European stocks slip as growth fears overshadow corporate earnings

European stocks and US futures slipped on Friday as lukewarm first-quarter results from companies in both regions heightened investors’ concerns of slowing economic growth.

Europe’s region-wide Stoxx 600 traded between gains and losses, Germany’s Dax fell 0.1 per cent and France’s CAC 40 added 0.1 per cent. London’s FTSE 100 fell 0.2 per cent after UK retail sales fell more than expected in March.

Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 both fell 0.2 per cent ahead of results from Procter & Gamble, which is forecast to report a decline in revenue and profit as consumer demand weakens.

With the Federal Reserve’s next interest rate decision fast approaching, investors are on the lookout for signs of easing demand, lower orders and pressure on companies’ margins, as fears of a recession have risen since the collapse of three midsized lenders in the US last month.

So far, however, first-quarter results in Europe and the US “look OK”, said analysts at Barclays.

Among companies that have reported, just over two-thirds of those listed on the Stoxx 600 and 73 per cent of those on the S&P 500 have beaten earnings per share estimates — “better than last quarter in both regions, albeit US positive surprises are still trending below average”, Barclays said.

The Fed is widely tipped to raise rates by a further quarter percentage point when it next meets in early May, though investors are split on when the central bank might begin to cut borrowing costs.

On Thursday, the head of Blackstone, the world’s largest alternative asset manager, said the Fed “is likely to pause or maybe go 25 basis points higher from here, but I think they’re unlikely to pivot as quickly as the market is expecting”.

US government debt continued to strengthen early on Friday, with the yield on the most policy-sensitive two-year Treasury down 0.03 percentage points to 4.13 per cent and the yield on benchmark 10-year debt down 0.01 percentage points to 3.53 per cent. Yields fall when prices rise.

Daleep Singh, chief global economist at PGIM, said March’s rate rise to an upper bound of 5 per cent “likely marked the end of the Fed’s tightening cycle”, and that a credit crunch precipitated by the banking crisis “will probably cause economic contraction in the second half of the year, forcing the Fed to make 50 basis points to 75 basis points of rate cuts” in the final three months of 2023.

A measure of the dollar’s strength against a basket of six other currencies rose 0.1 per cent, though it has slipped 1.5 per cent since the start of the year.

Asian stocks sold off, with Hong Kong’s Hang Seng index down 1.8 per cent and China’s CSI 300 down almost 2 per cent.