European stocks slip as investor focus turns to recession

European stocks and Wall Street futures slipped on Thursday after souring US economic data stoked fears of a coming recession, even as the figures lifted the chance of a smaller rate increase when the Federal Reserve meets at the end of the month.

The regional Stoxx Europe 600 index fell 0.7 per cent, Germany’s Dax lost 0.5 per cent and London’s FTSE 100 shed 0.4 per cent in early trading.

Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 declined 0.1 per cent and 0.02 per cent, respectively, ahead of the New York open.

December data showing weak US retail sales and a sharp decline in industrial production drove the S&P 500 down 1.6 per cent on Wednesday, reversing a trend of equity markets rising on signs of slowing economic growth.

Confident that inflation has peaked, investors are growing increasingly concerned about the depth of an expected recession and the effects of the Fed’s aggressive monetary tightening campaign on company profits. Microsoft’s decision to cut 10,000 workers only added to the gloom.

Slowing economic activity exacerbated “concerns on growth and corporates’ earnings for equities investors” but reinforced “the disinflation narrative” for bond investors, according to analysts at JPMorgan.

US Treasuries rallied across the board in the previous session, with the yield on the benchmark 10-year note falling a further 0.03 percentage points on Wednesday morning to 3.34 per cent. Bond yields move inversely to prices.

Softer than expected retail sales and industrial production also weakened the dollar, which slipped 0.15 per cent against a basket of six currencies as traders upped their bets that the Fed would raise rates by a quarter of a percentage point in February, after a 0.5 percentage point move in December.

Investor attention will turn on Thursday to jobs data, with about 214,000 initial state unemployment claims, a proxy for job cuts, expected for the week ending January 14, up from 205,000 the previous week. Procter & Gamble and Netflix are also due to report fourth-quarter earnings.

Elsewhere, Hong Kong’s Hang Seng index fell 0.1 per cent and China’s CSI 300 added 0.6 per cent, with both indices up sharply in recent months thanks to Beijing’s reversal of strict zero-Covid policies in December.

Prices for Brent crude, the international oil benchmark, fell 0.9 per cent to $81.34 a barrel.