LIVE MARKETS STOXX hits two-week low in volatile trade

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  • European equities plunge into choppy trade
  • Atos hammered after a result warning
  • U.S. equity futures have not changed much

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STOXX REACHES 2-WEEK LOW IN VOLATILE TRADE (0909 GMT)

European stocks got the day off to a good start, but the seemingly positive mood didn’t last long, leading to a volatile start to the week ahead of key US inflation data on Wednesday.

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Concerns about interest rate hikes in the United States quickly took hold, pushing the STOXX 600 to its lowest level in two weeks, down 0.6%. However, the index later recovered some lost ground and fell only 0.1% for the last time.

Industrials and tech are the biggest negative weightings, while energy stocks managed to rise as supply disruptions in Kazakhstan and Libya helped crude prices rise slightly. Read more

Atos stood out with a 17% share price drop in Paris after the French technology consultancy firm issued its second earnings warning in seven months. Read more

(Danilo Masoni)

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IT’S BECOMING REAL (0807 GMT)

As markets contemplate rising U.S. interest rates, perhaps even from March, 10-year Treasury yields have risen a quarter point since the start of the year. More interestingly, “real” or inflation-adjusted US yields lead the moves with a jump of 33 basis points.

Real yields, although at their highest since last June, will remain deeply negative for some time. But their rise in importance poses challenges for assets that have benefited from the reasoning of the absence of alternatives. Last week, stocks faltered, bitcoin fell 8%, and Nasdaq technology, the quintessential low-rate game, fell 4.5%.

Holders of longer-dated bonds are also likely nervous – these assets have seen large outflows over the past four weeks, notes Goldman Sachs.

Meanwhile, inflation is not slowing down; Eurozone prices rose 5% year-on-year in December and Wednesday’s US CPI is expected to be over 7%. However, the ECB has remained resolutely accommodating – Board member Isabel Schnabel said over the weekend that the bank may have to act if the rise in energy prices proves to be persistent. The euro started on Monday down 0.3% Read more.

Stocks are trying to move up the slope – US and European equity futures are rising even though Treasury yields, both real and nominal, are a bit higher.

So what happens to stocks if real returns continue to rise? There have been numerous episodes where stocks have risen alongside real returns, most recently in the period March 2020-February 2021, when a 1.5% increase in real returns was accompanied by a drop in real returns. 50% global equity return.

Noting this, Berenberg recently advised customers to stay put. However, the share of rate-sensitive technology is now much higher than in the past, which perhaps changes the equation a bit.

Finally, let’s not forget the ominous geopolitics and the rapidly spreading Omicron, both capable of adding to inflation and holding back economic growth. Oil prices are extending last week’s 5% gain, and US-Russian talks are expected to begin later today with low expectations.

Real returns

Key developments that should provide more direction to markets on Monday:

-German Finance Minister Christian Lindner and Eurogroup President Paschal Donohoe hold a press conference

-NATO chief Jens Stoltenberg meets with Ukrainian foreign minister

– Kazakh President intensifies purge of security agency read more

-No concessions, no breakthroughs: Russia and the United States cast a veil on talks with Ukraine read more

-The holders of Evergrande’s onshore bonds decide on the extension; his developer colleague Shimao puts all the projects up for sale find out more

– UK manufacturers are positive for 2022 read more

(Sujata Rao)

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EUROPE IS WATCHING CAUTIONARY EARNINGS (07H24 GMT)

European stocks are expected to open slightly this morning as global markets cautiously await another impression of US inflation later this week that could push the Federal Reserve further into hawkish territory as price pressures increase.

Euro STOXX 50, DAX, FTSE and IBEX futures rose 0.3% to 0.6% after losses last week when worries about rising inflation and COVID-19 infections have pushed the region’s main stock benchmark to nearly two-week lows.

In Asia, major stock markets made cautious gains while S&P 500 and Nasdaq futures rose 0.2% and 0.4% respectively. In bond markets, 10-year Treasury yields edged up to two-year highs of 1.8% reached on Friday.

Inflation figures in the United States are due on Wednesday, with the headline CPI expected to climb to 7% year-on-year.

(Danilo Masoni)

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