European stocks fall on growth worries; yen up on likely new BOJ head

[February 10, 2023]  By Elizabeth Howcroft

LONDON (Reuters) -European stocks fell in early trading on Friday as investors fretted about the impact of rapid interest rate hikes on growth, while the yen surged on reports that academic Kazuo Ueda was likely to be appointed Japan's next central bank governor.

Richmond Fed President Thomas Barkin said tight monetary policy is "unequivocally" slowing the U.S. economy, allowing the Federal Reserve to move "more deliberately" with any further interest rate increases.

Asian stocks were heading for a second weekly loss, while the MSCI World Equity Index was down 0.3% on the day at 0924 GMT, on track for its worth week since December.

Europe's STOXX 600 was down 0.6%, while London's FTSE 100 was down 0.2%>

Maximilian Kunkel, chief investment officer for Germany and global family and institutional wealth, said that recent earnings reports, particularly for U.S. technology companies, have hit market sentiment.

"The focus is shifting away from the positive impact of disinflation towards concerns around growth."

"People (are) realizing that the earning season hasn't actually been all that great," he said. "Investors are starting to expect lower profit margins as inflation comes down."

The U.S. dollar index was little changed, at around 103.26, while the 10-year U.S. Treasury yield was a touch higher at 3.6883%, close to a one-month high.

Money markets now expect a peak in the current Fed rate cycle around 5.15% in July.

The Japanese yen broadly strengthened after reports that the Japanese government was set to appoint academic Kazuo Ueda as the central bank's next governor.

A trader works at the Frankfurt stock exchange, amid the coronavirus disease (COVID-19) outbreak, in Frankfurt, Germany, December 30, 2020. REUTERS/Ralph Orlowski

The dollar was down 0.5% against the yen, with the pair at 130.895.

"The news surprised the market as he would bring a bit more of a hawkish tilt to monetary policy than the top contender, Masayoshi Amamiya," ING said in a note to clients, adding that the market reaction could prove "temporary".

"We don't think he is expected to immediately change the BoJ's policy stance," ING said.

In Europe, German government bond yields edged higher, heading towards their most significant weekly rise so far this year as European Central Bank policymakers fought back against market expectations for a quick end to rate hikes.

The benchmark 10-year German yield was at 2.356%.

Britain's economy showed zero growth in the final three months of 2022, gross domestic product data showed.

Meanwhile, oil prices jumped more than 2%, heading for weekly gains, as Russia announced plans to reduce oil production next month

Brent crude futures were up 2.5%, while U.S. West Texas Intermediate (WTI) crude futures were up 2.6%.

Investor focus is now on the crucial U.S. consumer price data due Tuesday.

(Reporting by Kevin Buckland; Editing by Kim Coghill and Arun Koyyur)

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