European equities trod water on Tuesday as investors awaited testimoney from Fed chief Ben Bernanke they hope will point to further stock-boosting monetary stimulus as waning global growth weighs on the outlook for company earnings.
The FTSEurofirst was down 0.76 points, or 0.1 percent at 1,042.95 by 1028 GMT, with the index trapped in a range between 1,030 and 1,050 as the lack of any incentive to add risk kept investors on the sidelines.
The market is precipiced on a lot of central bank action but that is all there is. It is like driving a car on fumes -- after the liquidity is pumped in to fuel the economy, growth must come, and at the moment there is not any really any, Robert Quinn, European strategist at Standard & Poor's equity research in London, said.
Volumes were just 23 percent of their 90-day average reflecting investors' cautious approach, as did the performance of cyclical stocks such as banks and miners.
We are in a state of flux ... and once you delve into the characteristics of the market, defensives are expensive and no one really wants to go near the more cyclical names, Quinn said.
Defensively perceived equities remain a potentially expensive investment for new investors with food and beverage stocks trading on around 17 times price-to-earnings, while despite trading on a 12-months forward PE of 7.8 times miners remain too risky given the economic outlook.
Still, risk appetite would improve should U.S. Federal Reserve Chairman Bernanke hint at the potential for more quantitative easing in two days of Congressional testimony starting on Tuesday. His comments come after weak U.S. retail sales data and a cut in the International Monetary Fund's global growth forecast.
Equity markets need a policy response to bounce higher from a cool, disagreeable and ... static summer, and action from the Fed looks more likely in the near term than from Europe, said Merrill Lynch Wealth Management, keeping its neutral stance on equities.
Coordinated central bank action in Europe and China has aided a FTSEurofirst rally of 9.3 percent in the last six weeks, but the index remains more than 5 percent below its 2012 highs, hit in March.
The cautious tone struck in minutes of the Fed's most recent meeting published last week have muted hopes of a strong message from Bernanke, however, while the summer holiday season is also helping keep markets in a tight range.
With the Fed keeping its cards close to its chest on the prospect for more stimulus in the face of waning global growth, the outlook for earnings growth, which has already been revised down in 2012 by around 6 percent in Europe, remains murky.
Telecom equipment maker Alcatel-Lucent tumbled more than 12 percent after saying it will miss 2012 profit guidance following a 40 million euro ($49 million) loss in the second quarter.
Its warning knocked Nokia, which fell 4.8 percent as Jefferies downgraded its rating for the stock and network gear rival, unnerving investors already wary about the Finnish company's quarterly results due on Thursday.
Short-selling bets that the Finnish manufacturer's shares will weaken have risen to an all-time high ahead of its second quarter results.
Wolseley was the worst-performing stock on Britain's benchmark FTSE 100 index, down 3.3 percent in heavy volume after the building materials firm warned of tough trading conditions in Europe and said it could shut its French unit.
We have become increasingly concerned about the outlook for the European business. Our sense is that current expectations of flat profitability in the forthcoming financial year are too optimistic, Davy analysts wrote in a research note.
Companies across Europe are expected to report a 9.7 percent contraction in earnings growth in upcoming earnings season, according to Thomson Reuters Starmine data.