Stocks decline as investors search for signs of strain in corporate earnings

Stocks and government bond prices fell on Friday, as investors searched for signs of strain in the latest flurry of corporate updates.

A FTSE gauge of global shares slipped 0.6 per cent, as Europe’s regional Stoxx 600 lost more than 1.5 per cent and Hong Kong’s Hang Seng fell 0.4 per cent. Futures contracts tracking Wall Street’s S&P 500 slid 0.7 per cent and those tracking the technology-heavy Nasdaq 100 fell 0.9 per cent.

Adidas was among the biggest fallers during the morning in Europe, with shares in the sportswear group sliding 10 per cent after it lowered its full-year guidance.

The company pointed to a “further deterioration of traffic trends in Greater China as well as a significant inventory build-up as a result of lower consumer demand in major western markets since the beginning of September”.

Shares in JD Sports Fashion and Puma also fell roughly 6 per cent on Friday.

Investors have been monitoring this week’s flurry of third-quarter results and trading updates for evidence of pressure from high inflation, rising borrowing costs and challenging economic conditions.

Bank of America and Goldman Sachs have posted better than anticipated results, but analysts and investors have suggested that it may become more difficult for companies to beat market expectations as the backdrop grows gloomier.

“As growth slows to a standstill, we think that it will be increasingly challenging for earnings to continue to beat,” Mark Dowding, chief investment officer at BlueBay Asset Management, wrote in a note. “However, in the interim, it should not be too surprising to see banks doing well at a time when net interest margins are improving as rates rise.”

The Federal Reserve has led the charge on monetary policy tightening this year, lifting interest rates by 0.75 percentage points at each of its past three meetings in an effort to curb inflation. The US central bank’s target range now stands at 3 to 3.25 per cent, and markets are pricing in a fourth consecutive three-quarter-point increase.

In debt markets, the yield on the 10-year Treasury note climbed above 4.25 per cent for the first time since June 2008, rising as much as 0.06 percentage points to 4.284 per cent. The two-year yield climbed as much as 0.03 percentage points to a 15-year high of 4.639 per cent. Bond yields rise as their prices fall.

Those moves came after US labour market data on Thursday showed that unemployment claims had unexpectedly fallen last week from 226,000 to 214,000. Signs of a still-hot jobs market have fuelled expectations that the Fed will continue to jack up rates vigorously to cool the economy.

UK government bonds were also hit by renewed selling pressure on Friday. The yield on the benchmark 10-year gilt rose 0.09 percentage points to just under 4 per cent, as traders grappled with the ramifications of UK prime minister Liz Truss’s resignation on Thursday and the prospect of a new leader for the country.

Despite Truss’s departure, analysts at ING said the new leadership contest could lead to further uncertainty over the government’s fiscal plans. As a result, “gilts should continue to trade with a risk premium”, they wrote.

Fresh data on Friday showed that UK retail sales fell more than expected in September, heightening concerns that the country was heading for a recession.

The quantity of goods bought in Britain shrunk by 1.4 per cent between August and September, following a sharp contraction in the previous month, according to data from the Office for National Statistics. Economists polled by Reuters had anticipated a 0.5 per cent contraction.

The pound fell 0.8 per cent against the dollar on the day to trade at $1.114.

The Japanese yen fell as low as ¥150.96 against the dollar on Friday after sliding through ¥150 in the previous session for the first time since 1990.

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