Europe open: Stocks in the red amid worries about monetary tightening

European stocks fell in early trade as investors mulled over possible monetary tightening by the European Central Bank.

At 0855 BST, the benchmark Stoxx Europe 600 index was down 0.6%, while Germany’s DAX and France’s CAC 40 were off 0.7%.

Meanwhile, oil prices were on the front foot. West Texas Intermediate was up 1.4% at $49.36 a barrel and Brent crude was 1.3% firmer at $51.55.

Investors got their first chance to react to a press report after the close on Tuesday that the European Central Bank was reaching a consensus to start tapering its asset-buying programme.

According to Bloomberg, the ECB will start winding down the asset purchases ahead of the programme’s end in March next year.

In addition, market participants were still digesting comments by Richmond Fed President Jeffrey Lacker who said on Tuesday that he would have voted in favour of an interest rate hike at the September policy meeting if he had been able to vote.

"I would have dissented," Lacker told reporters in Charleston, West Virginia, where he gave a speech on the economic outlook.

The Fed last month decided to keep rates at between 0.25% and 0.50% as it waits for further evidence of improvement in inflation and the economy. The central bank indicated that it expects one rate increase this year.

Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, said: “European equity markets are on the back foot as concerns grow that central banks are going to pare back accommodative policy - with the ECB potentially tapering bond purchases and previously dovish Fed members ramping up expectations of an interest rate rise this year.

“Both equity and bond market valuations have been founded on monetary support from global central banks and have arguably become hooked on quantitative easing and low interest rates. The possibility of central banks returning to a more normal regime could see taper tantrums resume, volatility spike and investors flee.”

In corporate news, Tesco surged after reporting much-improved sales and operating profits in the first half of the year, though its pension deficit has grown to a whopping £6bn due to lower bond yields.

BHP Billiton pushed higher as it talked up the opportunities within its petroleum business during an investor briefing.

On the downside, Air Liquide fell after saying it has begun exclusive talks to sell its scuba-diving equipment making unit Aqua Lung to Montagu Private Equity.

On the data front, eurozone services PMI is at 0900 BST while retail sales for the bloc are at 1000 BST. In the US, the ADP employment report at 1315 BST is among the highlights, along with ISM non-manufacturing and industrial new orders at 1500 BST.