European Market Wavers Amid Political Uncertainty and Trade Tensions

European stocks experienced a downturn on Tuesday, with German shares suffering the most significant declines, as conservative leader Friedrich Merz failed to secure the necessary parliamentary majority to become chancellor. This political setback has contributed to a cautious market mood amidst ongoing fears over U.S. tariffs.

The pan-European STOXX 600 index was down by 0.7% as of mid-morning, with Germany's DAX leading regional losses by dropping 1.6%. Merz’s unexpected coalition difficulties with the Social Democrats have postponed a smooth transition of power, analysts from Societe Generale noted.

Investor focus is shifting to the central banks, as the U.S. Federal Reserve's policy statement is awaited, with potential insights on the impact of tariffs on economic growth. The Bank of England is also scheduled to make a rate decision this week, further influencing the cautious market behavior.

(With inputs from agencies.)