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Strong U.S. earnings lift global equities amid inflation, geopolitical concerns

Stock MarketsJan 28, 2022 06:26PM ET
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2/2 © Reuters. FILE PHOTO: Men wearing protective face masks walk under an electronic board showing Japan’s Nikkei share average inside a conference hall, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan January 25, 2022. REUTERS/Issei Kato 2/2

By Katanga Johnson

WASHINGTON (Reuters) - World stocks rallied on Friday as investors turned their eyes toward corporate earnings and ignored geopolitical turmoil and Federal Reserve tightening concerns.

Strong earnings from tech firms including Apple (NASDAQ:AAPL), which rose nearly 7% after reporting record sales over the holiday quarter, buoyed U.S. markets during the session.

All three major U.S. stock indexes closed higher. However, the pan-European STOXX 600 index closed down 0.99% on the day for a fourth week of losses, weighed down by worries over the situation in Russia and Ukraine. [.N][EU]

Economic data helped eased inflation fears, with U.S. data showing consumer spending and labor cost rises were weaker than expected in December.

"The widely-watched employment cost index came in a touch softer than expected suggesting wages may start to cool some from here," said Stephanie Roth, a senior markets economist at J.P. Morgan Private Bank.

Mounting inflation pressures could force the Fed to rapidly hike interest rates, stifling growth, economists have warned.

"Hot wage growth has been a key factor behind the Fed's pivot, so if this trend continues that would relieve some pressure," said Roth.

MSCI's 50-country main world index rose 1.49% but remained on the brink of its worst January since the 2008 global financial crisis after shedding roughly $7 trillion in value.

The dollar, meanwhile, consolidated gains and posted its biggest weekly rise in seven months as markets priced in a year ahead of aggressive hikes in U.S. interest rates [/FRX].

"The big issue is the Fed, which is clearly in a tightening cycle. Financial market support is not part of the central bank's agenda," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

"The only question is whether the markets have fully digested (Fed Chair Jerome) Powell's guidance in his press conference... I would expect the equity and bond markets to find bottoms at some point relatively soon," he added.

(Graphic on, World stocks suffer January plunge: https://fingfx.thomsonreuters.com/gfx/mkt/akveznqqgpr/Pasted%20image%201643368726534.png)

The Fed on Wednesday indicated it is likely to raise rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.

On Wall Street, the Dow Jones Industrial Average rose 1.65% and the S&P 500 gained 2.43%. The Nasdaq Composite added 3.13%.

The prospect of faster or larger U.S. interest rate hikes and possible stimulus withdrawal lifted the dollar index 0.05%, while the euro last remained unchanged at 0.05%.

On bond markets, U.S. Treasury yields fell across the curve on Friday on month-end buying, as the Fed's favored inflation gauge, the core personal consumption expenditure price index (PCE), rose no more than had been expected.

The 2-year and 10-year yield curve steepened to as much as 65.10 basis points, after hitting its narrowest spread since November 2020 on Thursday. That curve was last at 61.10 basis points.

In the 12 months through December, the PCE increased 5.8%. That was the largest advance since 1982 and followed a 5.7% year-on-year increase in November.

Britain's pound rose close to a 23-month high against the euro as investors expected the Bank of England to raise rates next week and follow a path of rapid monetary tightening in 2022.

Investors also cheered the U.S. Securities and Exchange Commission's (SEC) late Thursday approval of the country's 17th stock exchange, a subsidiary of Boston-based BOX Exchange, which will incorporate blockchain technology.

The new exchange, named BSTX, aims to launch in the second quarter and will initially trade securities, such as stocks or exchange-traded funds, first listed on its exchange, but those securities would be tradable on rival bourses.

Investors were digesting a European Union document that showed https://www.reuters.com/world/europe/exclusive-eu-eyes-lower-bar-force-foreign-banks-become-subsidiaries-2022-01-28 foreign banks based in the EU may have to hold more capital and liquidity under revisions to rules being considered by the bloc's member states.

In Italy, bond yields rose as its parliament struggled to elect a new president.

(Graphic on, Global bond yields are rising: https://fingfx.thomsonreuters.com/gfx/mkt/gdpzynqqovw/Pasted%20image%201643371216221.png)

OIL PRESSURE

Oil prices reached seven-year highs after the inflation data and as geopolitical tensions continue to raise concerns that the Ukraine crisis could disrupt energy markets. [O/R]

U.S. President Joe Biden and his EU counterpart Ursula von der Leyen pledged to cooperate on guaranteeing the energy security of Europe and Ukraine amid the standoff triggered by Russia amassing troops at Ukraine's border.

U.S. crude was up 0.84% at $87.34 per barrel and Brent was at 1.56%, at $90.73.

Investors cautiously start to buy U.S. crude when prices fall on supply disruption concerns due to rising geopolitical tensions, said Tatsufumi Okoshi, senior economist at Nomura Securities.

"The market expects supply will stay tight as OPEC+ is seen to keep the existing policy of gradual increase in production," he said.

The market is focusing on a Feb. 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+. It is likely to stick with a planned rise in its oil output target for March, several sources in the group told Reuters.

(Graphic on, Apple sours, oil on the boil: https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgjwxkpb/Pasted%20image%201643375982669.png)

Strong U.S. earnings lift global equities amid inflation, geopolitical concerns
 

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Comments (11)
Count da Money
CountdaMoney Jan 28, 2022 10:29AM ET
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This aged well 🤣🤣🤣🤣
Kochar Bipin
Kochar Bipin Jan 28, 2022 6:56AM ET
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It is clear that many OPEC+ members are facing challenges in meeting their revised targets - so, unless Saudi's and Russia step up their output to compensate, the shortages will continue. Given escalating geo-political situation, it would be irrational of any country to compensate by drawing from their strategic reserves. Given the speed with shale output can be scaled up, it is now largely in Biden's hand to end the energy shortages and hugh prices which are causing severe pain
marlow seay
marlow seay Jan 28, 2022 6:48AM ET
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wait huh
Yiannis Tsoutsoukis
Yiannis Tsoutsoukis Jan 28, 2022 6:03AM ET
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It's funny that US insists that Russia will invade Ukraine. Biden says Russia will attack and Putin says they won't. If he really wanted to attack Ukraine he would do it days ago and not wait for NATO to gather a bunch of troops.
Butch Einsel
Butch Einsel Jan 28, 2022 6:03AM ET
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Olympics
james Bond
james Bond Jan 28, 2022 6:03AM ET
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old man wants everyone to die with him
perplexed76 .
perplexed76 . Jan 28, 2022 6:03AM ET
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it was a bluff, my friend. putin tried to scare the West as usual and failed this time. The West are using the situation to take ful control over East Europe and Ukraine
taufiq celestine
taufiq celestine Jan 28, 2022 5:40AM ET
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Look like it jump to 1757 like before
Jacob Steinschlag
Jacob Steinschlag Jan 28, 2022 3:10AM ET
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Asian stocks are down 1% - regain footing?!
ron king
ron king Jan 28, 2022 12:37AM ET
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rate shock? he told us months ago it would happen. the sell offs were to dump the market causing retail investors to sell from fear inorder for institutions and hedge funds to swoop in and buy up all the under priced shares and ride to the top again. its all orchestrated
Samer Diab
Samer Diab Jan 28, 2022 12:37AM ET
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add to that the retail investors on margin as margin was at an all time high
Chad RicherThanYou
Chad RicherThanYou Jan 28, 2022 12:29AM ET
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Time to double down on Alibaba calls
Leo DeMarco
Leo DeMarco Jan 28, 2022 12:29AM ET
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Not yet! Looking for 100-105
Tommy Rommazontz
Tommy Rommazontz Jan 27, 2022 11:38PM ET
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retail buys in the morning. professionals wreck them after lunch. rinse and repeat.
Joel Schwartz
Joel Schwartz Jan 27, 2022 11:38PM ET
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For this whole last week retail have bought the open and got dumped on by EOD. I’m expecting this with Apple tomorrow, but to a comical extent both ways.
Samer Diab
Samer Diab Jan 27, 2022 11:38PM ET
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Microsoft went -6 percent after great earnings then went up lol
Rise Unlimited
Rise Unlimited Jan 27, 2022 11:18PM ET
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I just hand out future expired worthless calls every week so only buys crashes. Market has a long way left to go.
 
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