European stocks were subdued on Tuesday, heading for their biggest drop for the month of October since 2020, as investors mulled mixed earnings reports ahead of the Federal Reserve’s policy decision this week.
The Stoxx Europe 600 was up 0.1% at 8:12 a.m. in London, with the food and beverage sector and chemicals stocks gaining while energy shares lagged.
Among single stocks, BP Plc dropped after its third-quarter profit fell short of estimates, while Spain’s Banco Bilbao Vizcaya Argentaria SA also fell after reporting results. Budweiser maker Anheuser-Busch InBev NV rose after reiterating its annual profit forecast and reporting quarterly adjusted earnings that met analysts’ expectations.
European stocks have struggled this month amid a surge in bond yields, war in the Middle East and underwhelming quarterly earnings. The benchmark is set for its worst October performance since 2020 with a decline of about 4%. It is also on the cusp of erasing its 2023 gain and confirming a technical correction.
While October has typically ended with positive returns over the past 25 years, that pattern was shattered this month, raising doubts about the prospect of a year-end rally. Technicals and positioning are providing some support but are not yet strong enough to offset macroeconomic and geopolitical headwinds. All eyes are on the Fed’s rate decision on Wednesday, as well as the Treasury Department’s new borrowing plan.
“Markets are short-term oversold, and if the Fed keeps rates in place and maybe even guides for no more rate hikes, we should see strength into November and December,” said Liberum strategist Joachim Klement. “The worry is of course that the Fed guides to the possibility of more rate hikes or the war in Israel escalates in which case, any short-term bounce would be limited.”
The outlook for global growth is also in focus as a gauge of Chinese manufacturing contracted in October. In Europe, however, data showed French output grew slightly in the third quarter.
A Goldman Sachs Group Inc. indicator of risk appetite dropped below zero to its lowest level since May, suggesting worries around economic growth, strategist Cecilia Mariotti wrote in a note.
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--With assistance from Michael Msika.