Shares are falling again as the January route continues to rumble

LONDON, January 28 (Reuters) – European equities fell sharply on Friday as concerns about a sudden halt to central bank stimulus and rising tensions between Western powers and Moscow led to one of the worst starts ever in a year for world stock markets.

Strong earnings from Apple provided some encouragement for the vulnerable technology and US markets, but retailers struggled to draw a line during a global sale that has now taken root.

The pan-European STOXX 600 (.STOXX) fell 1.5% in morning trading, heading for its fourth weekly fall in a row, while US futures pointed to more red screens on Wall Street later as well. .

MSCI’s 50 countries’ most important world index (.MIWD00000PUS) is now down over 8.1% for the month, which will be the worst January since the global financial crisis year 2008.

The dollar, meanwhile, is heading for its best week in seven months, with US interest rates now set to rise as many as five times this year. / FRX

“With the Federal Reserve sounding much more hawkish, it has shaken markets,” said Jeremy Gatto, a portfolio manager for several assets at Unigestion in Switzerland.

“Markets can live with interest rate increases, but the main question remains around the balance sheet,” he added. The markets have been driven up by all the stimulus that was pumped in during the COVID-19 crisis, “so if it starts to reduce liquidity, it will change the game”.

The Fed indicated this week that it is likely to raise interest rates in March, as widely expected, and confirmed plans to close its bond purchases from the pandemic that month before launching a significant reduction in its assets.

The prospect of faster or larger rate hikes in the United States, and possible withdrawal of stimulus, lifted the dollar to a 20-month high of $ 1.1119 per euro and to 115.50 yen – near the peak of the year so far at 116.35 yen. / FRX

In the major government bond markets that drive global borrowing costs, the benchmark index for 10-year US government bond yields rose to 1.84% compared to the US close of 1.80% on Thursday. The two-year interest rate, which is even more sensitive to expectations of interest rate increases, reached 1.22%, after starting the year at around 0.75%.

European bond yields also rose further. Germany’s 10-year yield, the benchmark index for the eurozone, was up more than half a bp to -0.02%, but still not quite able to break through the zero threshold.

The focus was also on Italy, where bond yields were back up around 4 bps after a rally in the late afternoon on Thursday while parliament struggled to elect a new president.

OIL PRESSURE

Oil prices remained high, set at their sixth weekly increase, amid concerns about tight supplies while large producers continue their policy of limited production growth amid growing demand for fuel.

Brent oil futures climbed 57 cents, or 0.6 percent, to $ 89.91 a barrel, just outside the $ 91.04 hit earlier this week, the highest level since October 2014.

A sixth week of upswing will also mark the longest weekly winning streak for Brent since October last year, when Brent prices rose by seven weeks while US WTI rose by nine.

This year, prices have risen around 15% due to geopolitical tensions between Russia, the world’s second largest oil producer and a major natural gas supplier to Europe and the West across Ukraine, as well as threats to the United Arab Emirates from the Yemeni Houthi movement that have raised concerns about energy supply . read more

“Where Brent crosses the $ 90 level, we see some sales from a sense of achievement, but investors start buying again when prices fall slightly as they remain wary of possible supply disruptions due to rising geopolitical tensions,” said Tatsufumi Okoshi, senior economist. at Nomura Securities.

“The market expects supply to remain tight as OPEC + is considered to maintain its existing policy of gradually increasing production,” he said.

The market focuses on a meeting on February 2 in the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC +. It is likely to stick to a planned increase in the oil production target for March, several sources in the group told Reuters. read more

Additional reporting by Rowena Edwards; Edited by Andrew Cawthorne

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