European shares drop to two-week low as dismal earnings add to risk-off mood

European shares tumbled on Thursday as a raft of dismal corporate earnings, including from packaged food giant Nestle, worsened an already risk-averse mood, driven by jitters around the Middle East war and uncertainty over interest rates.

The pan-European STOXX 600 fell 1% to hit nearly a two-week low by 0839 GMT, in a broad-based selloff, led by automakers and rate-sensitive real estate firms.

Geopolitical tensions continued to mount with anti-Israel protests flaring across the Middle East, while U.S. Treasury yields jumped to multi-year highs ahead of commentary by Federal Reserve Chair Jerome Powell due at 1600 GMT.

European stocks have seen steep declines this week, hit by Middle East tensions and interest rate worries following robust U.S. economic data and mixed earnings reports.

“A mix of inflation worries plus U.S. resilience is clearly the main driver why markets have repriced again the odds of another rate hike by the Fed later this year,” said Thomas Hempell, Head of Macro & Market Research at Generali (BIT:GASI) Investments.

“(There’s) uncertainties about the behaviour of the Fed, and clearly that overlaps with the Middle East tensions.”

Shares of Nestle dropped 2.4% after the Swiss consumer giant posted lower-than-expected nine-month sales growth as higher product prices made shoppers balk.

Roche Holding (SIX:ROG) lost 4.5% as the drugmaker’s third-quarter sales were hit by lower demand for COVID-19 products.

France’s CAC 40 index slid to a seven-month low with Renault (EPA:RENA) down 7.4% after the French carmaker’s third-quarter revenue missed analysts’ expectations.

Nokia (HE:NOKIA) lost 2% as the Finnish telecom gear group announced plans to slash jobs after posting a drop in its third-quarter sales.

The stock was among top losers on Finland’s OMX HELSINKI 25 index which dropped 1.1% to a three-year low.

Frankfurt-listed shares of Tesla fell 4.8% after the EV maker missed third-quarter gross margin expectations, while Netflix (NASDAQ:NFLX) jumped 12.8% after surpassing Street estimates for new customers.

Europe’s technology sector was the only sector in the green, up 1.3%, with SAP jumping 5.3% after reaffirming its full-year cloud business revenue outlook, despite missing expectations in the third quarter.

Pernod Ricard (EPA:PERP) gained 5% after the French spirits maker said it expected to grow sales over the coming year, despite a difficult first quarter.

Britain’s Rentokil Initial (LON:RTO) slumped 13.9% to the bottom of the STOXX 600 after the pest control firm flagged weaker demand in North America, its biggest market.