February 7, 2008 / 9:06 AM / 12 years ago

Corporate profit worries drive shares down

LONDON (Reuters) - World stocks hit a two-week low on Thursday after disappointing results from Wal-Mart and warnings from major technology firms intensified concerns a slowing U.S. economy might hurt corporate earnings globally.

A passerby looks at a stock quotation board outside a brokerage in Tokyo February 6, 2008. European and Asian shares fell while the yen ticked higher on Thursday after warnings from major technology firms added to concerns that a slowing U.S. economy might hurt corporate earnings globally. REUTERS/Issei Kato

The euro and sterling fell after their respective interest rate decisions. The European Central Bank left interest rates steady but President Jean-Claude Trichet could strike a dovish stance later, while the Bank of England cut interest rates by 25 basis points as expected.

Wall Street was set for a weaker open after Wal-Mart reported a lower-than-expected 0.5 percent rise in January same-store sales.

This followed warnings from German chipmaker Infineon of further losses at its phone chips unit and from network equipment maker Cisco Systems of disappointing third-quarter revenue growth.

The six-month-old credit crunch, stemming from mass defaults on U.S. subprime mortgages, has hit corporate profits and threatens to kick the world’s largest economy into recession.

The Bank of England’s move did not help equities sentiment either as it disappointed investors who had expected a bigger 50 basis point rate cut.

“What we are looking for in corporate results is some signs of spillover from the U.S. liquidity and credit issues, and we’d experience less of that (spillover) if central banks showed willingness to see that the risks are quite high,” said John Haynes, strategist at Rensburg Sheppards Investment Management.

The FTSEurofirst 300 index extended early losses to stand down 2.2 percent on the day, while MSCI main world equity index fell 0.9 percent.

The MSCI index is down 16 percent from all-time highs in November, coming close to January’s 1-1/2 year low.

The iTraxx Crossover index, a key indicator for European credit market sentiment, widened to 516 basis points — close to record levels set in late January.

ECB LANGUAGE

The euro fell to two-week lows of $1.4637 while sterling was down 0.8 percent at $1.9434.

The single currency has been under pressure this week after surprisingly weak euro zone service sector data on Tuesday fuelled expectations the ECB might have to bring forward any rate cuts from the current 4 percent to shore up growth.

“Our focus will be on whether Trichet concedes that the outlook for slower global growth will reduce upside CPI risks and/or if he states that the Council considered all options, including an easing, which would shift the bias toward neutral,” Calyon said in a note to clients.

“The latter in particular would hint at a rate cut before the June move ... and prompt a sell off in euro/dollar.”

In safe-haven bond markets, the March Bund future was up 31 ticks.

Platinum raced to set fresh record highs again as supply problems in South Africa attracted strong demand from investors. The precious metal rose as high as $1,850.00 an ounce, gaining more than 20 percent since the start of the year. Gold was slightly higher at $905.05 an ounce.

U.S. light crude extended losses, falling to $86.90 a barrel as concerns about the U.S. economy and data showing higher weekly U.S. crude and fuel stocks.

Additional reporting by Sitaraman Shankar

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