European stocks rise as US futures signal caution: markets end

(Bloomberg) – A gauge of global equities stalled after its best start to the year in a generation as investors assessed whether the rally had gone too far given the outlook for inflation, growth and earnings. European stocks rose.

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

As 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 earnings. The World Bank added to the bleak outlook last week, warning of “one of the sharpest downturns we’ve seen in the past five decades.”

“The start of the year has been quite frenetic, so investors can take the opportunity to catch their breath,” wrote Craig Erlam, senior market analyst at Oanda Europe Ltd., in a note. “The question now is whether earnings season will bolster this newfound sense of hope or spoil the party before it really begins. A poor earnings season could undermine hopes for a soft landing that seems more possible. now than it has been for many months.

Earnings will be a key catalyst this week as traders assess whether companies have been able to weather headwinds including higher interest rates. The busy period will also be punctuated by corporate earnings, including Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley.

Several Fed officials will speak this week, providing more clues about their policy priorities. The annual meeting of the World Economic Forum 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 driven by speculation over a change in monetary policy, with the Topix index trading lower as the rebound in the yen weighed on exporters.

Investors are on guard for another surprise from the Bank of Japan when it sets policy on Wednesday. The yen strengthened to levels last seen in May and the benchmark Japanese 10-year bond yield broke above the BOJ ceiling for a second day.

Bitcoin swung between gains and losses on Monday, following a rebound over the weekend when it surged amid optimism it might have bottomed.

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

Key events this week:

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

  • World Economic Forum kicks off in Davos on Monday

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

  • China retail sales, industrial production, GDP, Tuesday

  • Empire State Manufacturing Survey in the United States, Tuesday

  • The Fed’s John Williams will speak on Tuesday

  • Eurozone CPI, Wednesday

  • U.S. retail sales, PPI, industrial production, business stocks, MBA mortgage applications, cross-border investment, Wednesday

  • Bank of Japan rate decision Wednesday

  • Federal Reserve releases Beige Book on Wednesday

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

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

  • ECB debriefing from its December policy meeting and President Christine Lagarde during a panel in Davos on Thursday

  • Fed speakers include Susan Collins and John Williams on Thursday

  • Japan CPI, Friday

  • Chinese prime lending rates, Friday

  • Sales of existing homes in the United States, Friday

  • IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos on Friday

Some of the major movements in the markets:

Shares

  • The Stoxx Europe 600 rose 0.5% at 4:51 p.m. London time

  • Nasdaq 100 futures fell 0.3%

  • S&P 500 futures fell 0.2%

  • Dow Jones Industrial Average futures are little changed

  • The MSCI Asia-Pacific index fell 0.3%

  • The MSCI Emerging Markets Index was little changed

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0826

  • The Japanese yen fell 0.6% to 128.59 per dollar

  • The offshore yuan fell 0.5% to 6.7444 per dollar

  • The British pound fell 0.2% to $1.2206

Cryptocurrencies

  • Bitcoin was little changed at $20,926.93

  • Ether fell 0.4% to $1,547

Obligations

Merchandise

  • Brent fell 1.2% to $84.26 a barrel

  • Spot gold fell 0.3% to $1,914.59 an ounce

This story was produced with assistance from Bloomberg Automation.

–With the help of Tassia Sipahutar and Richard Henderson.

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