European markets set for subdued start as investors wait for Federal Reserve verdict

European equity markets were expected to open largely unchanged on Tuesday, with investors concentrating on the outcome of the U.S. Federal Reserve’s policy meeting and developments in global trade discussions. Early indications pointed to a marginal uptick for London’s FTSE 100, while futures signaled a roughly 0.2 percent decline for Germany’s DAX and France’s CAC 40. Italy’s FTSE MIB hovered just below the flatline, according to data compiled by derivatives broker IG.

The cautious mood across European bourses reflects anticipation surrounding the Federal Open Market Committee’s two-day meeting, which begins later in the day. Market pricing fed through the CME FedWatch tool shows a 96 percent probability that the U.S. central bank will announce a 25-basis-point reduction in its benchmark interest rate when the decision is released on Wednesday. If confirmed, it would mark the third consecutive cut this year as the Fed attempts to cushion the American economy against slowing global growth and persistent trade uncertainty.

Beyond the widely expected move this week, traders will scrutinize Chair Jerome Powell’s post-meeting press conference for clues about the policy trajectory through year-end. Many participants hope the Fed chief will leave the door open to another reduction at the December meeting, citing recent signs of softness in the U.S. labor market. Payroll growth has moderated in recent months, and a protracted slowdown could prompt the central bank to extend its easing cycle.

Assessing economic conditions has become more challenging in recent weeks because of a partial U.S. government shutdown that has curtailed the release of several data series. Last week’s consumer inflation report was among the few major indicators to reach investors’ screens, adding to the importance of whatever guidance Fed officials provide this week. The data vacuum has intensified focus on real-time market metrics, such as bond yields and purchasing-manager surveys, to gauge the underlying strength of the world’s largest economy.

While monetary policy dominates the immediate agenda, geopolitical issues remain a pivotal influence on sentiment. Hopes for progress in the protracted U.S.–China trade dispute received a boost after negotiators from both countries reportedly agreed on a preliminary framework addressing Chinese rare-earth export practices, additional U.S. soybean purchases and the future of social-media platform TikTok. U.S. President Donald Trump and Chinese President Xi Jinping are slated to discuss the outline during a meeting in South Korea on Thursday, held on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit.

Comments from both administrations have struck a conciliatory tone ahead of the encounter, fueling expectations that the two leaders could sketch a pathway toward a broader accord. Market strategists suggest that even a partial agreement would remove a significant layer of uncertainty that has weighed on corporate investment decisions and business confidence throughout 2023.

Corporate earnings remain an additional driver for European share prices. Tuesday’s docket includes third-quarter results from Swiss drugmaker Novartis; French lender BNP Paribas; IT consultancy Capgemini; industrial-gas supplier Air Liquide; Spanish utility Iberdrola; Dutch semiconductor equipment maker ASM International; and Swiss-American peripherals manufacturer Logitech. Earlier in the day, HSBC—Europe’s largest bank by assets—reported quarterly profit that surpassed market forecasts, providing a modest positive signal for the continent’s financial sector.

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On the macroeconomic front, the European Automobile Manufacturers Association is scheduled to publish new-car registration figures for September, offering insight into consumer demand across the bloc’s auto market. Germany’s GfK consumer confidence reading for November is also due, providing an early snapshot of sentiment in Europe’s largest economy. Both data releases could influence sector-specific trading, particularly in automotive and retail shares.

Despite the steady flow of regional corporate and economic updates, attention is likely to remain fixed on monetary policy across the Atlantic. The Fed’s decision carries global ramifications, given the U.S. dollar’s central role in trade and finance. Any signal from Powell suggesting a more prolonged easing cycle could reverberate through currency markets, emerging-market assets and bond yields worldwide. Investors will also parse how the decision interacts with the European Central Bank’s stance after President Christine Lagarde last week reiterated that Frankfurt is prepared to adjust its policy tools if downside risks intensify.

With a pivotal Fed announcement, high-level U.S.–China talks and a dense European earnings calendar all converging over the next 48 hours, equity markets look set for a period of measured trading until clearer direction emerges. For many operators, the main question is whether monetary accommodation and potential trade de-escalation can offset lingering concerns about global growth.

Additional background on the Federal Reserve’s policy framework can be found on the institution’s official website, the Federal Reserve Board of Governors.

Crédito da imagem: Getty Images