European stocks may fall next week on concern that central banks in Europe and US won't be able to spur economic growth and corporate profits by cutting interest rates.
The Dow Jones Stoxx 50 Index fell 1 percent this week, taking its 10-day slide to 3.2 percent. Reports showed that European manufacturing shrank for a second month and consumer confidence in the US, Europe's largest export market, slumped to a nine-year low in October.
The US Federal Reserve and European central banks may lower interest rates next week, ending a yearlong pause, investors said.
Still, the factors hindering growth "are much more severe than half a percentage point off interest rates will solve," said Stanley Vyner, who helps manage about US$25 billion as chief of international investments at ING Investments LLC in New York.
ABN Amro Holding NV, the largest Dutch bank, BAA Plc, operator of London's Heathrow airport, and BT Group Plc, the former UK telephone monopoly, are among companies scheduled to publish results next week.
Forty-one percent of about 378 companies in the Stoxx 600 that report earnings every three months have published results for the latest quarter, according to JCF Group, a financial research company. Analysts have lowered their 2002 profit forecasts for Stoxx 600 companies by about 15 percent in the past six months, JCF said.
"I don't think earnings expectations are realistic," said Juliet Cohn, a fund manager at Dresdner RCM, which oversees Euro 18.9 billion (US$29.6 billion) of global equities. "They have brought 2002 expectations down and didn't do anything to 2003."
The Federal Reserve meets Wednesday, and the European Central Bank and Bank of England set key rates Thursday.
Of 22 primary dealers that trade directly with the Fed, all but two expect a rate cut. In the recent past that wasn't always enough to lift stocks. The US benchmark S&P 500 Index fell in six of the 11 weeks when the Fed cut rates in the latest run of reductions that began in January 2001.
The rate on the euro three-month interest-rate futures contract for December, a gauge of investor expectations for the European Central Bank's key rate, was 3.02 percent yesterday. At 24 basis points below three-month lending rates, it suggests some traders expect a cut in borrowing costs for the 12 countries that share the currency by end of the year.
The Dow Jones Euro Stoxx 600 Index, which tracks companies in the single-currency region, fell in two of the four weeks since last November in which the European Central Bank cut rates.
"An interest rate cut is largely factored into people's thinking, and that's partly why the market's been able to withstand the bad economic news we've had," said Errol Francis, who helps manage 4 billion pounds at Baring Asset Management. "I would be surprised if we didn't have rate cuts next week."
The Stoxx 50 ended its first monthly gain in seven months on Thursday, rising almost 11 percent, its best performance in almost three years.
For the week, the index's decline was led by AstraZeneca Plc, Europe's second-largest drugmaker. Its shares fell 5.2 percent yesterday after Andrx Corp said it will work with Schwarz Pharma AG and Merck KgaA's Genpharm unit to market generic versions of AstraZeneca's best-selling Prilosec ulcer treatment.
BP Plc, the region's biggest company, fell 2 percent to 418 pence for the week after reporting lower profit and cutting its 2002 growth forecast for oil and natural gas production.
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