European stocks start the week on front foot

European stock markets made some gains in early trade on Monday as investors showed some more optimism as they grapple with the implications of the latest Covid wave on the growth outlook. So far, the omicron variant does not look especially dangerous or deadly. The FTSE 100 added about 0.9% to run into near-term resistance at the 50% retracement of the Nov peak-to-trough flush around 7,190. The DAX and Stoxx 600 were also up almost 1% in the first hour of trading amid a pretty light session in terms of news. Omicron volatility remains but the signs are not getting any worse – initial data from South Africa indicates hospitalisations are not increasing with the number of cases.

 

Asian shares were mixed with investors looking to another 20% plunge in the shares of Evergrande as it warned there was no guarantee it would be able to meet coupon payments. Alibaba shares fell 5% in Hong Kong as it announced a shake-up of its global e-commerce business and said its long-serving CFO was stepping down. 

 

Tech led the US market lower on a tough session on Friday for Wall Street, the Nasdaq and Russell 2000 both down 2%. The S&P 500 finished 0.84% lower and the Dow Jones was only off by 60pts. We saw a big drag from tech, particularly the super-high-growth momentum names – very crowded longs getting squeezed mercilessly. ARK’s Innovation ETF, the flagship fund, fell another 5%, and is now –40% off its high earlier in the year. Tesla declined 6% but Adobe was the worst performer, sliding 8% after e-signature rival DocuSign warned demand was cooling in the space. Didi fell 22% after it said it would delist from the NYSE. 

 

Friday’s jobs report was a mixed bag – disappointing headline number but encouraging unemployment levels and wages not spiralling out of control. The reaction in the market was to buy Treasuries, the 10yr back down to 1.38% this morning, but there is nothing to suggest the Fed is not going to increase the speed of its taper when it meets this month. 

 

Data today is light, there is a big focus on the US CPI print later this week – given the increasingly astonishing about –turn by the Fed in terms of its communication on inflation, this is likely to be very lofty. The Fed has already made a decisive pivot to a more hawkish, inflation-busting stance; and the market will see this reading in this light. 

Bitcoin took a hammering over the weekend as the big liquidity squeeze saw a major flush out of leveraged positions. Prices currently trade under $50k, with a low at $43k plumbed at one point as the market cratered by 20%.