Europe close: Investors play it safe ahead of the Fed

Stocks on the Continent ended much as they had started on Wednesday with investors wary ahead of the US central bank's policy announcement due out after the market close in Frankfurt, albeit following the very sharp gains seen during the previous session.

Summing up the situation facing traders, Neil Wilson, chief market analyst at Markets.com told clients: "You got to know when to hold ‘em, know when to fold ‘em. We don’t know if Powell is a gambler but will need to be pretty good at poker to navigate this situation; assailed by his president to cut and by market pricing that is almost forcing his hand."

The US Federal Open Market Committee was scheduled to release it policy statement at 1900 BST, followed by a press conference with chairman Jerome Powell at 2030 BST.

To take note of as well, central bank decisions were also scheduled on Thursday in the UK, Japan, Taiwan, Philippines and Indonesia.

In recent weeks, Fed funds futures had moved to fully price in two 25 basis point interest rate cuts by policymakers in the US before the end of the year and even odds of a third cut.

But while rate-setters in Washington D.C. were expected to reveal a more dovish bias, some analysts believed that they would shy away from fully endorsing market pricing, especially given the uncertain end game in the US-China trade war.

By the close of trading, the benchmark Stoxx 600 was essentially flat at 384.77 and the Dax was 0.19% lower to 12,308.53, but the FTSE Mibtel had added 0.41% to 21,221.38.

It was similar story in other asset classes, with the yield on the benchmark 10-year Italian Treasury note off by one basis point to 2.11%, following a powerful rally during the previous session and euro/dollar adding 0.14% to 1.2092.

On Wednesday, European Central Bank President Mario Draghi opened the door to further rate cuts, should the economic outlook not improve, triggering a wave of buying in bonds and stocks.

Front month Brent crude oil futures meanwhile were trading down by just 0.06% to $62.10 a barrel on the ICE.

In economic news, according to the Federal Office of Statistics, producer prices in Germany dipped by 0.1% month-on-month in May, pushing the year-on-year rate of change down from 2.5% for April to 1.9% (consensus: 2.1%).

Meanwhile, in April, euro area construction output shrank at a month-on-month pace of 0.8%, figures from Eurostat showed.