European markets fall as traders watch rising COVID cases and expected rate hikes
European stock markets had a cautious start on Monday amid a burst of new reported coronavirus cases and the impact of earlier than expected rate hikes in the US.
The sour mood came after London’s benchmark index bucked the overall muted trend last week to rise 1.3%. An initial 5% hike in the price of oil has lifted the majors, with Shell (RDSB.L) regaining its place as the largest FTSE 100 company by capitalisation.
“The banks are also being boosted on the possibility of a rising interest rate environment,” Richard Hunter of Interactive Investor said.
“Equally, the sector has more recently come into vogue on valuation grounds, with investors considering the banks to be sitting on relatively cheap valuations, and with the currently preferred picks being Barclays ((BA)RC.L) and Lloyds (LLOY.L). Further colour may also arise from the US banks later in the week on a read across basis.”
Read more: Aldi reports ‘best ever’ Christmas amid strong demand for beer, wine and spirits
Across the pond, S&P 500 futures (ES=F) were up almost 0.1%, Dow futures (YM=F) were treading water, and Nasdaq futures (NQ=F) were 0.1% higher as trade began in Europe.
It came after stocks closed in a sea of red on Friday as US data showed fewer new jobs than expected were created last month, although wages saw a strong gain.
Meanwhile, the International Monetary Fund (IMF) warned on Monday that emerging economies must prepare for policy tightening by the US Federal Reserve after inflation hit a near 40-year high.
Watch: What is inflation and why is it important?
“Broad-based US wage inflation or sustained supply bottlenecks could boost prices more than anticipated and fuel expectations for more rapid inflation. Faster Fed rate increases in response could rattle financial markets and tighten financial conditions globally,” the IMF said.
“These developments could come with a slowing of US demand and trade and may lead to capital outflows and currency depreciation in emerging markets.”
Further clues will come later this week as the latest inflation reading is due.
Read more: Bitcoin: Top 10 ‘buy the dip’ investors
Asian markets fluctuated on Monday after the negative performance on Wall Street on Friday.
In Japan, the Nikkei (^N225) ended flat on the day while the Hang Seng (^HSI) rose 1.1% and the Shanghai Composite (000001.SS) was 0.4% higher.
Singapore also continued its positive start to the year with another healthy gain while there were also advances in Taipei, Manila and Jakarta. However Sydney, Seoul and Wellington dipped.