank’s independence.

US President Donald Trump’s nominee Stephen Miran was sworn in to the Fed’s Board of Governors on Tuesday, adding a new voice around the policy table, while Lisa Cook will also attend the meeting, as an appeals court blocked Trump’s efforts to fire her.

“The market now is certainly awaiting not so much the interest rate decision of tomorrow, but will be looking for answers about future monetary policy,” said Teeuwe Mevissen, senior market economist at Rabobank.

Shares of hiring firms took a hit after SThree issued a profit warning, sending shares of the British employment service provider down 26 percent to their lowest level since December 2008.

Other recruiters also recorded losses, with Adecco Group falling 5.1 percent, Hays down 4.1 percent and Randstad shedding about 3 percent.

The luxury index meanwhile rose 0.2 percent, even as L’Oreal dropped 2.9 percent after Jefferies downgraded the cosmetics giant to “Underperform” from “Hold”.