European Stocks Rise as US Futures Signal Caution: Markets are reeling


(Bloomberg) — A benchmark of global stocks was little changed after its best start in a generation, as investors weighed whether the rally went too far given the outlook for inflation, growth and earnings. European stocks rose.

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The MSCI ACWI Index fell for the first time in seven days after posting its biggest advance for the first two weeks on record dating back to 1988. S&P 500 and Nasdaq 100 futures each fell at least 0.2%. The dollar snapped a three-day losing streak. US spot markets were closed for the holiday. European bond yields rose.

While US inflation appears to have peaked, aggressive policy tightening by the Federal Reserve and other central banks risks pushing the global economy into a recession that could hurt corporate profits. Last week, the World Bank added to the gloomy outlook, warning of “one of the sharpest slowdowns we have seen in five decades”.

“Fear of missing out is currently the main driver for stocks,” Credit Agricole CIB strategists led by Jean-François Pare said in a note. “The market is a bit ahead right now.”

Earnings will be the main catalyst going forward as traders assess whether companies can handle the headwinds, including higher interest rates. The busy week also saw Wall Street heavyweight Goldman Sachs Group Inc. and will be remembered for corporate earnings, including Morgan Stanley.

A number of Fed officials will be speaking this week to provide more clues for investors. The World Economic Forum’s annual meeting begins in Davos, Switzerland, with speakers including Christine Lagarde, president of the European Central Bank, and Kristalina Georgieva, head of the International Monetary Fund.

Meanwhile, Japanese markets continued to be driven by speculation of a change in monetary policy, with the Topix index falling as a stronger yen weighed on exporters.

Investors are bracing for another surprise when the Bank of Japan sets policy on Wednesday. The yen strengthened to levels last seen in May, and Japan’s 10-year bond yield rose above the BOJ’s ceiling for a second day.

Bitcoin slipped below $21,000 after rallying again over the weekend, fueled by optimism that it could bottom out.

Iron ore fell in other markets after China promised to tighten price controls after the metal rose in recent months. Oil and gold fell.

This week’s highlights:

  • Gains this week include: Charles Schwab, Discover Financial, Goldman Sachs, HDFC Bank, Interactive Brokers, Investor AB, Morgan Stanley, Netflix, Procter & Gamble, Prologis, State Street

  • The World Economic Forum kicks off in Davos on Monday

  • US markets on Monday Martin Luther King Jr. Closed for the day

  • China retail sales, industrial production, GDP, Tuesday

  • US Empire State manufacturing survey, Tuesday

  • The Fed’s John Williams will speak on Tuesday

  • Eurozone CPI, Wednesday

  • US retail sales, PPI, industrial production, business inventories, MBA mortgage programs, cross-border investment, Wednesday

  • Bank of Japan exchange rate decision on Wednesday

  • The Federal Reserve releases its Beige Book on Wednesday

  • Fed speakers include Raphael Bostic, Lorie Logan and Patrick Harker

  • US housing starts, initial jobless claims, Philadelphia Fed index, Thursday

  • ECB December policy meeting report and President Christine Lagarde’s panel in Davos, Thursday

  • Fed speakers include Susan Collins and John Williams on Thursday

  • Japan CPI, Friday

  • China’s key lending rates, Friday

  • US existing home sales, Friday

  • Kristalina Georgieva of the IMF and Lagarde of the ECB speak in Davos on Friday

Some of the major movements in the markets are:

Shares

  • The Stoxx Europe 600 was up 0.3% as of 11:47 a.m. London time

  • Nasdaq 100 futures fell 0.3%

  • S&P 500 futures fell 0.2%

  • Dow Jones Industrial Average futures were down less than 0.1%

  • The MSCI Asia Pacific Index fell 0.2%

  • The MSCI Emerging Markets Index rose 0.1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro remained unchanged at $1.0830

  • The Japanese yen fell 0.3% to 128.24 per $1

  • The offshore yuan fell 0.4% to 6.7430 per dollar

  • The British pound fell 0.1% to $1.2211

Cryptocurrencies

  • Bitcoin fell 0.3% to $20,837.78

  • Ether fell 0.5% to $1,544.76

Bonds

  • The 10-year Treasury yield was little changed at 3.50%

  • Germany’s 10-year yield rose two basis points to 2.18%

  • Britain’s 10-year yield rose three basis points to 3.40%.

Commodity

This story was produced with assistance from Bloomberg Automation.

–With assistance from Tassia Sipahutar and Richard Henderson.

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