By Josie Cox
European stocks tumbled Wednesday, pressured by a fresh bout of
downbeat earnings and U.S. economic growth figures dramatically
undershooting expectations.
Early afternoon, and having already ended the previous session
1.5% lower on weak corporate earnings, the Stoxx Europe 600 was
down 1.1%, mirroring similar declines on Germany's DAX 30, France's
CAC 40 and London's FTSE 100.
The S&P 500 was indicated opening 0.5% lower on Wall Street
after data showed that the U.S. economy slowed sharply at the start
of the year as businesses slashed investment, exports tumbled and
consumers showed signs of caution.
"This is a hugely disappointing number and it isn't surprising
that we're seeing a real sea of red across equity screens
globally," said Philip Lawlor, a partner at London-based Smith
& Williamson Investment, which has around GBP15.5 billion of
funds under management.
"Equities in Europe are starting to hit the upper band of
valuation parameters and investors are starting to look for reasons
to take profit, " he said, adding that the weak U.S. data figures
are serving that purpose.
Stocks across the whole region have been buoyed by the European
Central Bank's asset purchase program, sending many indexes to
all-time highs. In recent days though, some investors appear to be
turning more cautious on the asset class.
"The argument that European equities look cheap on a relative
basis [...] can no longer be made," Michael Barakos, chief
investment officer for European equities at J.P. Morgan Asset
Management wrote in a recent note.
"We'll need to see earnings growth materialize in order to move
sustainably higher," he added.
On Wednesday, however, the earnings season looked mixed at
best.
Shares in British American Tobacco PLC, Finnish stainless
steelmaker Outokumpu Oyj and Belgian food retailer Delhaize Group
were some of the hardest hit by lackluster quarterly figures, while
Barclays PLC shares also slipped into the red.
The British bank said it had taken a new GBP800 million ($1.2
billion) charge in the first quarter for potential fines over its
foreign-exchange activities, dragging its net profit for the period
down to GBP465 million from GBP965 million in the same period last
year.
In currency markets on Wednesday, the weak U.S. GDP figures
continued to pressure the dollar against the euro, building on the
previous day's moves.
The bloc's single currency had already risen to a near
three-week high against the dollar on Tuesday, as the greenback was
hit by a disappointing U.S. consumer confidence report and the
former supported by hopes that Greece might be able to secure some
extra funding in the short-term.
On Wednesday, the euro was trading close to 0.7% higher after
the U.S. data, at over $1.104.
In debt markets, Government bonds across much of Europe, and
especially Germany, sold off sharply, though investors were quick
to call the move a blip rather than a sustained reversal in the
recent rally.
Yields on German 10-year government debt, which rise as bond
prices fall, pushed to 0.25% for the first time in around a month,
while yields also rose on government debt in France, Austria and
Switzerland, as well as in the Nordics and southern Europe.
Later in the session investors will look to the Federal Open
Market Committee's policy statement, released at the conclusion of
its two-day meeting, which could shed more light on when the
central bank might raise rates. Most market participants, however,
don't anticipate major policy changes.
"We don't expect any specific forward guidance on the timing of
the liftoff, but September remains our base-case," currency
strategists at BNP Paribas wrote in a note.
Write to Josie Cox at josie.cox@wsj.com
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