London: European shares fell on Wednesday on uncertainty about the outcome of the US Federal Reserve monetary policy meeting and concerns if Greece can implement the necessary austerity measures to receive the next aid tranche.
There was caution over the Fed meeting and whether it could be seen as the first of a series of incremental steps to foster stronger growth to kickstart the struggling economy.
The Fed is expected to rebalance its bond holdings to be more skewed towards longer-term securities to help lower long-term borrowing costs.
“You can only take a view once the data comes out, because how do we know if stimulus is priced in,” Yusuf Heusen, sales trader at IG Index said. “If the debt is not switched it would be bearish for the market.”
“It is unlikely they will announce quantitative easing. But there might be some rhetoric in the comments that help us get a better view on where we are going.”
News that most Bank of England policymakers believed that a weakening British economy had strengthened the case for QE did little to boost UK’s FTSE 100 index which was down 0.6%.
The focus was also on Greece which is expected to announce austerity measures needed to secure the next aid injection on Wednesday and has been in talks with the European Union and the International Monetary Fund about the plan.
But most analysts believe the country will eventually default and concerns loom whether it can make the cuts necessary in the face of scant public support.
“The Greek issue is moving the market and whether something positive comes out of talks with the European Union and International Monetary Fund,” Heusen said.
French bank BNP Paribas dropped 5.4% to be the top faller on concerns about the possibility of a Greek default as well as its exposure to Italy after the country’s credit downgrade earlier this week by S&P.
“Foreign investors won’t touch these two stocks because they fear that there might be some skeletons in the banks’ closets, and liquidity is drying up as a result. But the fears are totally unfounded,” a Paris-based trader said.
The STOXX Europe 600 Banks index has fallen 44.5% since February on worries about global growth slowing and the euro zone sovereign debt crisis spreading.
Thomson Reuters I/B/E/S data showed earnings momentum for European banks has weakened, dropping a further 32% after falling 31.2% a month ago.
By 4:03pm, the pan-European FTSEurofirst 300 index of top shares was down 0.8 percent at 926.49 points after gaining 2 percent in the previous session in a lacklustre low volume rally.
A stand-out loser was Lufthansa down 4.6%, with volumes higher than its 90-day daily average, after Deutsche Bank cut the airline to “sell” from “hold” due to the firm’s weakening profit outlook.
Based on Tuesday’s close, Lufthansa currently has market-implied 10-year estimated earnings per share growth of minus 5.2%, Thomson Reuters StarMine data showed.