Europe close: Equities decline ahead of ECB's decision

European stocks slid on Wednesday after a disappointing reading on Eurozone inflation increased the odds of additional stimulus from the European Central Bank.

The benchmark Stoxx Europe 600 index was flat, Germany’s DAX fell 0.63% and France’s CAC 40 shed 0.18%.

As of 1634 GMT, the euro was broadly flat against the yen and gained 0.47% against the pound but fell by the same margin against the dollar, while Brent crude declined 1.86% to $43.63 a barrel.

“All of today’s trading will likely matter for nought, however, when Mario Draghi finally reveals what kind of QE concoction he has been working on,” said Spreadex’s financial analyst Connor Campbell.

On the macroeconomic front, a ‘flash’ estimate released earlier by Eurostat showed inflation in the euro bloc rose 0.1% in the year to November, unchanged from the previous month and still well below the ECB’s target of just below 2%.

Analysts had expected year-on-year growth of 0.2%, so the latest reading is likely to pile pressure on the ECB ahead of its policy decision on Thursday. Core inflation dropped to 0.9% from 1.1%, also weaker than expected.

Market participants are widely expecting the ECB to announce a cut to the deposit rate and an increase in the size and scope of its bond-buying programme.

“The ECB is likely to remain nervous that a further period of low inflation will lead to a bigger drop in inflation expectations and take action tomorrow accordingly,” said Jonathan Loynes, chief European economist at Capital Economics.

“We continue to expect both an increase in the monthly pace of asset purchases from €60bn to €80bn and a 20bp cut in the ECB’s deposit rate.”

Meanwhile, according to ADP, the US private sector created 217,000 jobs in November, exceeding expectations for a 190,000 reading and up from an upwardly revised reading of 182,000 in October.

Investors will also be turning their attention to more comments from Fed chairwoman Janet Yellen and vice chairman Stanley Fischer, who are due to speak publicly over the next couple of days, ahead of the Federal Open Market Committee’s meeting on 15 and 16 December.

In company news, pharmaceutical stocks gained, with Roche and GlaxoSmithKline rose 1.05% and 2% respectively after upgrades by Citigroup and Morgan Stanley.

Shares in beleaguered German car maker Volkswagen slid 0.07% after Standard & Poor’s cut its credit rating on the company for the second time in two months.