Energy and finance stocks pull European shares lower

European stocks fell at the open on Tuesday, with weakness in energy stocks and financials ahead of policy meetings at two of the world’s biggest central banks.

The pan-European Stoxx 600 was down 0.3 per cent at the open, pulled lower by oil stocks like BP and Total. BP shares dropped 5 per cent after it slowed the pace of its share buyback scheme.

Bank stocks declined following weekend news that US regulators closed down First Republic and agreed to sell $93.5bn of its deposits and most assets to JPMorgan. The Euro Stoxx Banks index lost 0.2 per cent.

“The US financial system has been ‘saved’,” said Michael Every, an analyst at Rabobank. “Again, stock and bondholders haven’t; again rich, uninsured depositors have; and Too Big To Fail banks are now even bigger and obviously even less allowed to fail.”

Contracts tracking Wall Street’s benchmark S&P 500 were down 0.1 per cent while those tracking the tech-heavy Nasdaq 100 were flat ahead of the New York open.

The FTSE 100 was flat, propped up by HSBC, which posted strong corporate earnings. HSBC shares rose 4.5 per cent.

Investors were also looking ahead to the eurozone’s latest inflation data on Tuesday, which is expected to offer signals for the future direction of interest rates in the bloc.

The European Central Bank meets this week and has already raised its deposit rate at an unprecedented pace from minus 0.5 per cent last July to 3 per cent in March. Investors are betting on the rate to peak slightly above 3.75 per cent.

The inflation data is expected to post a slight rise to 7 per cent in April, up from March’s 6.9 per cent, boosted in part by the region’s strong services activity.

The yield on interest rate sensitive two-year Treasuries was unchanged at 4 per cent, the day before the next scheduled meeting of the Federal Reserve, which is expected to lift interest rates by 0.25 percentage points to a range of 5 to 5.25 per cent.

As the Fed announces its interest rate decision, investors will also be paying attention to its forward guidance. “Setting aside the manner in which the Fed’s message is communicated or received, the big picture is that Wednesday’s hike is the last near-certain hike”, said Mike Zigmont, head of research and trading at Harvest Volatility Management.

A measure of the dollar against six other currencies fell 0.2 per cent.

Investors were divided in Asian trading on Tuesday, with Hong Kong’s benchmark Hang Seng index rising to 0.4 per cent while Japan’s Topix fell 0.12 per cent. Markets in China remained closed for Golden Week.