Equities dip before decisive central bank meetings

Stocks in Europe slipped as investors digested a flurry of corporate earnings and economic data while positioning for rate increases from the Federal Reserve and European Central Bank later this week.

The Stoxx Europe 600 index opened modestly lower for a second day. Swiss lender UBS Group AG dropped more than 2% after reporting a slump in trading fees and transaction income at its key wealth management business. Bonds gained, with the German 10-year yield falling four basis points.

Futures on the S&P 500 and Nasdaq 100 fluctuated after a torrid session on Wall Street that dragged the Nasdaq to its worst day since Dec 22 as Apple Inc and Microsoft Corp weighed on the market. Treasury yields dipped and the dollar gained.

Mixed economic data and signs of earnings pressure are complicating the picture for investors hopeful that the Federal Reserve will start moderating its policy tightening in the face of slowing inflation. France avoided a contraction at the end of 2022, data showed yesterday, allaying concerns of a downturn in the euro zone’s No. 2 economy, though the bloc may still face a recession.

While investors have been fretting over rising interest rates, peak inflation and a possible recession, they’ve at least been able to count on robust company earnings as a reason to stay invested. Now that leg of support appears to be crumbling. According to data compiled by Bloomberg, earnings per share estimates for the S&P 500 have fallen since peaking in June 2022, while revenue projections have flatlined.

In Asia, the selloff in Adani Group shares continued, with 10 of the conglomerate’s companies seeing about $75 billion in market value erased after US short-seller Hindenburg Research levelled fraud accusations at the firm last week. Benchmarks for China, Japan, India, South Korea and Australia all dropped.

Samsung Electronics Co fell more than 3.5% in Seoul, weighing on South Korea’s Kospi gauge, after profit slumped on poor demand for semiconductors and weakness in smartphones and memory chips.

In Hong Kong, Alibaba Group Holding Ltd’s decline this week reached around 10% amid concern that China’s consumer recovery may fail to meet lofty expectations.

Hanging over everything is today’s Fed decision, with the US central bank widely expected to raise rates by a quarter percentage point. Investors will be watching for the tone officials set for future meetings after Fed Chair Jerome Powell’s consistent efforts to push back against traders anticipating rate cuts later this year.

The rally in stocks this month suggests the market has so far brushed off Powell’s warning of “higher-for-longer” interest rates.

“Even after they’ve stopped on the rate hikes, there is still the quantitative tightening that still poses a threat for a lot of risk assets,” Mary Nicola, a global multi-asset portfolio manager for PineBridge Investments, said in an interview with Bloomberg Radio.