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FTSE sinks ahead of key Fed meeting

European markets mixed ahead of key Fed meeting
Jerome Powell, chairman of the US Federal Reserve. Photo: Al Drago/Pool/Sipa USA

European markets were a mixed bag on Tuesday in London, with the FTSE 100 emulating the sombre mood in Asia and the CAC and DAX ticking up as eyes turn to the US Federal Reserve meeting.

The central bank's committee meeting kicks off on Tuesday, with many speculating that the Fed will move to taper bond purchases as the economy heads onto more stable footing with the end of lockdowns and vaccine rollouts.

Investors will also be on the lookout for comments on inflation, which has been a hot topic in financial circles in recent months.

The FTSE 100 (^FTSE) moved 0.2% lower by the closing bell. By contrast, France's CAC (^FCHI) was 0.5% higher, while the German DAX (^GDAXI) rose 0.8%.

Rallies in markets in recent days have been supported by earnings reports that have broadly beat expectations.

"Nearly 80% of the firms listed in the S&P 500 have outperformed projections. This has rallied the bulls to drag the stock market indices across their previous all-time highs," said Naeem Aslam, chief market analyst at AvaTrade.

Despite this, US stock futures traded marginally lower following lower-than-expected manufacturing data.

By the closing bell in London US markets were up, with the S&P 500 (^GSPC) rising 0.3%.

The Dow (^DJI) also headed 0.3% higher and the Nasdaq (^IXIC) was up by 0.1%, having earlier ticked up more than half a percent.

It could be a choppy ride for the next few days, despite the Dow heading to new record highs, as investors watch to see how the Federal Open Market Committee (FOMC) meeting, the employment numbers, and the Organization of Petroleum Exporting Countries (OPEC) meeting play out.

Read more: UK spending growth slows as Christmas looms 

Overnight in Asia markets pulled back. Following gains of 2.6% in Monday's session Japan's Nikkei (^N225) fell 0.4%.

The Hang Seng (^HSI) fell 0.5% and the SSE Composite (000001.SS) dropped 1.1%.

Investors across the content will be watching Australia’s central bank meeting scheduled to be held today. In recent days, the Reserve Bank of Australia’s 0.10% yield target for the April 2024 GCB has been "blown out of the water", with its yield rising to 0.80% on Friday, while the RBA yesterday, chose to buy bonds further out on the curve.

"With New South Wales and Victoria reopening along with international borders, and the economy seemingly firing on all cylinders, investors are waiting to see if the RBA does a massive U-turn on its previously ultra-dovish guidance," said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.

Watch: Will Interest rates stay low forever?