Europe close: Investors play it safe ahead of central bank meetings

European stocks edged lower as investors took profits on banks and ahead of a week full of key central bank policy meetings.

By the closing bell, the benchmark Stoxx Europe 600 had fallen 0.30%, Germany’s DAX was 0.29% lower and France’s CAC 40 had slipped 0.56%.

The Stoxx 600's gauge of lenders' shares fell 0.90% as investors kept their cards close to their chests ahead of policy meetings at the US Federal Reserve, Bank of England and Bank of Japan scheduled over the course of the following week.

Meanwhile, oil prices fell with West Texas Intermediate down by 1.78% at $52.84 per barrel and Brent crude 2.1% lower at $55.10.

Senior market analyst at LCG Jasper Lawler said: "It’s the Bank of Japan early Tuesday, The Federal Reserve on Wednesday, The Bank of England including the quarterly inflation report on Thursday and then non-farm payrolls on Friday. None of the three central banks are expected to change monetary policy but with inflation on the rise globally as oil prices recover; markets will be looking for the central banks to acknowledge this as a sign that they are turning more hawkish.

"The US dollar rose steeply toward the end of last year on expectation that the Federal Reserve would be the first in the impending tightening cycle. Since the rate hike in December the dollar has pulled back. Next week could be a key decider as to whether the dollar uptrend resumes or goes into full reversal."

French consumer confidence was buoyant at the start of 2017, with INSEE's gauge rising from 99.0 in December to 100.0, as expected.

Commenting on the data, analysts at Daiwa said: "while investor unease about the election outcome has been reflected in recent underperformance of French government bonds relative to Bunds and Spanish bonds, it remains to be seen whether households and businesses will similarly become more cautious."

Also on the data front, lending to companies and households in the euro-area rose at the end of 2016, according to data from the European Central Bank. Lending to households grew by 2% and 2.3% to companies in December compared to a year earlier.

The ECB’s broad money supply indicator M3 grew by 5% on the year in December compared to 4.8% in November, higher than the consensus of 4.9%.

On the corporate front, Swiss food and drink company Nestlé sweetened as it predicted its reduced sugar and a new advertising strategy will boost sales for its Nesquik chocolate drink after addressing consumers’ anger over its sugar content.

Airbus slipped as it announced that its helicopter deliveries rose more than 5% in 2016 delivering 418 helicopters last year, up from 395 in 2015.

Elsewhere, telecoms company BT Group reversed earlier losses after it said third-quarter revenue rose but profit declined as it deals with an accounting scandal at its Italian business and faces a “challenging” outlook in the UK. For the quarter ended 31 December 2016, revenue was up 32% to £6.12bn, compared to the previous year, while pre-tax profit fell 37% to £526m.

M&A news kept things interesting in London, as the boards of food retailer Tesco and wholesaler Booker Group – which owns Londis and Budgens – announced an agreement on the terms of a recommended share and cash merger to create the UK's leading food business. Under the terms of the merger, each Booker scheme shareholder would receive 0.861 new Tesco shares and 42.6p in cash, representing a value of £3.7bn for Booker’s ordinary share capital. Shares in both companies surged.

Swiss bank UBS was under the cosh after it reported a 47% drop in full-year net profit for 2016, although its fourth-quarter net profit was ahead of expectations.

Spain’s Banco de Sabadell on the other hand gained after despite revealing that net profit declined 51% in the fourth quarter on the back of higher provisions.

Budget carrier Easyjet flew lower but British Airways parent International Consolidated Airlines was in the black after Goldman Sachs downgraded and upgraded the stocks to ‘neutral’ and ‘buy’, respectively. Easyjet was also hit by a downgrade to ‘underperform’ from ‘neutral’ by Davy.