(Bloomberg) — European stocks dropped as investors studied a slew of earnings for clues on the state of the economy and prepared for a rates decision from the European Central Bank later Thursday, following the Federal Reserve’s latest quarter-point hike. The dollar extended a decline.
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Energy shares were the only European sector posting gains, with Shell Plc climbing after it maintained the pace of share buybacks and reported another strong quarterly profit despite lower oil and gas prices.
Contracts for the S&P 500 slipped and those on the Nasdaq 100 were steady after a drop on Wall Street Wednesday, when the turmoil in US regional banks added to market volatility. An Asia-wide gauge of equities was on course for its best day in about three weeks, helped by gains in Hong Kong shares. Stocks in mainland China whipsawed as they resumed trading after a three-day break.
The moves followed a 25 basis-points increase from the Fed and comments from Chair Jerome Powell that opened the door for a pause in June but played down the prospect of rate cuts later in the year — a scenario firmly reflected in market pricing.
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The Bloomberg dollar index fell for a third day, while the yen extended a rally against most of its Group-of-10 peers. Treasuries retreated, unwinding some of the rally that came Wednesday after the Fed commentary, and US equities slid on bank industry concerns.
Oil recovered rapidly after a sudden dip in early Thursday trade. The move helped retrace some of the losses it made this week when concerns over global growth weighed on the commodity.
US regional lender PacWest Bancorp said it is engaged in discussions with several potential investors, seeking to calm markets after shares plummeted on news it was exploring options including a sale. The sudden drop reignited fears about the health of the US banking system and weighed on peer regional lenders.
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“The tightening in credit conditions will put some significant downward pressure on the economy,” Michelle Girard, head of US for NatWest Markets, said on Bloomberg Television. “You will see the Fed in a position to move policy to a less restrictive stance sooner than what the Fed chairman today was suggesting.”
The rate debate will resume again later Thursday, with the ECB taking center stage. Policymakers are seen raising the deposit rate by a quarter-point to a 3.25%, which would mark a slowdown in their hiking cycle. The decision is expected at 2:15 p.m. in Frankfurt, followed half an hour later by President Christine Lagarde speaking at a press conference.
Read More: Wall Street Greets ‘End of the Hiking Cycle’ With More Questions
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“Potential Fed pause, but no Fed pivot yet,” said Jason Pride at Glenmede. “The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”
Key events this week:
- US initial jobless claims, trade balance, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.8% as of 8:29 a.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index rose 0.5%
- The MSCI Emerging Markets Index rose 0.6%
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Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.1067
- The Japanese yen was little changed at 134.70 per dollar
- The offshore yuan was little changed at 6.9186 per dollar
- The British pound was little changed at $1.2567
Cryptocurrencies
- Bitcoin rose 2% to $29,094.23
- Ether rose 1.3% to $1,898.89
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.37%
- Germany’s 10-year yield advanced two basis points to 2.27%
- Britain’s 10-year yield was little changed at 3.70%
Commodities
- Brent crude rose 1% to $73.07 a barrel
- Spot gold fell 0.2% to $2,034.91 an ounce
This story was produced with the assistance of Bloomberg Automation.
—With assistance from Stephen Kirkland.
