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European markets are heading for a negative open Tuesday as central banks take center stage this week.
The U.K.'s FTSE 100 index is expected to open 18 points lower at 8,240, Germany's DAX down 22 points at 20,291, France's CAC down 12 points at 7,342 and Italy's FTSE MIB down 129 points at 34,618, according to data from IG.
The U.S. Federal Reserve's final two-day policy meeting kicks off Tuesday, and the central bank's monetary policy decision on Dec. 18 will be a focal point for global markets.
Traders are pricing in a 95% chance of a quarter-point cut Wednesday, according to CME Group's Fed Watch tool. Investors will also be looking out for clues to future policy moves from Chair Jerome Powell's press conference after the meeting.
The Bank of England then meets on Thursday, with markets so far pricing in only a slim chance of a final rate cut of the year.
In other news, Chancellor Olaf Scholz's invitation lost a confidence vote in the German parliament on Monday, paving the way for a snap election on Feb. 23. Scholz had wanted to lose the vote in order for fresh elections to be triggered. The move came after the collapse of his coalition government last month.
Overnight, Asia-Pacific markets traded mixed Tuesday, while U.S. stock futures inched lower Monday evening.
Data releases in Europe Tuesday will include U.K. unemployment figures and Germany's Ifo business climate and economic sentiment index. There are no major earnings releases.
Risk commentary may overshadow Fed dot plot this week, State Street strategist says
Wednesday's Fed decision will come with an updated summary of economic projections from FOMC members, including a new "dot plot" that projects the path of interest rate cuts.
However, the more interesting output from the meeting could be commentary about how the central bank views the risks of inflation and a potential rise in unemployment, said Cayla Seder, macro multi-asset strategist at State Street.
"The December SEP is interesting in that the soonest date is a whole year away. A lot can happen in a single year, so where I think we'll get a bit more color and a bit more clarity is actually in the text around the SEP as opposed to the dots themselves," Seder said.
One area of the dot plot that could be impactful is the final point, representing the terminal rate. A move higher could indicate that Fed officials think the so-called neutral interest rate is higher than they previously thought.
"We've consistently seen that rise. I think that's one thing that would hint at a hawkish cut," Seder added.
— Jesse Pound
German government failure and February snap election are headwinds for Eurozone stocks: Capital Economics
The failure of German Chancellor Olaf Scholz's government in a parliamentary confidence vote and elections tentatiuvely set for Feb. 23 mean more challenges for euro-zone stocks markets, according to Capital Economics senior economist Hubert de Barochez.
The German DAX index has climbed 22% so far in 2024, but entitled a research report after the Bunestag vote, "Headwinds to euro-zone stock markets to blow harder."
"While equities in Germany have managed to ride out weak growth and political uncertainty this year, those in France have not. We suspect that they will all fare poorly next year, as those adverse conditions remain and a trade war takes a toll, the economist wrote.
Germany's DAX index in 2024.
The European Central Bank can't undertake the policies necessary to revive the European economy, Capital Economics said. "Individual governments are arguably the best placed to drive a turnaround in the economy," de Barochez wrote. "But most of them seem either unable or unwilling to do so, and in particular those in the two biggest economies: Germany and France."
— Scott Schnipper
CNBC Pro: 3 reasons why smaller European stocks are about to outperform: Deutsche Bank
Deutsche Bank strategists are expecting smaller European stocks to significantly outperform their larger counterparts in the coming months, citing three key factors that could drive this growth.
The investment bank says small-cap stocks have the potential to gain 18% every year over the next three years, if the three key macro-economic drivers were to play out.
CNBC Pro subscribers can read more here.
— Ganesh Rao
European markets: Here are the opening calls
European markets are expected to open lower Tuesday.
The U.K.'s FTSE 100 index is expected to open 18 points lower at 8,240, Germany's DAX down 22 points at 20,291, France's CAC down 12 points at 7,342 and Italy's FTSE MIB down 129 points at 34,618, according to data from IG.
Data releases will include U.K. unemployment figures and Germany's Ifo business climate and economic sentiment index.
— Holly Ellyatt
English (US)