Europe close: Stocks hold up ahead of Fed, but analysts undecided

European stocks came off earlier lows as oil prices recovered to finish the session comfortably higher, moving back above the $30 a barrel mark.

The benchmark DJ Stoxx Europe 600 index was higher by 0.87% by the closing bell, alongside gains of 0.89% for Germany’s DAX and 1.05% for France’s CAC 40.

Equity markets in Asia took a beating, with China’s Shanghai Composite ending down a whopping 6.4%, while Japan’s Nikkei slid 2.4% and Hong Kong’s Hang Seng fell 2.3% amid tumbling oil prices overnight.

Oil prices afterwards, with West Texas Intermediate closing up by 5.3% at $32.20 and Brent crude 4.8% firmer at $31.88.

Saudi Arabia's decision not to cut investment exacerbated concerns about oversupply, but comments from Kuwait’s OPEC governor indicating the country may be ready to cut production provided some relief.

Markus Huber, senior analyst at Peregrine & Black, said sentiment was still negative overall, but it remained to be seen whether the latest sell-off is the onset of another major leg lower or just profit-taking in light of last week's impressive gains.

“There is massive doubt that any ECB action will be able not only to boost growth but also fight disinflation with both a slowing economy in China and lower oil prices likely to lead inflation even lower," he said.

In corporate news, EasyJet shares were in the red after the budget airline said the Sharm el-Sheikh disaster and the Paris attacks hit its revenue for the three months to 31 December.

Stock in Dixons Carphone also lost ground after the electronics retailer lifted its annual profit guidance after a strong Christmas and announced plans to close 134 UK stores.

Siemens bucked the trend, racking up solid gains after the industrial group’s first quarter earnings late on Monday beat expectations and the company lifted full year profit guidance.

Royal Philips was also on the front foot after its fourth-quarter profit came in better than expected.

There were no major data releases in the Eurozone.

Better than expected readings on US consumer confidence and house prices provided a late boost to market sentiment.

Investors were also looking ahead to Wednesday’s Federal Open Market Committee policy rate decision.

Nonetheless, “it is premature for the Fed to rule out another hike in March, so risk markets are unlikely to get a major relief,” said Societe Generale.

The bank’s economists expected a mixed message.

“The post-meeting statement is set to acknowledge the recent activity slowdown and tighter financial conditions, making it more dovish than the December communiqué. However, the FOMC’s outlook for the labour market and inflation is unlikely to change materially, and the statement is likely to characterise the risks as balanced.”