Europe midday: Basic resources pace decline as investors digest BoJ decision

At midday, the benchmark Stoxx Europe 600 index was down 0.9%, France’s CAC 40 was off 0.8% and Germany’s DAX was down 0.5%.

Basic resources were the worst performers as copper prices slid, with the Stoxx 600 index for the sector down 4.4%.

At the same time, oil prices were weaker, with West Texas Intermediate down 2.5% to $36.25 a barrel and Brent crude 2.6% lower at $38.54 after the Organization of the Petroleum Exporting Countries warned on Monday that supply would likely be higher than expected this year.

Stocks in Asia fell, with the exception of China’s Shanghai Composite Index, as the BoJ left rates unchanged in negative territory, kept the pace of asset purchases steady at Y80trn a year and sounded a cautious note on the economic outlook.

The central bank downgraded its inflation expectations and repeated its stance that further easing would be implemented if necessary to meet the 2% inflation target.

The BoJ pointed to external risks from emerging and commodity-exporting economies, in particular China, and the impact of US monetary policy.

Central bank meetings will remain in focus for the rest of the week as the Federal Reserve’s two-day meeting kicks off later on Tuesday, while the Bank of England rate announcement is due Thursday.

The Fed is widely expected to leave interest rates unchanged on Wednesday. Morgan Stanley now expects the US central bank to delay its next rate hike until the December meeting, which is a big departure from its previous expectation of three hikes this year.

“Even though the market is discounting the prospect of a move on rates this week, investors will be looking for signs that Fed officials are worried enough about the recent global slowdown to have revised down their ‘dot plot’ predictions of the future path of interest rate rises, which at the beginning of the year raised the prospect of at least four rate rises this year,” said Michael Hewson, senior market analyst at CMC Markets.

“Some of the more recent economic data has shown some signs of an improvement, and this has seen the prospect of a move on rates in June increase slightly from a few weeks ago. This doesn’t change the fact that the manufacturing sector continues to remain weak, as does wage growth which declined in February.”

In corporate news, Legal & General was weaker despite reporting a 14% rise in full year operating profit and lifting its full year dividend.

Antofagasta fell sharply after posting a 58% drop in full year earnings and cancelling its final dividend.

Elsewhere, Swedish retailer Hennes & Mauritz was in the red after its February sales figures failed to impress.

Beleaguered German car maker Volkswagen was also under pressure after institutional investors from around the world sued the company for €3.3bn over the emissions cheating scandal.

On the upside, French telecoms operator SFR gained after it said core operating profit rose 20% in 2015 to €3.86bn.

Data released earlier by Eurostat showed Eurozone employment rose 0.3% in the fourth quarter compared to the previous three months. Compared to the same quarter a year ago, employment increased 1.2% in the euro-area.

In the third quarter, employment gained 0.3% on the quarter and 1.1% on the year.

Still to come on the data front, US retail sales and Empire manufacturing are at 1230 GMT.