Equity Rally Stalls Amid Unease About Macro Risks: Markets Wrap

(Bloomberg) — Global equities faltered after their best start to a year in a generation as investors assessed whether the rally has gone too far given the outlook for inflation, growth and earnings.

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The MSCI ACWI Index slipped for the first time in seven days after posting the biggest advance for the first two weeks in data going back to 1988. Futures on the S&P 500 and Nasdaq 100 indexes fell at least 0.3% each. The dollar snapped a three-day losing streak. US spot markets were closed for a holiday. European equities wavered, and bond yields across the continent climbed.

While inflation in the US 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. The World Bank last week added to the gloomy outlook, warning of “one of the sharpest slowdowns we have seen in the past five decades.”

“The fear of missing out currently represents a key driver for equities,” Credit Agricole CIB strategists led by Jean-François Paren wrote in a note. “The market is getting a bit ahead of itself right now.”

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

A host of Fed officials will be speaking this week, providing more clues for investors. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

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Meanwhile, Japanese markets continued to be driven by speculation of a shift in monetary policy, with the Topix index trading lower as the yen’s rebound 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 Japan’s benchmark 10-year bond yield pushed above the top of the BOJ’s ceiling for a second day.

Bitcoin traded above $21,000 following a rebound over the weekend, when it surged amid optimism that it may have bottomed.

Elsewhere in markets, iron ore tumbled after China pledged to tighten supervision on pricing after the metal’s surge in recent months. Oil and gold slid.

Key events this week:

  • Earnings this week are scheduled 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’s kicks off in Davos, Monday

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

  • China retail sales, industrial production, GDP, Tuesday

  • US Empire State manufacturing survey, Tuesday

  • Fed’s John Williams to speak, Tuesday

  • Eurozone CPI, Wednesday

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

  • Bank of Japan rate decision, Wednesday

  • Federal Reserve releases Beige Book, Wednesday

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

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

  • ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday

  • Fed speakers include Susan Collins and John Williams, Thursday

  • Japan CPI, Friday

  • China loan prime rates, Friday

  • US existing home sales, Friday

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

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.2% as of 10:33 a.m. London time

  • Nasdaq 100 futures fell 0.6%

  • S&P 500 Index futures dropped 0.3%

  • Futures on the Dow Jones Industrial Average fell 0.2%

  • 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 was little changed at $1.0831

  • The Japanese yen fell 0.4% to 128.36 per dollar

  • The offshore yuan fell 0.4% to 6.7385 per dollar

  • The British pound was little changed at $1.2220

Cryptocurrencies

  • Bitcoin fell 0.2% to $20,854.72

  • Ether fell 0.3% to $1,548.48

Bonds

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

  • Germany’s 10-year yield advanced four basis points to 2.21%

  • Britain’s 10-year yield advanced five basis points to 3.42%

Commodities

  • Brent crude fell 0.4% to $84.98 a barrel

  • Spot gold fell 0.2% to $1,916.05 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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