Europe close: Stocks drop despite dovish Fedspeak

European stocks tracked losses on Wall Street, despite dovish comments from a key Fed official overnight, although weakness in energy futures were a clear drag.

The benchmark Stoxx Europe 600 index fell 1.03% or 3.51 points to 338.72, France’s CAC 40 surrendered 1.19% and Germany’s DAX skidded 0.43% lower.

Stocks in the US ended higher on Monday on the back of a dovish speech by Federal Reserve governor Lael Brainard, who said at the Chicago Council on Global Affairs that although economic progress is being made, it would be wise for the Fed to keep monetary policy loose.

In addition, Minneapolis Fed President Neel Kashkari told CNBC that policy makers should take their time to when it comes to making a decision on rates.

Goldman Sachs cut its odds of US rate hike next week to 25% from 40% and lifted its odds that the next increase will come at the December meeting to 40% from 30% following a series of mixed comments from Federal Reserve officials that culminated in Brainard’s speech.

Together, the changes lower Goldman’s cumulative odds of at least one increase this year to 65% from 70%.

“Policymakers expressed a wide range of views, but a common element was the lack of a clear signal that the FOMC is prepared to raise rates as soon as next week’s meeting. If action were likely, we would normally see an effort to raise market expectations, such that a rate increase did not startle markets. Thus, the lack of a signal is meaningful, and lowers the probability of an increase,” the bank said.

Oil prices retreated after the International Energy Agency downgraded its forecast for global oil demand for 2016 and 2017 and said rebalancing the oil market would take longer than previously thought.

By the closing bell, West Texas Intermediate crude oil futures were down 2.5% to $45.18 a barrel while Brent crude was off 1.92% at $47.41.

In macroeconomic news, investors digested a survey from the ZEW Center for European Economic Research in Mannheim that showed German economic sentiment held steady in September.

The index of investors and analysts' expectations came in at 0.5, in line with the previous month but falling short of analysts’ expectations for an improvement to 2.5.

The current expectations index, meanwhile, declined to 55.1 in September from 57.6 in August, missing expectations for a reading of 56.0.

On the corporate front, Swiss global private markets investment management company Partners Group rallied following well-received interim results.

On the downside, UK online grocer Ocado was under the cosh after it reported a jump in quarterly retail sales but cautioned over margin pressure.