Europe midday: Stocks push lower as Fed rate hike expectations grow

European stocks lost ground on Monday amid growing concern the Federal Reserve will raise interest rates at its next policy meeting.

At midday, the benchmark Stoxx Europe 600 index was down 1.6%, while Germany’s DAX and France’s CAC 40 were off 1.9%.

At the same time, oil prices were on the back foot. West Texas Intermediate was down 1.9% at $45.03 a barrel and Brent crude was 1.7% weaker at $47.20. The Stoxx 600 oil and gas index was down 2%.

Spreadex analyst Connor Campbell said: “Multiple reasons have been given for this sudden shift downwards, including lingering disappointment over last week’s ECB inaction (or, more accurately, lack of discussion over extending QE), the perpetual Greek problems and worries over Hilary Clinton’s health.

“Chief among the catalysts for this morning’s heavy losses, however, is the fear that the Federal Reserve will raise rates during its meeting next week.”

Comments by Boston Fed President Eric Rosengren on Friday sparked worries that the US central Bank will raise rates, after he said the economy has been more resilient to exogenous risks and that gradual tightening was likely to be appropriate.

With this in mind, investors will be eyeing more comments from Fed officials, with Fed governors Lockhart and Brainard both due to speak later on Monday. Tuesday will mark the beginning of the traditional ‘quiet period’ before the Fed’s policy meeting on 20-21 September.

Meanwhile, the European Central Bank’s decision last week not to extend its €80bn-a-month asset purchase programme continued to weigh on investor sentiment.

In corporate news, German industrial gases company Linde was under pressure as it ended talks with US peer Praxair regarding a potential merger.

Linde said: "While the strategic rationale of a merger has been principally confirmed, discussions about details, specifically about governance aspects, did not result in a mutual understanding."

Elsewhere, German utility firm E.ON was also under the cosh as the power and energy trading business it is spinning off, Uniper, was due to start trading.

In London, Primark owner Associated British Foods fell sharply despite lifting its earnings outlook, as it revealed a sizeable pension deficit.