Global stocks sink from five-week high

London — European shares fell in early trading on Thursday, as disappointing earnings soured the mood in global markets and traders were cautious ahead of an expected 75 basis point (bps) hike from the European Central Bank.

World stocks were knocked off a five-week high during the Wall Street session on Wednesday after US heavyweights including Microsoft and Alphabet reported worse-than-expected earnings.

But Asian markets benefited from speculation among investors that major central banks are considering slowing their aggressive interest hikes, given signs of an economic slowdown.

The Bank of Canada delivered a smaller-than-expected rate hike late on Wednesday.

At 7.57sm GMT, the MSCI world equity index, which tracks shares in 47 countries, was little changed, holding just below Wednesday’s five-week high.

Europe’s Stoxx 600 was down 0.3% on the day, having also been knocked off a five-week high.

London’s FTSE 100 was up 0.3% while Germany’s DAX was down 0.4%.

“Earnings have been better in Europe than they have in the US mainly because of that mix of old economy, new economy,” said Patrick Spencer, vice-chair of equities at Baird, referring to the dominance of technology companies in the US compared to oil and materials companies in Europe.

The euro slipped 0.2% against the dollar at $1.0063 ahead of the European Central Bank’s policy announcement. Eurozone government bond yields were up, with the benchmark German 10-year yield up 5bps on the day at 2.167%.

Investors will be looking out for signs European Central Bank (ECB) President Christine Lagarde is softening her tone around future interest rate increases, Baird’s Spencer said.

Growing speculation that major central banks will start to slow their rate hikes has put eurozone bonds on track for the biggest weekly rally in eight months, even though eurozone inflation remains close to 10%.

The Federal Reserve is expected to deliver a 75 bps hike in November, but speculation that it may be less aggressive afterwards has led the dollar to decline 1.8% so far this week.

The dollar index was up 0.2% on the day in early European trading, at around 109.81, having touched a five-week low of 109.53 earlier in the session.

The yen strengthened ahead of Friday’s Bank of Japan meeting, even though most analysts expect the central bank to maintain its ultra-low interest rates.

Oil prices dropped on expectations of a reduction in demand from China.

Cryptocurrency prices have benefited from the weaker dollar so far this week, with bitcoin at about $20,726 and ether at $1,554.9, having broken above $1,500 for the first time since September on Tuesday.

Meanwhile, shares in Credit Suisse hit a two-week low after it outlined an overhaul that plans to raise Sf4bn ($4.06bn) and separate out its investment bank . 

Reuters