European shares tread water with Fed decision looming

(Reuters) – European shares steadied after early declines on Wednesday, as technology shares helped offset losses in luxury goods, while many investors remained on the sidelines ahead of an expected reduction in U.S. borrowing costs by the Federal Reserve.

Apple Inc’s (AAPL.O) component suppliers AMS (AMS.S), STMicro (STM.PA) and Infineon (IFXGn.DE) posted some of the biggest gains on the European technology subsector .SX8P after strong pre-orders for the latest iteration of iPhone.

Tech stocks .SX8P rose 0.4%, while the pan-European STOXX 600 index edged 0.1% higher.

Early market action remained tepid ahead of the Fed’s policy statement at 2 p.m. EDT (1800 GMT), where it is expected to reduce U.S. interest rates for the second time this year.

“All eyes are going to be on the Fed. I don’t think we’re going to see much between now and when the Fed gives its update,” said David Madden, market analyst at CMC Markets.

The Fed may cut rates to keep markets from selling off but might indicate that the reduction is “more of an adjustment rather than the beginning of a rate cutting cycle”, Madden said.

Traders are currently pricing in a 56.5% chance of a quarter of a percentage point cut, a far cry from a 92% chance just a week ago, according to the CME Group’s FedWatch tool.

Equity markets were mixed after the European Central Bank’s move last week to cut rates deeper into negative territory and relaunch bond purchases with no scheduled end-date.

European stocks opened slightly lower on Wednesday, hurt by declines in Swiss luxury goods group Richemont (CFR.S) which fell 4% after UBS downgraded the luxury sector to “neutral” from “overweight.”

“The luxury goods sector has been a key outperformer this year and looks overbought on technical indicators,” UBS analysts said in a research note.

Among other decliners, DHL owner Deutsche Post (DPWGn.DE) fell 2% following U.S. rival FedEx’s (FDX.N) profit warning overnight citing the U.S.-China trade war.

Other European mail delivery firms, DSV (DSV.CO), Kuehne & Nagel (KNIN.S), Royal Mail (RMG.L), PostNL (PTNL.AS), also declined.

French utility EDF (EDF.PA) was the top gainer on STOXX 600, up 3.5%, after it said there was no need to close any of its nuclear reactors for now following the discovery of problems with weldings.