European stocks fall as dollar touches 7-month high; central bank action in focus

European stock markets extended losses in morning trade Monday as investors remained cautious ahead of earnings, key data and a European Central Bank (ECB) meeting later this week.

The pan-European STOXX 600 was down 0.68 percent with all major bourses in negative territory. European stocks followed the cautious tone set in Asia as traders mull future policy decisions by major central banks. In a speech on Friday, Federal Reserve Chair Janet Yellen said policymakers might want to consider the benefits of a “high pressure economy” and let inflation continue to rise.

This helped the dollar rise against a basket of major currencies on Monday, touching its highest level since March before paring some gains, while the 30-year U.S. Treasury yield hit a four-month high.

Some analysts suggested that Yellen’s comments could suggest a looser for longer monetary policy stance, but others said that a December interest rate hike is still on the cards given positive retail sales and employment data from the U.S. in recent weeks.

“Nothing in last week’s U.S. economic data appears to have altered expectations that the Federal Reserve will look to raise interest rates by the end of this year, probably at its meeting in December,” Michael Hewson, chief market analyst at CMC Markets, said in a note on Monday.

BPM-Banco Popolare get green light for merger

Meanwhile, the banking sector was in focus after shareholders approved a merger between Italy’s Banco Popolare and Banca Popolare di Milano (BPM) on Saturday. Shares of BPM were lower while Banco Popolare soared over 4 percent. Other Italian banks got a boost on hopes that this deal will help the overall sector.

Deutsche Bank shares were slightly lower with caution still remaining around the stock as the lender is yet to resolve a dispute with the U.S. Department of Justice (DoJ) which could cost it around $14 billion.

Pearson shares slide

In other individual stock news, Peugeot shares were in negative territory after France Info radio reported that the carmaker plans to cut more than 2,000 jobs next year.

Shares of education firm Pearson fell sharply after it reported a 7 percent decline in nine-month organic sales, which was worse than the market expected.

Swedish clothing retailer H&M said group sales in September increased by 1 percent with unseasonably warm weather having a negative impact. Shares of H&M were lower.

ECB in focus

Investors will also be looking ahead to the ECB meeting on Thursday with hopes that President Mario Draghi could give some hints as to whether the central bank might extend its quantitative easing program which is set to end in March 2017.

On the data front, euro zone September inflation was up 0.4 percent year-on-year, in line with consensus, according to the European Union’s official statistics body Eurostat.

Source: CNBC