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European stocks closed lower on Tuesday as investors wavered ahead of a two-day meeting of the U.S. Federal Reserve and global concerns over a Brexit weigh on sentiment.
Amid the risk-off sentiment in markets, investors have been parking their money in safe-haven assets. The German 10-year bund yield fell below zero for the first time Tuesday. A negative yield means that investors would be paying the government in order to hold its bonds. By the close in Europe, the yield was minus 0.002 percent.
The pan-European STOXX 600 closed the day down 1.89 percent. In the U.S., markets were also in a subdued mood with the Dow Jones Industrial Average off 0.69 percent at the open, while the broader S&P 500 down 0.66 percent.
Global markets are shaky ahead of two crucial monetary policy decisions this week. On Tuesday, the U.S. Federal Open Market Committee (FOMC) begins a two-day meeting. Expectations are for the bank to stand pat on interest rates following gloomy jobs data and rising concerns over the possibility of a Brexit, should the U.K. vote to leave the European Union (EU) in a referendum on June 23.
At the same time, the Bank of England are meeting later this week and while there is not much expectation for a decision on interest rates, some market participants feel the next move could be lower for U.K. rates. Ahead of the meeting, latest official data showed that U.K. inflation held steady at 0.3 percent, disappointing expectations of a small increase.
Meanwhile in Asia, the Bank of Japan (BOJ) is scheduled to meet on June 15. Asia markets traded mixed on Tuesday, with Japanese and South Korean stocks extending Monday's losses.
A number of other factors are also weighing on markets. Recent weak data out of China, the possibility of a British exit from the European Union (EU) and concerns over the health of the global economy are all hitting investment sentiment.
Fears of a possible Brexit were also impacting oil markets. Crude oil futures fell in early Asian trade on Tuesday, as investors ignored signs of market tightness to focus on concerns over global growth and declines in stocks on the U.K.'s impending vote on EU membership, Reuters reported.
Elsewhere, the International Energy Agency (IEA) has declared that it expects the oil market to be balanced in the second half of 2016 as the agency revised global oil demand growth forecasts upwards and noted that last month there had been the "first significant drop" in global oil supply since 2013.
Still it did little to push the oil price higher and oil and gas stocks were trading lower.
Banking stocks suffered the fallout from low yields.
"This continued downward pressure on yields and flattening of the yield curve has reignited concerns about the fiscal health of banks across Europe as banking stocks got crushed once again (on Monday)," Michael Hewson, chief market analyst at CMC Markets, said in a note on Tuesday.
The banking sector was trading lower, but the Italian banks, which fell on Monday rebounded. There have been concerns about the portfolio of non-performing loans held by the Italian banks. Shares of Banco Popolare closed down 6.03 percent after Il Messaggero reported that investors had bought 20 percent of the 1 billion euro capital increase it issued. A number of other Italian lenders were in negative territory.
In individual stock news, Novo Nordisk was off 4.9 percent despite a study showing that the company's top diabetes drug Victoza cut the risk of heart attacks by 13 percent.
FirstGroup shares ended the day in positive territory, up 6 percent, after it reported a rise in pretax profit in the year to March 31.
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