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European stocks edge lower as key Federal Reserve rate decision looms

By Scott Kanowsky -- European shares declined in early trading on Monday, with investors looking ahead to a Federal Reserve meeting and key economic data this week.

At 05:23 ET (10:23 GMT), the regional Stoxx 600 fell 0.64%, the DAX index in Germany traded 0.63% lower, the FTSE 100 in the U.K. dropped 0.19% and the CAC 40 in France decreased by 0.64%.

Adding to the cautious sentiment was data from Germany showing that Europe's largest economy unexpectedly shrank in the fourth quarter. Gross domestic product in the country contracted by 0.2%, down from growth of 0.5% in the prior quarter, stoking concerns that Germany may be edging into a long-foreseen recession. Economists had anticipated that the reading would stagnate.

Inflation in Spain also rose for the first time since July, according to preliminary data. European Union-harmonized consumer prices in the country increased by 5.8% year-on-year, up from 5.5% in December and well above economists' estimates of 4.7%.

Meanwhile, equities in Europe received a mixed handover from Asia.

Chinese stocks rose after markets in the country reopened following a week-long holiday. Traders bet that the economy received support from its first Lunar New Year festivities without COVID-19 restrictions in three years. State media reported that domestic travel and consumption had bounced back sharply in the past week.

The Chinese government also reiterated over the weekend that it plans to shore up spending and drive local consumption. Business activity data due out this week is expected to provide a further glimpse into how much China has benefited from the scaling back of anti-COVID measures.

However, broader Asian markets retreated as focus turns squarely to a Federal Reserve meeting this week. While the central bank is widely anticipated to raise interest rates by 25 basis points, its outlook on monetary policy will be closely watched, given that recent data painted a somewhat mixed picture of the world’s largest economy.

Technology shares in Hong Kong, including Alibaba Group (HK:9988) and Tencent Holdings Ltd (HK:0700), were some of the worst performers for the day. A slew of U.S. tech earnings is scheduled to be released this week, with traders keen to find any clues about the health of the industry.

Indian stocks also sank for a third straight session, with the Nifty 50 and BSE Sensex 30 indexes hitting a three-month low as a rout in shares under the Adani Group showed little signs of easing.

In European corporate news, Ryanair Holdings PLC (IR:RYA) says it expects to see strong passenger demand over its key Easter and summer travel seasons, as more tourists from Asia and North America return to Europe due to the reopening of China's economy and recent strength in the U.S. dollar.

Shares in Renault SA (EPA:RENA) slumped after the French carmaker announced that it would cut its stake in Japan's Nissan (TYO:7201) to 15% as part of a revamping of their long-standing alliance.

Koninklijke Philips NV (AS:PHG) shares, meanwhile, posted their biggest gains since March 2020. The Dutch medical technology reported better-than-expected fourth-quarter earnings and announced that it would slash 6,000 jobs to help boost profits.

Unilever PLC (LON:ULVR) gained as well, with analysts reacting positively to the naming of Hein Schumacher as the consumer goods giant's new chief executive officer.

Elsewhere, oil markets were weighing the impact of the Lunar New Year holidays on demand in China. By 05:24 ET, U.S. crude futures were 0.51% lower at $79.27 a barrel, while the Brent contract slipped by 0.43% to $86.03 per barrel.

Additionally, gold futures edged down 0.12% to $1,927.00/oz, while EUR/USD was 0.42% higher at 1.0913.

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