Europe markets close 1.2% lower as Fed meeting kicks off; oil and gas stocks down 4.5%

European equity markets tumbled on Tuesday as a fall in oil prices drove energy stocks lower and investors braced for an expected Federal Reserve rate hike.

The pan-European Stoxx 600 index was mixed throughout the morning and declined through the afternoon to close 1.24% lower.

Oil and gas stocks dropped 4.5% as investors assessed a fall in oil prices, the potential further interest rate hikes from the Fed and European Central Bank this week, as well as the surprise contraction in Chinese factory activity reported on Sunday.

Brent crude and West Texas Intermediate crude futures fell to their lowest levels since late March.

Markets also reacted to BP‘s first-quarter results. Profits were lower than 2022’s exceptional levels when fossil fuel prices soared in response to Russia’s full-scale invasion of Ukraine.

Shares of the energy giant fell as much as 8.6% following the earnings report, which included its expectation of share buybacks of around $4 billion per year, at the lower end of its $14 billion to $18 billion capital expenditure range.

Banking stocks were positive through most of the session following JP Morgan’s takeover of First Republic and a slew of European earnings last week. However, they ended the session down 1.5%, following U.S. bank shares lower.

All sectors ended the day in negative territory, with media stocks shedding 4.4% and mining stocks down 2.2%.

Traders also digested Tuesday’s euro zone flash inflation data, which showed prices rose at an annual rate of 7% in April. Inflation remains well below the 2% target set by the European Central Bank.

In the U.S., members of the Federal Open Market Committee kicked off their policy meeting, with an announcement on interest rates and a subsequent press conference expected Wednesday.

U.S. stocks were also lower in morning trade.