Europe: Shares slammed by lacklustre earnings, Fed jitters

EUROPEAN stocks dropped on Wednesday (May 4), weighed by disappointing earnings and investor jitters ahead of a policy decision by the US Federal Reserve, which is expected to hike rates by the most since 2000 to tame inflation.

The pan-European Stoxx 600 index dropped 1.1 per cent, and most regional indexes were also in negative territory.

Retailers led sectoral losses in Europe, with Britain's online fashion retailer Boohoo plunging 12.4 per cent after freight and logistics cost inflation led to a 28 per cent fall in its annual core earnings.

Pandora slipped 2.1 per cent after the Danish jewellery maker flagged increased uncertainty around its full-year earnings forecast.

Swedish builder Skanska plunged 9.8 per cent 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 US central bank's policy decision, due at 18.00 pm GMT, when it is expected to raise interest rates by 50 basis points and announce the start of reductions to its US$9 trillion balance sheet.

"The Fed's rate hike move might be broadly priced in, but markets are clearly nervous that an even more hawkish FOMC might prompt a surge in volatility that could push indices back below last week's lows," said Chris Beauchamp, chief market analyst at online trading platform IG.

"Risk assets are still struggling to string together more than about 2 positive days in a row, and it seems unlikely that (Fed Chair Jerome) Powell can offer much in the way of good news."

There have been heightened 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.

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Europe: Upbeat earnings, banks lift shares

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.

Still, first-quarter earnings expectations have been rising in Europe, with analysts estimating 35.4 per cent profit growth for Stoxx 600 companies, as per Refinitiv IBES data, compared with a 27.1 per cent growth forecast last week.

Norway's Equinor gained 3.1 per cent 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 0.4 per cent 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. REUTERS