Europe, US stocks resume rally as volatile month nears end

Bloomberg

European stocks and US index futures rise, and a gauge 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.
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 added 0.2%, while those on the Nasdaq 100 jumped 0.6%. Treasury yields advanced while the curve flattened as bond markets braced for successive rate hikes by Fed starting March.
As investors reconcile to a hawkish US central bank, the expensive parts of the US 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 US, while the European earnings calendar is also full, with the likes of UBS Group and Roche Holding publishing their figures.
The stellar run of profitability in US 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 US 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 US 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 rise 1.1% on Monday, led by technology and industrial companies. Sweden’s Electrolux AB advanced 4.8% as a number of brokerages recommended the stock after the appliance companies results that topped estimates
Meanwhile, the selloff in Treasuries continued. The two-year rate increased three basis points, while yields of longer maturities rose more modestly. Goldman Sachs’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, world’s largest cryptocurrency, retreated to around $37,000, nursing a drop of some 20% since the start of 2022.
The Stoxx Europe 600 rise 1.1% as of 09:00 am London time and futures on the S&P 500 also climb 0.2%.
While futures on the Nasdaq 100 rise 0.6%, futures on the Dow Jones Industrial Average were little changed and the MSCI Asia Pacific Index rises as much as 0.7%.
The MSCI Emerging Markets Index also climbs 1%.
The Bloomberg Dollar Spot Index falls 0.2% and the euro rises 0.2% to $1.1170.
While the Japanese yen falls 0.2% to 115.46 per dollar, the offshore yuan drops 0.2% to 6.3817 per dollar and the British pound rises 0.2% to $1.3433.
The yield on 10-year Treasuries advanced one basis point to 1.78% and Germany’s 10-year yield advanced two basis points to -0.03%. Britain’s 10-year yield was little changed at 1.24%.