European Stocks Extend Winning Streak; Bonds Gain: Markets Wrap

(Bloomberg) -- European stocks were steady near record highs on the back of an earnings season that showed companies were deleveraging and weathering the supply-side crisis. 

The Stoxx 600 Europe Index inched higher after rising for six weeks, its longest weekly winning streak since mid-April. S&P 500 futures posted modest gains with Nasdaq 100 contracts. Bonds across Europe rose with U.S. Treasuries.

Strong corporate earnings are helping drive investors into rallying markets and overshadowing fears about the hottest U.S. inflation print in three decades. The sentiment found its way into calmer bond markets, where these fears had played out in the highest volatility since the onset of pandemic.  

Yet these headwinds will be a bigger force against U.S. stock returns next year, according to Morgan Stanley strategists who prefer peers in Europe and Japan. They forecast the S&P 500 will end 2022 at 4,400 -- some 6% below current levels. For bonds, they expect 10-year yields to rise to 2.10% by the end of next year on improving growth and higher real rates, up from 1.54% on Monday.

“One reason we like equities in Europe and Japan is that we think inflationary challenges there are much less daunting than elsewhere,” strategists led by Andrew Sheets wrote Sunday. They also cited “more reasonable valuations, limited central bank tightening and less risk from higher taxes” vis-a-vis the U.S.

In commodities, oil fell as traders wait to see what President Joe Biden might do to alleviate gasoline prices amid growing criticism about the impact of rising costs. 

Meanwhile, Tesla Inc. fell in the premarket after Elon Musk raised the idea of selling more of his shares in online sparring with U.S. Senator Bernie Sanders. Musk offloaded almost $7 billion worth of Tesla stock over the past week, weighing on the shares of the electric-vehicle manufacturer.

Shares fluctuated in Hong Kong and dipped in China, where traders weighed stronger-than-expected retail sales and industrial output, central bank liquidity support and a drop in home prices. Beijing’s crackdown on real-estate leverage is among the headwinds for the world’s second-largest economy. 

Biden will meet virtually with Chinese President Xi Jinping on Monday. Tensions between the two countries have been building over issues including Taiwan and restrictions on sales of U.S. technology to China. 

What to watch this week:

• President Joe Biden, President Xi Jinping to meet virtually. Monday
• Fed Presidents Thomas Barkin, Esther George, Raphael Bostic, Patrick Harker speak at various events. Tuesday
• Reserve Bank of Australia Governor Philip Lowe delivers a speech. Tuesday
• RBA minutes of November meeting. Tuesday
• U.S. retail sales are poised to show an acceleration in October as consumer demand remains resilient. Tuesday
• Euro zone CPI. Wednesday
• Conference Board U.S. leading index, initial jobless claims. Thursday
• Fed’s Richard Clarida and Mary Daly speak at Asia Economic Policy Conference. Friday

For more market analysis, read our MLIV blog.

Stocks

• The Stoxx Europe 600 was little changed as of 10:23 a.m. London time
• Futures on the S&P 500 rose 0.2%
• Futures on the Nasdaq 100 rose 0.2%
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index rose 0.5%
• The MSCI Emerging Markets Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1448
• The Japanese yen was little changed at 113.86 per dollar
• The offshore yuan was little changed at 6.3808 per dollar
• The British pound was little changed at $1.3413

Bonds

• The yield on 10-year Treasuries declined two basis points to 1.54%
• Germany’s 10-year yield declined two basis points to -0.28%
• Britain’s 10-year yield declined three basis points to 0.88%

Commodities

• Brent crude fell 1.1% to $81.25 a barrel
• Spot gold was little changed

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