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Poor earnings, recession batter equities

Wall Street looked set for steep losses at its open. General Electric epitomised the mood, reporting a 44 percent drop in quarterly profits.

Britain said its gross domestic product shrank 1.5 percent in the fourth quarter. Sterling hit a 23-year low against the dollar below $1.36.

Earnings worries were to the fore. Japanese stocks ended the week at a two-month closing low, dragged down by technology and entertainment giant Sony’s forecast of a record $2.9 billion annual loss on sliding demand.

It followed heavy losses overnight on Wall Street, where Microsoft cautioned that it could no longer offer profit forecasts for the rest of the fiscal year after posting a quarterly profit that fell short of expectations.

In Europe, the FTSEurofirst 300 index was down around 1.9 percent, looking set for its 12^th session of decline out of 13.

“Earnings have been as bad as expected,” said Bernard McAlinden, investment strategist at NCB Stockbrokers. “The test is whether the markets have discounted that or not. But they seem to be taking it nervously.”

Japan’s Nikkei stock average earlier lost 3.8 percent.

In a report on investment flows, State Street said its latest calculations showed cross-border equity flows running at one of the most risk-averse levels for a record 118 trading days.

“The one optimistic sign is that emerging market flows have rebounded,” it said.

Safety

The mood of investor caution lifted currencies that currently benefit from risk aversion.

The dollar was up 1.3 percent against a basket of major currencies, with the euro falling 1.4 percent to a six-week low. It was at $1.2802.

Britain’s pound, which has fallen around 8 percent against the dollar this week, was at $1.35.91, down 1.9 percent.

“It is very much a case of continued worry about the global economy,” BNP Paribas currency strategist Ian Stannard said of currencies in general.

Shorter-dated euro zone government bond yields hit a record low as the market bet on further European Central Bank interest rate cuts but yields on longer-dated paper rose on concerns about heavy government borrowing.

The moves pushed the 2-10-year euro zone bond yield curve to its steepest since mid-2004, according to Reuters charts. Bond yields and prices move inversely.

The 10-year Bund yielded 3.13 percent, its highest in two weeks and three basis points more than in late Thursday trade.

Two-year yields were eight basis points down at 1.369 percent, having fallen as low as 1.364 percent earlier, their lowest since at least 1999, according to Reuters charts.