Global Stocks starts 2018 on eight years high
London (Reuters): Global stocks advanced before the start of an earnings season that’s expected to produce strong enough profit outlooks to support near-record-high equity prices. The dollar strengthened against the euro and the pound.
European stocks (.STOXX) jumped by as much as 0.4 percent, hitting their highest levels since August 2015, before easing slightly.
A surprise dip in German industrial orders, which fell in November for the first time since July, appeared unlikely to dent growing confidence in the euro zone’s biggest economy after a strong run of positive economic news.
The strong showing in European markets followed Asia, where benchmarks inched towards all-time peaks. Wall Street last week had posted its best start to a year in more than a decade; Friday’s U.S. jobs report, while weaker than expected, encouraged hopes that brisk growth and low inflation can be sustained this year.
The U.S. dollar partly recovered on Monday after a weak start to the year, strengthening past $1.20 against the euro, although with bearish positions against the greenback high, many traders are betting on a stronger single currency.
Against a basket of currencies the dollar was up 0.31 percent (.DXY) but close to its weakest level since September.
Positive euro zone economic data – economic growth in the euro zone is on its best run in a decade – has helped the euro, and investors globally wanting exposure to the economic recovery in the region have piled into European assets.
The synchronized global recovery has prompted central banks across the world to follow the Federal Reserve’s lead and start moving towards tighter monetary policy in recent months, supporting their currencies against the dollar.
“The overall trend is minutely supportive for the U.S. dollar as we are seeing a global recovery led by China and Europe and there is a lot of cash sitting on the sidelines, waiting to buy European assets,” said Peter Chatwell, head of European rates strategy at Mizuho International in London.
U.S. futures data showed the largest net long euro position by hedge funds and speculative accounts in the single currency’s history in the week to Jan. 2.
Euro zone blue chip stocks were up 0.23 percent , with France’s CAC 40 (.FCHI) ahead by 0.3 percent and Germany’s DAX (.GDAXI) by 0.31 percent.
“Growth in the Euro area has outpaced the U.S. for the past two years now and on our forecast this outperformance will extend to four years,” JP Morgan analysts wrote in a note, calling such a scenario “unprecedented”.
In U.S. markets, Wall Street’s best start to a year in more than a decade included the Dow (.DJI) rising 2.3 percent last week and the S&P 500 (.SPX) 2.6 percent. The tech-heavy Nasdaq (.IXIC) soared 3.4 percent.
Attention in the U.S. now turns to the quarterly earnings season, the biggest event of this week, with Wall Street expecting solid growth of around 10 percent.
Analysts at Bank of America Merrill Lynch said that the global economy had entered 2018 “firing on all cylinders”.
“This growth is keeping our quant models bullish and driving earnings revisions to new highs,” they added. “We stay long outside the U.S., with Asia ex-Japan and Nikkei our growth plays, Europe still for yield.”
In commodity markets, many commodities paused after the recent run-up in prices, supported by a broadly weak U.S. dollar and the rise in global growth expectations.
Oil prices held just below the near-three-year highs hit last week. A slight decline in the number of U.S. rigs drilling for new production kept prices (CLc1) in check.
Gold prices dipped after the dollar gained, with spot prices down 0.1 percent. The precious metal has posted four consecutive weeks of gains (XAU=).