World stocks staged a modest rebound on Monday as traders put aside concerns about interest rate rises and the crisis in Ukraine to dip back in, but global equities are still headed for their worst January since 2016 after a bruising month.
Wall Street edged higher on Monday after a rise in European shares helped stabilize investor sentiment after a series of volatile sessions.
Still, investors said the backdrop for equities remains uncertain as central banks tighten policy – the Bank of England is expected to hike rates again on Thursday – and another jolt higher in oil prices adds to inflationary worries.
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The pan-European STOXX 600 index rose 0.84%.
Lunar New Year holidays made for thin trading conditions in Asia. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.02% higher.
On Wall Street, the Dow Jones Industrial Average rose 0.1%, while the S&P 500 gained 0.82%. The tech-heavy Nasdaq added 2.06%, but has borne the brunt of selling and is down 14% from a record peak last year.
The MSCI World index, while higher on Monday, remains down 6.2% in January – the worst start to the year since 2016. Before Friday's rebound, the index had been headed for its worst January since the global financial crisis in 2008.
"This is not the classic selloff affecting lower quality underperforming companies. This selloff is driven not by fundamentals but by the action of central banks at a time when growth is very strong," said Flavio Carpenzano, investment director at Capital One Group.
"For years you were like a spoiled child, you could get all the money you wanted and for free and you could buy what you wanted, you didn't care that much about quality. Now it's the other way round, you have to be more disciplined so you need to look carefully at valuation," Carpenzano added.
The standoff over Ukraine also remains a thorn in the markets' side, with concerns a Russian invasion would cut vital gas supplies to Western Europe. Moscow denies any plan to invade.
Oil prices were steady on Monday, with Eastern Europe and Middle East political issues offsetting expectations that major producers will release more supply to a thirsty market.
Brent crude was at $91.00, up 1.08% on the day. The front-month contract for March delivery expires later in the day.[O/R]
U.S. crude recently rose 0.12% to $86.92 per barrel.
In economic news, data showed euro zone economic growth slowed quarter-on-quarter in the last three months of 2021, as expected.
Data out on Sunday showed China's factory activity slowed in January as a resurgence of COVID-19 cases and tough lockdowns hit production and demand.
Government bond yields in the United States held below recent highs while in Germany the benchmark 10-year bond yield edged back above 0%.
Yields have jumped this year in anticipation of a faster rate of rate rises in 2022.
Markets have swung to pricing in five hikes from the Federal Reserve this year to 1.25%, though investors still see rates peaking at a historically low 1.75%-2.0%.
"The bond market may have settled into a flattening yield curve, reflecting an outlook for several rate hikes over the course of this year and then at least a pause as the economy adjusts," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
As well as the Bank of England, the European Central Bank meets this week but is expected to stick to its argument that inflation will recede over time.
Investors will eye big U.S. data releases this week include the ISM readings on manufacturing and services, and the January jobs report.
The headline U.S. payrolls number is expected to be soft given a surge in COVID-19 cases and adverse weather. The median forecast if for a rise of just 155,000, while forecasts range from a gain of 385,000 to a drop of 250,000.
The U.S. dollar fell on Monday, as investors consolidated gains ahead of the monthly employment report this week, taking a pause after a furious rally that took the currency to a 1-1/2-year high on Friday.
The dollar index fell 0.393%, with the euro up 0.61%, putting it on track for its largest daily fall since Jan. 12. On the month, the greenback was up 1.4% after hawkish noises from Fed Chair Jerome Powell last week bolstered the U.S. dollar.
"A mix of consolidation and month-end position-squaring has nudged the dollar off its highs," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"An events-filled week ahead threatens to keep market volatility high. The buck appears to have peaked for now as Friday's jobs report is forecast to show another month of tepid hiring," Manimbo added.