NEW YORK/LONDON, Jan 29 (Reuters) – A gauge of global
stocks rose on Monday, with European shares surging to a fresh
two-year high, and bond yields eased as markets scaled back
ambitious bets at the end of 2023 on rate cuts by the Federal
Reserve and other major central banks.
Wall Street also edged higher, with the S&P 500 poised to
set a new record closing high, at the start of a week packed
with big corporate earnings, European inflation data, Federal
Reserve and Bank of England meetings and U.S. employment data.
Europe’s broad STOXX 600 index briefly touched a
fresh two-year high as it closed up 0.2% after posting its
biggest weekly gain in three months last week.
The market is trying to understand the outlook for the U.S.
economy as it unlikely will require the deep interest rate cuts
by the Fed it has priced in, said Phillip Nelson, head of asset
allocation at NEPC, an investment consultant for institutional
investors in Boston.
Absent geopolitical shocks, the U.S. economy will grow
better than expected with just a few areas underperforming, he
said.
MSCI’s U.S.-centric gauge of global equity performance
gained 0.67%, while on Wall Street, the Dow
Jones Industrial Average rose 0.51%, the S&P 500
gained 0.71% and the Nasdaq Composite added 1.07%.
The S&P 500 has notched five all-time closing highs so far
in January.
Megacap earnings will be scrutinized this week after
disappointing forecasts from Intel and Tesla
last week deepened concerns about the valuation of the megacapp
growth stocks that spearheaded the rally at year-end 2023.
Microsoft, which through its partnership with Open
AI piqued market interest about artificial intelligence in 2023,
is expected to report a 15.8% jump in quarterly revenue on
Tuesday. The stock was up 1.2% in afternoon trading.
Results from other members of the Magnificent Seven –
Alphabet, Apple, Meta Platforms and
Amazon.com – also are due this week, in addition to
heavyweights Exxon Mobil, Chevron, Qualcomm
, Merck, Pfizer and Boeing.
The euro sank to almost a seven-week low, breaking below the
1.08 mark, as the market dialed back expectations of the extent
of rate cuts this year by the Fed and European Central Bank
(ECB), said Marc Chandler, chief market strategist at
Bannockburn Global Forex in New York.
“We’re still reacting and correcting to what happened in Q4
last year,” Chandler said.
“The market got in its head there’d be aggressive rate cuts
not just by the Fed, but by the Bank of England and the ECB. The
dollar sold off in that environment,” he said.
The dollar index retreated, down 0.13%, while the
euro slid 0.16% at $1.0835 after falling to $1.0797. The
euro may be poised for a weak February, as the single currency
has declined versus the dollar the past seven years during the
month, he said.
Investors await the press conference with Fed Chair Jerome
Powell and the statement by the U.S. central bank at the
conclusion of a two-day policy meeting on Wednesday, and the
U.S. unemployment report on Friday.
Policymakers are expected to hold the Fed’s target interest
rate steady at a range of 5.25%-5.50%, but some investors
believe the U.S. central bank could drop its hiking bias.
The yield on the benchmark 10-year Treasury note
fell 9 basis points to 4.070%, while the European benchmark –
the 10 year German bund – slid 0.7 basis points to
2.231%.
Treasury yields dropped sharply in November and December,
helping equity markets to rally on expectations that Fed rate
cuts could come as soon as March. But yields have risen this
year as traders pared back rate cut bets.
Treasury yields fell further after the Treasury Department
said late in the session that it would need to borrow less than
its previous estimates.
Concerns over a wave of supply due to the increasing
federal deficit pushed yields near two-decade highs in October,
though signs that inflation is cooling and the U.S. economy may
be on pace for a soft landing has helped bring yields down
since.
Asian shares rose as new steps by Beijing to stabilize the
local market outweighed the drag on sentiment from a Hong Kong
court order to liquidate property giant China Evergrande.
Investors were also sensitive to geopolitical risks with oil
rising after a Houthi missile attack caused a fire on a fuel
tanker in the Red Sea and a drone attack killed three U.S.
troops in Jordan.
In Asia, the main drag to stocks came from a Hong Kong court
order to liquidate Evergrande, the poster child of China’s
property meltdown.
Hong Kong’s Hang Seng trimmed gains on the news and
closed up 0.78%, having earlier been up nearly 2% on the back of
China’s securities regulator saying on Sunday it would fully
suspend the lending of restricted shares.
Mainland Chinese blue chips had struggled to make
headway early in the session, and eventually slumped 0.9%.
Oil prices fell more than a dollar a barrel as China’s
ailing property sector sparked demand worries, causing traders
to reassess the supply risk premium from escalating tensions in
the Middle East.
U.S. crude futures settled down $1.23 at $76.78 a
barrel, and Brent fell $1.15 to end at $82.40 a barrel.
U.S. gold futures settled 0.4% higher at $2025.40 an
ounce.
(Reporting by Kevin Buckland; Additional reporting by Stella
Qiu; Editing by Kylie MacLellan and Mark Potter)
