Europe midday: Shares waver in tight range ahead of FOMC rate decision

European stocks fluctuated in a tight range, with investors reluctant to make any big bets either way ahead of the eagerly-anticipated Federal Reserve rate decision.

At midday, the benchmark Stoxx Europe 600 index was flat, Germany’s DAX was up 0.4% and France’s CAC 40 was 0.3% firmer.

“With the rate decision not due until after the European close investors are likely to maintain their watching brief of late and the next few sessions could be highly volatile with Fed Chair Janet Yellen's press conference also to outline future projections and strategy,” said Andy McLevey, head of dealing at Interactive Investor.

Analysts are divided over whether the US central bank will hike interest rates later. If it does, it will be the first hike in nearly a decade and the Fed will be the first major central bank in the Western world to make such a move since the global financial crisis.

Deutsche Bank said futures markets imply a 30% probability that the Fed will start hiking rates on Thursday and a 60% probability of a move by the end of the year.

“We think a rate hike now would be a mistake, as inflationary pressures are low, market-implied inflation expectations have dropped to levels at which the Fed has started easing in the past and financial conditions have already tightened significantly,” the bank said.

It said that when the Fed starts hiking, equities could correct by 5% to 8%.

In such a scenario, European stocks have the potential to outperform US equities given attractive relative valuations, tailwinds from ECB easing, more earnings rebound potential and a likely further appreciation of the US dollar.

In corporate news, Royal Dutch Shell and BG Group were in the spotlight after the Australian Competition and Consumer Commission raised concerns that a merger between the two could push up prices and reduce the supply of natural gas to consumers on the east coast of Australia.

Shares in Dutch telecoms group Altice NV surged on news the company will buy Cablevision – one of the largest cable TV operators in the US – for $17.7bn.

Nordic telecom operator TeliaSonera was also on the front foot after saying it has started to reduce its presence in the Eurasian region to focus on Europe and Sweden.

In commodities, copper prices backed off the nearly two month highs they hit in reaction to news that an 8.3 magnitude earthquake had hit off the coast of Chile. The earthquake had sparked but concerns about supply disruptions in the world's biggest copper producer, but these were assuaged following reports that Chile’s largest mines had not suffered any damage.

Data released earlier showed output from construction companies in the Eurozone bounced back in July, led by Germany. Production was up by 1% month-on-month according to Eurostat, following a drop of 1.2% in June.

All eyes will be firmly on the US, with a slew of data due before the rate announcement. The current account balance, initial jobless claims and housing starts are all scheduled for release at 1330 BST, while the Philadelphia Fed survey is at 1500 BST.