European stocks rise as US index futures warn: markets are turning

(Bloomberg) — A gauge of global stocks has stalled after its best one-year start in a generation, as investors assess whether the rally has gone too far on inflation, growth and earnings expectations. European stocks rose.

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The MSCI ACWI was little changed after posting the biggest advance in the first two weeks in data dating back to 1988. Futures on the S&P 500 and Nasdaq 100 fell by at least 0.2% each. The dollar snapped a three-day losing streak. The US spot markets were closed for a holiday. European stocks were boosted by gains in real estate companies.

While US inflation appears to have peaked, an aggressive tightening policy by the Federal Reserve and other central banks risks tipping the global economy into a recession that could hurt corporate earnings. The World Bank last week added to the bleak outlook, warning of “one of the most severe slowdowns we have seen in the past five decades”.

Craig Erlam, Senior Market Analyst, Oanda Europe Ltd. , in a note: “It’s been a hectic start to the year, so investors may be taking the opportunity to catch a breath.” The question now is whether earnings season will reinforce this new sense of hope or spoil the party before it really gets started. A bad earnings season could dampen hopes of a soft landing that seems more possible now than it has for several months.”

Earnings will be a key catalyst this week as traders assess whether companies can weather headwinds including interest rate hikes. The crowded period will also be punctuated by corporate earnings, including Goldman Sachs Group Inc. and Morgan Stanley, two Wall Street heavyweights.

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Several Fed officials will speak this week, providing more clues about their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers including European Central Bank President Christine Lagarde and Kristalina Georgieva of the International Monetary Fund.

Meanwhile, Japanese markets continued to be weighed on speculation of a shift in monetary policy, with the Topix index trading lower as the rebound in the yen weighed on exporters.

Investors are on the lookout for another surprise from the Bank of Japan when it sets policy on Wednesday. Yen strength strengthened to levels last seen in May and pushed Japan’s benchmark 10-year bond yield above the Bank of Japan’s ceiling for a second day.

Bitcoin fluctuated between gains and losses on Monday, after bouncing back over the weekend, when it surged on optimism that it may have hit a bottom.

Elsewhere in the markets, iron ore fell after China pledged to tighten price controls following the metal’s rally in recent months. Oil and gold fell.

Main events this week:

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

• The World Economic Forum kicks off in Davos on Monday

• US markets are closed on Martin Luther King Jr. Day, Monday

• China Retail Sales, Industrial Production, GDP, Tuesday

• The Empire State Manufacturing Survey in the US, Tuesday

• John Williams of the Fed will speak on Tuesday

• Eurozone CPI, Wednesday

• US Retail Sales, Producer Price Index, Industrial Production, Business Inventories, Business Administration Mortgage Applications, Cross Border Investing, Wednesday

• Bank of Japan interest rate decision, Wednesday

• The Federal Reserve releases the Beige Book, Wednesday

• The Fed speakers are Raphael Bostick, Lori Logan and Patrick Harker, Wed

• US Housing Starts, Initial Jobless Claims, Philadelphia Fed Index Thursday

• European Central Bank report on its December policy meeting and President Christine Lagarde at a panel in Davos, Thursday

• Among the Fed’s speakers are Susan Collins and John Williams, Thursday

• Japanese CPI, Friday

• The main interest rates on Chinese loans, Friday

• US existing home sales, Friday

• Kristalina Georgieva of the International Monetary Fund and Lagarde of the European Central Bank speak in Davos on Friday

Some of the major movements in the markets:

Stores

• S&P 500 futures were down 0.2% as of 2:05 p.m. New York time.

• Stoxx Europe 600 rose 0.5%

• Dow Jones Industrial Average futures fell 0.1%.

• The MSCI World Index was little changed

• The Nasdaq 100 fell 0.4%.

• The MSCI Asia Pacific Index fell 0.3%.

• The MSCI Emerging Markets Index fell 0.1%.

currencies

• The Bloomberg Spot Dollar Index rose 0.2%.

• The euro fell 0.1 percent to $1.0814

• The British pound fell 0.3 percent to $1.2190

• The Japanese yen fell 0.6% to 128.60 against the dollar

• The offshore yuan fell 0.5 percent to 6.7469 per dollar

Digital currencies

• Bitcoin rose 2.3% to $21,380.85

• Ether rose 2.2% to $1,586.55

bonds

• The yield on the 10-year Treasury note was little changed at 3.50%.

• Germany’s 10-year yield was little changed at 2.17%.

• The yield on the 10-year UK Bund advanced 2 basis points to 3.38%.

goods

• West Texas Intermediate crude fell 1.3 percent to $78.84 a barrel

• Gold futures fell 0.2 percent to $1917.30 an ounce

This story was produced with help from Bloomberg Automation.

— With assistance from Tasya Sipahutar, Richard Henderson, and Sebastian Boyd.

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