Europe midday: Shares trim gains as recession worries dampen sentiment

European shares pared gains by lunchtime with London's FTSE slipping over concerns about the impact on the pound after the government's tax-cutting agenda was unveiled in a mini-budget last week.

The pan-European Stoxx 600 was up 0.61% in midday trade. The FTSE 100 was flat, with the pound making slight gains against the US dollar and the euro.

"Stock markets have steadied in Asia and early European trade on Tuesday but that is not reflective of the mood in the markets at the moment so it may struggle to hold. The volatility in FX markets at the start of the week has been extreme but it's also been building for weeks as authorities desperately try to arrest the decline in their currencies, particularly against the US dollar," said Oanda analyst Craig Erlam.

"On Monday it was the UK that was front and centre following the mini-budget on Friday that showed total disregard for the environment in which it was being implemented. Promising much higher borrowing to fund huge tax cuts at a time of double-digit inflation that hasn't even peaked is beyond bold and the backlash is well underway.

"There's nothing wrong with being ambitious on the economy but timing is everything and when the cost is much higher interest rates, there won't be many winners and the economy simply won't see the benefit. The question now is whether the pressure both externally and from within will force a rethink in order to settle things down.

"The Bank of England did little to help. After speculation all day of an impending announcement, the central bank only sought to reassure markets that they stand ready to act but probably not until the next meeting in early November when it is armed with new macroeconomic projections. Needless to say, that reassured no one and sterling plummeted again after recovering amid the rumours of the announcement."

In equity news, travel food outlet operator SSP rallied after guiding for full-year profits slightly higher than expectations.

JD Sports fell as it it was fined along with Glasgow Rangers football club and Elite Sports by the UK’s Competition and Markets Authority after being found guilty of price fixing on official merchandise.

Merchant bank Close Brothers fell after it posted a decline in full-year operating profit, with the Winterflood business hit by a slowdown in trading activity.

Shares of Italian payments group Nexi gained after the company said it estimated an excess cash generation of around €2.8bn in 2023-2025 which can be used to pursue M&A opportunities or to return capital to shareholders.

Hugo Boss fell after Deutsche Bank downgraded the stock to ‘hold’.

Reporting by Frank Prenesti at Sharecast.com