European stocks slide before Fed decision
European stock markets mostly fell yesterday as dealers waited to see whether the Federal Reserve would decide measures to stimulate the US economy at a monetary policy meeting.
London’s benchmark FTSE 100 index bucked the trend to close up 0.65 per cent at 5,819.92 points.
But in Frankfurt, the DAX 30 slid 0.45 per cent to 7,310.32 points, while in Paris the CAC 40 dropped 1.18 per cent to 3,502.09 points.
Milan fell 1.07 per cent and Madrid shed 0.70 per cent.
Company news was dominated by a possible tie-in between British arms manufacturer BAE Systems and European aerospace giant EADS, which controls Airbus.
After shooting higher on Wednesday over the announcement, BAE shares slumped 6.44 pence to 340.2 pence in yesterday’s trading as scepticism about the attractiveness and feasibility of a merger of the two politically sensitive companies. In Paris, EADS shares plunged 10.20 per cent to €25.15.
The two giants revealed they were in talks to create a global aerospace and defence leader that would better rival US giant Boeing. They envisaged BAE owning 40 per cent of the enlarged group, with EADS holding a majority 60 per cent stake.
In foreign exchange deals, the euro edged up to $1.2909 from $1.2899 late in New York on Wednesday, when the European single currency went above $1.29 for the first time for four months.
“Today sees the finale in the series of major events that have dominated over the past two weeks,” said Chris Beauchamp, market analyst IG Index trading group.
“The Fed will announce its latest policy decision, with many still expecting a burst of stimulus from (chairman) Ben Bernanke.
“What we are likely to see is an extension to the period of ultra-low interest rates but we would need to see something fairly impressive if the Fed is to avoid creating a wave of disappointment.”
The US central bank was due to conclude its two-day meeting and most economists have predicted a third round of Fed bond-buying or quantitative easing (QE3), to spur domestic growth.
US markets drifted up ahead of the decision, with the Dow Jones Industrial Average adding 0.32 per cent to 13,366.18 points in midday trade.
The S&P 500-stock index added 0.15 per cent to 1,438.74 points, while the tech-rich Nasdaq gained 0.19 per cent to 3,120.32 points.
“Expectations lean towards an announcement of a third round of quantitative easing (QE3),” said Dick Green of Briefing.com, adding that the market’s reaction to the 12.30pm announcement “could be very volatile”.