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Lacklustre earnings, Fed nerves weigh on European shares
Global Banking & Finance Review®
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By Sruthi Shankar
(Reuters) -European stocks slipped on Wednesday, dented by disappointing earnings and nerves ahead of a policy decision by the U.S. Federal Reserve, which is expected to hike rates by the most since 2000 to tame inflation.
The pan-European STOXX 600 index dropped 0.5% in morning trade, with most regional indexes also trading in negative territory.
Retailers led sectoral losses in Europe, with Britain’s online fashion retailer Boohoo plunging 13% after freight and logistics cost inflation led to a 28% fall in its annual core earnings.
Pandora slipped 1.7% after the Danish jewellery maker flagged increased uncertainty around its full-year earnings forecast.
Swedish builder Skanska plunged 10.4% after it posted a drop in profit and braced for potential project cancellations in its Eastern European markets as an indirect effect of the war in Ukraine.
Overall, investors appeared to be on edge ahead of the U.S. central bank’s policy decision, due at 1800 GMT, when it is expected to raise interest rates by 50 basis points and announce the start of reductions to its $9 trillion balance sheet.
Traders will be looking for clues on how far and how fast it is prepared to go amid growing concerns that China’s COVID-19 lockdowns, rapid inflation and the Ukraine conflict could dampen economic growth momentum globally.
“Once they actually get the hike out of the way, the commentary they’re going to use will be a bit on the hawkish side but not overly hawkish,” said David Madden, market analyst at Equiti Capital.
“You cannot have a scenario where you aggressively change monetary policy at a time when the cost of living is eating away people’s savings.”
Traders were also ramping up expectations of rate hikes from the European Central Bank, which has been removing stimulus at the slowest possible pace this year but a surge in inflation is now putting pressure on policymakers. [GVD/EUR]
Still, first-quarter earnings expectations have been rising in Europe, with analysts estimating a 35.4% profit growth for STOXX 600 companies, as per Refinitiv IBES data, compared with a 27.1% growth forecast last week.
Norway’s Equinor inched up 1.6% as the company reported a record quarterly pretax profit after the Ukraine conflict triggered an energy supply crunch that sent natural gas prices soaring to all-time highs.
Oil and gas stocks climbed 1.2% in tandem with rising crude prices as the European Union, the world’s largest trading bloc, spelled out plans to phase out imports of Russian oil. [O/R]
(Reporting by Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips)
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation and stabilizing currency.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Economic growth is the increase in the production of goods and services in an economy over a period of time, usually measured as the percentage increase in real GDP.
Sectoral losses refer to declines in specific sectors of the economy, often due to poor performance of companies within that sector, impacting overall market sentiment.
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