European stocks fall amid disappointing earnings: Markets wrap

(Bloomberg) — A European stock index retreated from a nearly record high amid disappointing earnings for some of the region's largest companies.

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The Stoxx Europe 600 index fell 0.3%, still about four points away from its peak in January 2022. Banks were among the most notable losers with HSBC Holdings Plc falling more than 6% after announcing an 80% drop in fourth-quarter profits.

Weak earnings from commodities trader Glencore and Rio Tinto, the world's largest iron ore miner, weighed on the basic resources sub-index, which fell to its lowest level in four months. On the positive side, Carrefour rose after the French grocer announced a share buyback, even as quarterly sales disappointed.

Positive economic surprises boosted European stocks even as traders scaled back their bets on interest rate cuts by the European Central Bank. Volatility measures are at historic lows, suggesting some complacency has crept into a market that still faces potential headwinds, including rising bond yields, according to Bloomberg Intelligence.

“European stocks could consolidate recent gains in the near term as investor sentiment appears overheated,” Laurent Douillet and Tim Craighead, strategists at BI, wrote in a report. “Rising government bond yields have not dampened enthusiasm so far, with highly leveraged companies outperforming slightly and remaining a key risk to stocks in 2024.”

US stock futures fell ahead of the release of minutes from the Federal Reserve's latest policy meeting, as well as expected earnings from Nvidia Corp. Later Wednesday. The company at the heart of the AI revolution boasts the best performance in the S&P 500 this year after more than tripling in 2023, and is responsible for a third of the benchmark index's year-to-date gains.

“These earnings today appear to be a measure of where we are in the global cycle,” said Justin Onwuekosi, chief investment officer at St James's Place. “Concentration in the stock market has reached levels where a single company's earnings can have a significant impact on the overall economy. It has gone beyond just a matter of constructing a portfolio; it is a major challenge that you cannot escape.”

The 10-year Treasury yield and the dollar measure were flat.

Elsewhere, Chinese stocks rose after policymakers took more steps to revive investor confidence, defying broader weakness in Asia after a technology-led decline on Wall Street.

The index of Chinese companies listed in Hong Kong jumped as much as 4% before paring its gains, while the CSI 300 index of mainland stocks rose 1.4%. Real estate developers led the gains after banks ramped up their financing assistance to the troubled sector. A new crackdown on trading through quantitative funds has also reduced concerns about short selling. This is in contrast to losses in other Asian markets.

In the commodity space, aluminum rose amid speculation that a new wave of US sanctions against Russia may target the metal, which could disrupt supplies. Iron ore recovered some of its losses after Chinese steel mills recorded an increase in production. Both oil and gold rose.

Main events this week:

Consumer confidence in the euro zone, Wednesday
Nvidia earnings Wednesday
The Federal Reserve releases minutes from its January meeting on Wednesday
Atlanta Fed President Rafael Bostic speaks Wednesday
Eurozone Purchasing Managers' Index (PMI) for global services, S&P Global Manufacturing Index, and Consumer Price Index, Thursday
US Initial Jobless Claims and US Existing Home Sales, Thursday
The European Central Bank releases its January meeting account, Thursday
Fed Governor Lisa Cook and Minneapolis Fed President Neel Kashkari speak Thursday
Real estate prices in China today, Friday
Germany Ifo Business Climate, GDP, Friday
The European Central Bank publishes its one- and three-year inflation expectations survey on Friday

Some key movements in the markets:

Stores

The Stoxx Europe 600 Index was down 0.3% as of 9:19 a.m. London time
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.4%
Dow Jones Industrial Average futures fell 0.2%.
There was little change in the MSCI Asian stock index
The MSCI Emerging Markets Index rose 0.1%.

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro fell 0.1 percent to $1.0794
There was little change in the Japanese yen at 150.08 to the dollar
There was no significant change in the yuan in external transactions at 7.1971 to the dollar
The British pound fell 0.1 percent to $1.2609

Digital currencies