European Stocks Hold Steady Ahead of Fed Rate Decision

European equities traded nearly flat on Monday and remained near record levels. Market participants appreciated the growing expectations that the U.S. Federal Reserve would keep interest rates unchanged, while geopolitical rhetoric between Tehran and Washington intensified.

The pan-European Stoxx Europe 600 index remained virtually unchanged during the day, seeking direction following a four-week growth streak that ended on Friday. The dynamics of major European exchanges were also modest: Germany's DAX and London's FTSE 100 remained nearly flat, while France's CAC 40 declined by 0.2%.

Market sentiment received certain support from both declining bond yields in the U.S. and Europe, as well as dollar weakness. Investors assessed positively the latest series of U.S. economic data, which indicated a slowdown in economic activity. These included relatively weak employment figures, inflation in line with forecasts, and an unexpected 0.6% decline in retail sales in July.

According to assessments in money markets, there is currently approximately a 70% probability that the Federal Reserve will leave interest rates unchanged at its September meeting.

The sharp reduction in expectations for rate increases in recent periods has been caused by relatively weak economic data released over the latest period. These indicators have failed to provide additional arguments to supporters of the Fed's strict policy for backing monetary policy tightening in the near term.