European stocks dropped on Wednesday, weighed by disappointing earnings and investor jitters ahead of a policy decision by the U.S. Federal Reserve, which is expected to hike rates by the most since 2000 to tame inflation.
The pan-European STOXX 600 index dropped 1.1%, andmost regional indexes were also in negative territory.
Retailers led sectoral losses in Europe, with Britain’s online fashion retailer Boohoo plunging 12.4% after freight and logistics cost inflation led to a 28% fall in its annual core earnings.
Pandora slipped 2.1% after the Danish jewellery maker flagged increased uncertainty around its full-year earnings forecast.
Swedish builder Skanska plunged 9.8% after it posted a drop in profit and braced for potential project cancellations in its Eastern European markets as an indirect effect of the war in Ukraine.
Overall, investors appeared to be on edge ahead of the U.S.central bank’s policy decision, due at 1800 GMT, when it isexpected to raise interest rates by 50 basis points and announce the start of reductions to its $9 trillion balancesheet.
Stocks rise, US yields slip as markets await Fed rate hike
“The Fed’s rate hike move might be broadly priced in, butmarkets are clearly nervous that an even more hawkish FOMC might prompt a surge in volatility that could push indices back below last week’s lows,” said Chris Beauchamp, chief market analyst at online trading platform IG.
“Risk assets are still struggling to string together morethan about two positive days in a row, and it seems unlikelythat (Fed Chair Jerome) Powell can offer much in the way of good news.”
There have been heightened expectations of rate hikes fromthe European Central Bank, which has been removing stimulus at the slowest possible pace this year, but a surge in inflation is now putting pressure on policymakers.
Traders will be looking for clues on how far and how fast itis prepared to go amid growing concerns that China’s COVID-19 lockdowns, rapid inflation and the Ukraine conflict could dampen economic growth momentum globally.
Still, first-quarter earnings expectations have been risingin Europe, with analysts estimating 35.4% profit growth forSTOXX 600 companies, as per Refinitiv IBES data, compared with a 27.1% growth forecast last week.
Norway’s Equinor gained 3.1% as the companyreported a record quarterly pretax profit after the Ukraineconflict triggered an energy supply crunch that sent natural gas prices soaring to all-time highs.
Oil and gas stocks climbed 0.4% in tandem with rising crude prices as the European Union, the world’s largest trading bloc, spelled out plans to phase out imports of Russianoil.