European stocks waver as investors look ahead to fresh US economic data

European stocks were steady and Wall Street futures slipped on Wednesday, as investors assessed the latest batch of corporate results and looked ahead to a crucial set of US gross domestic product figures out later in the week.

The regional Stoxx Europe 600 lost 0.2 per cent, Germany’s Dax fell 0.1 per cent and London’s FTSE 100 was steady.

Contracts tracking Wall Street’s blue-chip S&P 500 and those tracking the tech-heavy Nasdaq 100 fell 0.4 per cent and 0.7 per cent, respectively, ahead of the New York open.

The moves in equity markets came after Microsoft said projected revenue would hit $50.5bn-$51.5bn in the current quarter, below analysts’ expectations. Shares in the company fell 1 per cent in pre-market trading.

Tesla reports its fourth-quarter figures later on Wednesday, with analysts polled by Refinitiv expecting earnings of $1.01 a share on revenue of $24.03bn, up from earnings of 68 cents a share on revenue of $17.72bn during the same period in 2021. Tesla’s shares have jumped by a third so far in 2023 but have more than halved in value over the past 12 months.

Tesla is far from the only company to have enjoyed a January bounce, however. An easing of US inflation data, “in conjunction with signs of cooling in labour and wages, is coming in ahead of schedule,” boosting hopes that the Federal Reserve will pause its interest rate rises earlier than previously expected, said Charlie McElligott, analyst at Nomura.

China’s reopening and Europe’s avoidance of a deep recession have driven a “re-rating higher in global growth at the same time,” he added. The Nasdaq Composite tumbled by a third in 2022 but is up more than 9 per cent this year.

Some doubt how long this year’s rally has left to run. “Earnings season has been unremarkable so far and the last few sessions of strength suggest that investors are either speculating that the season will become good in short order or that when the Fed hikes [0.25 percentage points] next Wednesday, earnings season won’t matter because there will be a wave of optimism and positivity as the hiking cycle concludes,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “That’s a lot of gamesmanship if you ask me.”

The end of the European Central Bank’s rate-hiking cycle is a more distant prospect. “Markets now have the ECB priced as the most active G10 central bank this year in tightening policy, with [1.4 percentage points] of rate increases priced into the curve,” said Derek Halpenny, head of research at MUFG. “For the Fed, the remaining tightening amounts to about [0.6 percentage points].”

US GDP figures out on Thursday will shed further light on the health of the world’s biggest economy, with analysts expecting growth of 2.6 per cent in the three months to December, down from growth of 3.2 per cent in the previous quarter.

A measure of the dollar’s strength against a basket of six peers was flat on Wednesday. Prices for Brent crude, the international oil benchmark, rose 0.2 per cent to $86.26 per barrel.