LONDON (Reuters) - Global stocks ticked down on Wednesday, with the spotlight on fourth quarter corporate results and further credit market developments as markets failed to extend the previous session's Wall Street rally.
Solid U.S. earnings reports and an easing in interbank lending rates after cash injections by the European Central Bank and the Bank of England -- part of coordinated central bank action announced last week -- eased some of the worst strains in the financial system and boosted sentiment on Tuesday.
On Wednesday, minutes from the Bank of England's December meeting showed the committee voted unanimously to cut interest rates, hitting the sterling and building expectations of more cuts to come next year.
"(This) ... is reassuring evidence of a central bank that is addressing the credit crunch and downside growth risks," said Audrey Childe-Freeman at CIBC in London.
Dollar, sterling and euro interbank rates have slipped but markets are being held in check ahead of the 1000 EST results of the U.S. Federal Reserve's $20 billion auction of 28-day funds.
Close attention will also be paid to the British Bankers' Association's daily fixing of London interbank offered rates (Libor) to see if central bank measures are restoring confidence and bringing lending rates down significantly.
European shares see-sawed either side of flat in thin-volume pre-Christmas trade, with the pan-European FTSEurofirst 300 index down 0.2 percent, as losses on banking shares offset gains by technology stocks.
Volumes are generally half of what they normally are. Everyone's just packed up and financials have been the worst performers," said Mark Sartori, head of European equities at Fox-Pitt, Kelton. "You have got another quarter of pain."
Earlier, Tokyo's Nikkei index shed early gains to close 1.2 percent lower as the government cut growth forecasts on a tumble in housing investment, hitting banking stocks hard.
That stoked fears the Bank of Japan, which started a two-day policy meeting, may tone down its assessment of the economy.
While Goldman Sachs, one of the few global banks to sidestep the U.S. subprime mortgage morass, on Wednesday reported record profits, others are not faring as well.
Investors now await fourth quarter results by Morgan Stanley (MS.N: Quote, Profile , Research) to gauge how it is coping with the subprime fall out.
GROWTH WORRIES
Growth worries persist, especially as the Fed has signaled reluctance to cut interest rates more, given the inflation risk stemming from oil and food prices. It has slashed rates by 100 basis points since September to 4.25 percent.
A Reuters poll of 150 economists found a 40 percent chance of recession in the United States next year, and forecast British and euro zone growth to cool significantly in 2008.
But Merrill Lynch said its new recession probability indicator is flashing a 100 percent chance of a U.S, recession in the next 12 months, up from 75 percent in October.
"At most, the equity market is priced 40 percent of the way for such a scenario and many cyclical sectors ... have barely discounted such a scenario at all - a scenario that in the past involved at least a 20 percent decline in corporate earnings," it said in a note.
Bond markets crept higher, with the 10-year U.S. Treasury yields down 1.5 bps to 4.1064 and the two-year yield slipping almost 3 bps to 3.1619 percent. Gilt futures extended gains after the BOE minutes.
Japanese government bond futures also rose and the benchmark 10-year JGB yield slipped 4.5 basis points to 1.490 percent.
Bond traders said markets would be driven by the Fed's cash auction result.
"If the results show that not enough funds were made available, we could see more demand for shorter-dated Treasuries which would push their yields lower," a dealer in Tokyo said.
Currency markets were also quiet but the dollar edged up to a seven-week high against the euro on end-year short covering.
"After the huge liquidity injection in the euro zone, money market rates have fallen quite significantly while U.S. money market rates are still holding up," said Niels Christensen, currency analyst at Nordea Capital Markets.
He added: "There is hardly anyone who wants to take on new short dollar positions on their books into the year-end."
Sterling fell almost a cent versus the dollar to a 3-month low as investors priced in more BOE rate cuts to come.
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Solid U.S. earnings reports and an easing in interbank lending rates after cash injections by the European Central Bank and the Bank of England -- part of coordinated central bank action announced last week -- eased some of the worst strains in the financial system and boosted sentiment on Tuesday.
On Wednesday, minutes from the Bank of England's December meeting showed the committee voted unanimously to cut interest rates, hitting the sterling and building expectations of more cuts to come next year.
"(This) ... is reassuring evidence of a central bank that is addressing the credit crunch and downside growth risks," said Audrey Childe-Freeman at CIBC in London.
Dollar, sterling and euro interbank rates have slipped but markets are being held in check ahead of the 1000 EST results of the U.S. Federal Reserve's $20 billion auction of 28-day funds.
Close attention will also be paid to the British Bankers' Association's daily fixing of London interbank offered rates (Libor) to see if central bank measures are restoring confidence and bringing lending rates down significantly.
European shares see-sawed either side of flat in thin-volume pre-Christmas trade, with the pan-European FTSEurofirst 300 index down 0.2 percent, as losses on banking shares offset gains by technology stocks.
Volumes are generally half of what they normally are. Everyone's just packed up and financials have been the worst performers," said Mark Sartori, head of European equities at Fox-Pitt, Kelton. "You have got another quarter of pain."
Earlier, Tokyo's Nikkei index shed early gains to close 1.2 percent lower as the government cut growth forecasts on a tumble in housing investment, hitting banking stocks hard.
That stoked fears the Bank of Japan, which started a two-day policy meeting, may tone down its assessment of the economy.
While Goldman Sachs, one of the few global banks to sidestep the U.S. subprime mortgage morass, on Wednesday reported record profits, others are not faring as well.
Investors now await fourth quarter results by Morgan Stanley (MS.N: Quote, Profile , Research) to gauge how it is coping with the subprime fall out.
GROWTH WORRIES
Growth worries persist, especially as the Fed has signaled reluctance to cut interest rates more, given the inflation risk stemming from oil and food prices. It has slashed rates by 100 basis points since September to 4.25 percent.
A Reuters poll of 150 economists found a 40 percent chance of recession in the United States next year, and forecast British and euro zone growth to cool significantly in 2008.
But Merrill Lynch said its new recession probability indicator is flashing a 100 percent chance of a U.S, recession in the next 12 months, up from 75 percent in October.
"At most, the equity market is priced 40 percent of the way for such a scenario and many cyclical sectors ... have barely discounted such a scenario at all - a scenario that in the past involved at least a 20 percent decline in corporate earnings," it said in a note.
Bond markets crept higher, with the 10-year U.S. Treasury yields down 1.5 bps to 4.1064 and the two-year yield slipping almost 3 bps to 3.1619 percent. Gilt futures extended gains after the BOE minutes.
Japanese government bond futures also rose and the benchmark 10-year JGB yield slipped 4.5 basis points to 1.490 percent.
Bond traders said markets would be driven by the Fed's cash auction result.
"If the results show that not enough funds were made available, we could see more demand for shorter-dated Treasuries which would push their yields lower," a dealer in Tokyo said.
Currency markets were also quiet but the dollar edged up to a seven-week high against the euro on end-year short covering.
"After the huge liquidity injection in the euro zone, money market rates have fallen quite significantly while U.S. money market rates are still holding up," said Niels Christensen, currency analyst at Nordea Capital Markets.
He added: "There is hardly anyone who wants to take on new short dollar positions on their books into the year-end."
Sterling fell almost a cent versus the dollar to a 3-month low as investors priced in more BOE rate cuts to come.
Discuss Add this link to... Bury
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