European stocks falter as traders assess future central bank policy
European stocks opened the week indecisively, after a last-minute rally on Wall Street on Friday, as uncertainty over how the end of pandemic-era stimulus programs will affect markets continued to boost exchanges.
The regional Stoxx 600 index, which has lost more than 5% so far this year in a move echoing declines on Wall Street, opened Monday up 0.7% before flattening out.
London’s FTSE 100 gained 0.3%, while futures markets implied small losses for the S&P 500 and Wall Street’s Nasdaq Composite later in the day.
Stocks have seen significant intraday swings this month, with popular tech stocks posting unusual one-day gains and losses as liquidity dwindled and traders struggled to trade big lots of shares.
“The market is lost,” said Samy Chaar, chief economist at Lombard Odier, as investors navigated the trends of positive economic data and “other hawkish messages from central banks.”
US jobs data on Friday showed employers in the world’s largest economy added an unexpected 467,000 new jobs last month, signaling the resilience of the recovery from the shocks caused by the… 2020 coronavirus.
But inflation data later in the week is expected to show consumer prices rose 7.3% on the year to January, a new high in four decades.
“A record amount of stimulus is about to be pulled out of the global economy,” Morgan Stanley strategist Andrew Sheets said, noting that major central banks are expected to shrink their balance sheets by $2 trillion over the course of the year. 12 months from May this year.
“For investors, the magnitude of what lies ahead means we believe they should keep global exposure light.”
In March 2020, global central banks cut interest rates to historic lows and embarked on multi-trillion dollar purchases of bonds and other securities to suppress borrowing costs and encourage loans and expenses. Now that purchases are reduced, the Bank of England has raised interest rates twice and the US Federal Reserve has signaled that it is ready to act decisively to rein in inflation.
Markets last week priced in rate hikes of more than five quarter points by the Fed this year and a faster move toward monetary tightening from the European Central Bank than its officials had expected there. just a few weeks ago.
Government bonds, under pressure as expectations of higher interest rates and sustained inflation reduced the appeal of fixed income securities, sold off in response.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, hit its highest level since January 2020 on Friday. That move eased slightly on Monday, with the yield falling 0.02 points percentage to 1.91%.
Analysts also turned slightly bearish on the outlook for the upcoming quarterly earnings season.
In January, forecasters lowered their earnings estimates for S&P 500 companies for the first quarter of the year by a total of 0.7%, according to data provider FactSet.
Although the move was modest, analysts have not cut their earnings expectations in the first month of a quarter since mid-2020.
In Asia, China’s CSI 300 equity index gained 1.5% as oil producers rallied. Hong Kong’s Hang Seng Index closed flat and Japan’s Nikkei 225 lost 0.7%.
Brent, the global oil benchmark, fell 0.7% to $92.59 a barrel, but remained at its highest level since 2014.