(Bloomberg) — European stocks rose, and an index of global equities pared its biggest monthly drop since March 2020, as investors bet corporate earnings will continue to grow amid aggressive tightening by the Federal Reserve. U.S. futures were mixed.
The Stoxx 600 gauge advanced for a fourth time in five days. Technology shares in Asia and Europe caught up with Friday’s rally in New York. Futures on the S&P 500 Index were little changed, while those on the Nasdaq 100 climbed 0.5%. Treasury yields advanced while the curve flattened as bond markets braced for successive rate hikes by Fed starting March. Citrix Systems Inc. fell in premarket trading after its proposed sale failed to offer a premium on the stock price.
As investors reconcile to a hawkish U.S. central bank, the expensive parts of the U.S. stock market are undergoing a valuation re-rating along with the bond markets. However, traders do see value in less expensive segments of the global markets, such as European and emerging-market stocks, as well as higher-yielding currencies where rate hikes have already happened. The only thing money managers are certain about for the year is greater volatility.
The equity selloff “marks a long overdue correction rather than the start of a bear market,” BCA Research Inc. analysts including Peter Berezin and Melanie Kermadjian wrote in a note. “Stocks often suffer a period of indigestion when bond yields rise suddenly, but usually bounce back as long as yields do not move into economically restrictive territory,” they added.
Companies from Alphabet Inc. to Exxon Mobil Corp. report financial results this week in the U.S., while the European earnings calendar is also full, with the likes of UBS Group AG and Roche Holding AG publishing their figures.
The stellar run of profitability in U.S. companies continues this quarter. Of the 169 S&P 500 companies that have posted results so far, 81% have met or exceeded expectations. Profits have come about 5% more than the levels predicted.
Healthy earnings may cushion the impact of a technology-led selloff in the U.S. as investors adjust to a higher interest-rate regime. That may also help to alleviate some of the concerns sparked by geopolitical tensions between the U.S. and Russia over Ukraine.
Monetary-policy decisions from the European Central Bank and Bank of England will help shape the market mood in the days ahead, while investors continue to watch for evidence of economic recovery from the pandemic effects. China’s economy continued to slow at the start of the year as manufacturing and services moderated.
The Stoxx 600 gauge rose 0.8% on Monday, led by technology and industrial companies. Sweden’s Electrolux AB advanced 5.3% as a number of brokerages recommended the stock after the appliance companies results that topped estimates.
Citrix fell 3.7% in early New York trading. Elliott Investment Management and Vista Equity Partners are said to be nearing an agreement to acquire software-maker for about $13 billion, marginally less than the company’s current market cap.
Hiking Trail
Meanwhile, the selloff in Treasuries continued. Yields on short-end notes, which are the most sensitive to increases in borrowing costs, rose more than their long-end counterparts as money markets wager on 100 basis points of Fed rate hikes by September. U.S. 10-year yield premiums fell to 57 basis points over their two-year peers Monday, signaling a warning sign on the outlook for growth. Goldman Sachs Group Inc.’s economists now predict the Fed will lift its near zero benchmark by 25 basis points five times this year rather than on four occasions.
Brent crude headed for its best January in at least 30 years. The commodity has soared this month as global markets tightened, with top banks and oil companies saying prices may soon pass $100 a barrel.
Bitcoin, the world’s largest cryptocurrency, retreated to around $37,000, nursing a drop of some 20% since the start of 2022.
For more market analysis, read our MLIV blog.
What to watch this week:
- Earnings are due from Alphabet, Amazon, Exxon Mobil, Ford Motor, Meta Platforms, Qualcomm, Sony, Spotify, UBS Group
- Euro zone GDP growth data, Monday
- San Francisco Fed President Mary Daly due to speak at event, Monday
- Reserve Bank of Australia rate decision, Tuesday
- Manufacturing PMIs, including euro zone, Tuesday
- OPEC+ meeting on output, Wednesday
- Euro zone CPI, Wednesday
- Bank of England, European Central Bank rate decisions, Thursday
- Fed Board of Governors confirmation hearing, Thursday
- U.S. factory orders, initial jobless claims, durable goods, Thursday
- U.S. payrolls report for January, Friday
- Winter Olympics kick off in China, Russia’s President Vladimir Putin due to attend opening ceremony, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.9% as of 10:17 a.m. London time
- Futures on the S&P 500 were little changed
- Futures on the Nasdaq 100 rose 0.5%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.1179
- The Japanese yen fell 0.2% to 115.46 per dollar
- The offshore yuan fell 0.2% to 6.3793 per dollar
- The British pound rose 0.3% to $1.3446
Bonds
- The yield on 10-year Treasuries advanced two basis points to 1.79%
- Germany’s 10-year yield advanced four basis points to -0.01%
- Britain’s 10-year yield advanced two basis points to 1.26%
Commodities
- Brent crude rose 0.9% to $90.80 a barrel
- Spot gold fell 0.1% to $1,789.47 an ounce
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