Europe close: Stocks slip heading into ECB meeting

European shares finished lower on Tuesday after Australia’s Reserve Bank lifted interest rates again and the future of the UK government remained in doubt after a less-than-convincing confidence vote win by Prime Minister Boris Johnson.

The pan-European Stoxx 600 ended down 0.28% to 442.88, with all major bourses lower, albeit well off their session lows.

"What threatened to turn into a nasty afternoon for risk assets seems to have been headed off for now by a wave of buying," said IG chief market analyst Chris Beauchamp.

"[..] It looks like this bear market rally isn't rolling over just yet. Insider buying in tech stocks continues at a heavy pace, and this seems to have provided some comfort to the broader market.

"It is also interesting that equities have weathered the RBA’s increased pace of rate hikes, but with the ECB and US CPI still to come this week the big issues are set to make a return."

Australia's central bank raised interest rates by 0.5% overnight, the biggest increase in 22 years, and flagged more tightening to come, sending Australian equities lower. Investors are also watching for a European Central Bank meeting this week and US inflation data for signals on further rate moves.

The UK’s FTSE 100 was roughly flat although the pound rose 0.44% after Johnson survived a leadership vote.

Nonetheless, Johnson had to suffer the reality that 41% of his parliamentarians want him removed as leader after his lawbreaking over Covid restrictions, poor policy delivery and failure to deal with the cost-of-living crisis more swiftly.

It is also worse than the result of a similar vote that former leader Theresa May faced in 2018. She resigned as prime minister just six months later.

"Given that markets hate uncertainty more than anything, the fact that sterling rallied on Monday morning after the no confidence vote was triggered speaks to Johnson’s lack of popularity among investors," said Interactive Investor head of investments Victoria Scholar.

In a light day of equity news, shares in SAS slumped 14% after the Swedish government said it would not inject new capital into the loss-making airline and did not plan to be a long-term shareholder.

Swiss logistics company Interroll fell 4% after Credit Suisse cut its target price for the stock.