European earnings, China’s weakness drag on stocks

European stocks fell on Wednesday, dragged lower by negative third quarter earnings reports and the biggest fall in Chinese stocks in over a month.

British publisher Pearson slumped 16 per cent after warning about its earnings, and financials were hit as Swedish banks missed earnings expectations and Credit Suisse announced plans to raise 6 billion Swiss francs ($6.3 billion) in capital.

Chinese bourses gave up earlier gains to close down 3 per cent, the biggest fall since September 15. Resources and energy stocks in Europe took their cue from that weakness and were among the biggest losers in early trading.

Commodity prices fell, while the cautious tone made for lower yields across major government bond markets.

“A mixture of disappointing corporate results and continued pressure from the commodity sector has sent stocks lower,’’ said David Madden, market analyst at IG in London.

“Equity markets have suffered a few severe sell-offs since the summer and they are still nervous, and an absence of positive news is seen a negative,’’ he said.

In mid-morning trade the FTSEuroFirst index of leading 300 European shares was down two thirds of one percent at 1,423 points. Pearson was the biggest loser, down 16 per cent, and Credit Suisse was down 4 per cent.

Germany’s DAX was flat, France’s CAC 40 was down 0.5 per cent and Britain’s FTSE 100 was down 0.3 per cent.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3 per cent.

In Japan, the slowest growth in exports in over a year fuelled talk of recession but the prospect of more stimulus from the Bank of Japan lifted the Nikkei 225 to its highest since September 9, ending up 1.9 per cent at 18,554 points.

US futures pointed to a slightly higher opening on Wall Street of up to 0.2 per cent, essentially reversing Tuesday’s small losses.

ECB to stay put?

Earnings for S&P 500 companies are expected to have fallen about 4 per cent in the third quarter, while revenue is expected to have declined 3.8 per cent, according to Thomson Reuters data.

Economic news from the United States was moderately upbeat as housing starts increased 6.5 per cent in September to an annual pace of 1.21 million units, beating expectations for 1.15 million units.

There was also better news on bank lending in the euro zone as data from the European Central Bank on Tuesday showed a further easing in credit conditions and improving demand for loans.

That might lessen the need for the ECB to immediately ramp up its €1 trillion asset purchase programme.

The ECB’s governing council meets on Thursday and markets expect it to highlight a willingness to act to boost inflation, but not just yet.

“Actions are highly unlikely this week. But its words will need to confirm a strong dovish bias that keeps the ECB on track for extra QE (quantitative easing) in December if the market is to keep its composure,’’ Royal Bank of Scotland analysts wrote in a client note on Wednesday.

The euro was a whisker higher at $1.1355, but still hemmed in by support at $1.3300 and resistance around $1.1386. The dollar index was last down 0.1 per cent at 94.841.

The Australian dollar was the biggest mover among the major currencies, under pressure from the weakness in Chinese stocks and world commodity prices. It was last down 0.5 per cent at $0.7220.

Oil prices softened on speculation US inventory data would only underline the extent of oversupply in the world. The US Energy Information Administration (EIA) will report official inventory data on Wednesday.

US crude fell 1.5 per cent to $45.60 per barrel, while Brent lost 0.8 per cent to $48.31.

In bonds the 10-year U.S. Treasury yield was down almost 3 basis points at 2.045 per cent.

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