European stocks were down, with the biggest losses in the technology and travel and leisure sectors.
Tech stocks were the biggest fallers as Treasury yields rise following recent comments from Federal Reserve officials that have boosted expectations for imminent monetary policy tightening. "However, today's bearish price action is still seen as temporary, with most market operators looking to hedge their portfolio with other asset classes ahead of what is going to be a crucial earnings season," ActivTrades analyst Pierre Veyret said.
Investors in interest-rate futures markets are betting on four to five interest rate hikes this year, according to CME Group.
"Markets are still trying to find a level for rate hikes. It was only in October the market was expecting one rate hike for 2022 and now it's expecting four," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "That's reflecting the level of uncertainty we have in the market right now about the path of Fed policy."
Stocks to Watch: Germany's financial regulator has tightened some requirements on banks operating in the country in light of rising house prices, and this should crimp Deutsche Bank and Commerzbank's excess capital the most, Citi said.
Citi estimates the banking sector will take a 7 basis-point hit to core equity tier 1 ratio from the measures, which should reduce excess capital to 6% from 7%.
"The risk is more regulators in Europe adopt such measures in the face of stimulus-fuelled housing booms," it said, adding that similar measures have already been taken in some Scandinavian and Eastern European countries.
Regulators might be hoping that a strong repricing of loans will cool demand for mortgages. Despite this headwind, Citi remains overweight on European banks this year.
Stocks on the Move: Shares of GAM Holding fell 8% after the Swiss asset-management firm said it would notch a net loss for 2021 equivalent to around $33 million.
High expectations put a dampener of Lindt's "excellent" sales development in 2021, Vontobel analyst Jean-Philippe Bertschy said after the Swiss chocolatier released figures showing higher revenue than in 2019.
Double-digit on-year growth in all regions in 2021 is a strong result, though slowdown in North America in the second half is disappointing, Bertschy said. And while the sales growth should be positive for operating leverage and, therefore, earnings, expectations were aggressive, he noted.
Vontobel nevertheless keeps a buy rating as Lindt confirmed guidance for 2021's operating margin and this year's sales and margin development. Shares slip 3.2%.
SMCP's board looks more independent and offers a greater range of expertise, Jefferies said after the French fashion group replaced representatives of its former parent with new independent directors.
Former Unibail-Rodamco-Westfield boss Christophe Cuvillier becomes chairman of the board, while three new independent directors were appointed last week after shareholders approved a motion jettisoning all representatives of Chinese former majority shareholder Shandong Ruyi and its holding subsidiary European TopSoho.
This is a positive development for SMCP's corporate governance ahead of new ownership, Jefferies says, noting that the company will benefit from greater director expertise across retail, real estate and risk management. Shares slip 3.2%.
Economic Insight: The U.K.'s labor market seems to have remained tight after both the end of the government wage-subsidy program and the start of the Covid-19 Omicron wave, strengthening the case for a rate increase in February, Capital Economics said.
"These [November-December] data suggest that labor demand has remained fairly strong, that supply is struggling to keep up and that the squeeze on households real wages is only just beginning," Capital Economics' chief U.K. economist Paul Dales said.
The firm expects the Bank of England to raise interest rates to 0.50% from the current 0.25% at its meeting on Feb. 3.
U.S. stock futures fell, led by large technology stocks, as government bond yields rose to a two-year high, a sign that investors are rotating out of stocks that do well in a low-interest-rate environment.
A slew of financial companies are slated to post earnings ahead of the market open, most notably Goldman Sachs, plus Bank of New York Mellon, PNC Financial Services and Charles Schwab. Profits have begun to ebb at some big banks that benefited from the tumultuous pandemic economy.
In premarket trading, shares of electric-vehicle maker Tesla fell 2.5%. Twitter, Meta Platforms -formerly known as Facebook-and Amazon.com each fell about 2%.
The Cboe Volatility Index-Wall Street's so-called fear gauge, also known as the VIX-ticked up to 21.78, its highest level in a month.
The dollar should remain supported by expectations for imminent U.S. interest rate rises ahead of the Federal Reserve's next meeting, ING said. The absence of notable data before the Fed's January 25-26 means pricing for monetary policy tightening should remain largely unchanged, ING analysts said.
That should offer some room for speculators to rebuild dollar longs, or bets on the currency rising, which were unwound in the first two weeks of January, they said.
"Another grim day for global equities may also help the dollar to find some support," they said, noting the dollar's safe haven status.
Cryptocurrencies, which have shown themselves in recent weeks to be sensitive to monetary policy as risk assets, were lower. Bitcoin, the leading crypto, was down 2.5% over the last 24 hours to below $42,000, according to data from CoinDesk. Smaller peer Ether fell 3.5% over the same period to around $3,150.
The latest U.K. jobs data support expectations the Bank of England will raise interest rates further and this should benefit sterling, ING said. Market expectations for four rate rises by year-end are "overdone" but Tuesday's employment data and Wednesday's inflation report will do little to challenge the "hawkish bets," ING analysts said.
"This means that the pound's good momentum, which has remained immune to the UK's political noise, should remain broadly intact into the February 3 BOE meeting."
EUR/GBP could fall below 0.8300, they said. EUR/GBP fell 0.1% to 0.8353 but GBP/USD drops 0.1% to 1.3644. The data showed the unemployment rate fell 0.4 percentage points to 4.1% in the three months to the end of November.
The recent upward trend in German Bund yields is expected to slow "as Covid cases increase," DZ Bank analyst Birgit Henseler said. "In our view a downturn in business and consumer confidence indicators will slow down the recent rise in yields," she said, adding that a sharp and sustained fall in 10-year Bund yields isn't in sight because of upward pressure on yields from inflation.
The German bank forecasts the 10-year Bund yield reaching 0% on a three-month horizon and at 0.10% on a six-month view. "But if inflation declines sharply towards the end of the year, we see 10-year yields falling back to 0% in spite of the winding down of asset purchases," she said.
Seven-year U.K. government bonds trade cheap ahead of U.K. Debt Management Office's planned sale Tuesday of GBP2.5 billion in the 0.5% January 2029 conventional gilt, said RBC Capital Markets.
The narrative of faster central bank policy normalization in the U.K. and globally has pushed yields higher since the year began, analysts at the bank said.
Seven-year gilts sold off Monday, driving yields to their highest level since first half of 2019, though yields are now trading at important resistance levels, limiting further advances, they said. The bond was last tapped on Nov. 3 and will not be tapped further this quarter, according to DMO.
Oil prices climbed to their highest level in seven years, as geopolitical tensions in the Middle East added to worries about tight supply. Brent crude oil futures rose as high as $88.11 a barrel, their highest level since late-2014 before paring some gains.
Yemen's Iran-backed Houthi rebels claimed responsibility for drone and missile attacks on the United Arab Emirates, in retaliation for the gulf state's renewed involvement in the Yemeni civil war.
Part of the attack targeted facilities of the state-owned oil firm ADNOC. The attack on the major energy producer added "geopolitical tension" to "ongoing signs of tightness across the market," said ANZ Bank in a note.
Goldman Sachs expects Brent oil prices to rise to $100 a barrel in the third quarter of the year before climbing as high as $105 by the first three months of 2023.
GS expects OECD inventories to fall to their lowest level since 2000 this summer as demand remains robust in the face of new variants of Covid-19.
At the same time, the bank doubts the capacity of OPEC+ nations to raise supply sufficiently. The bank argues only demand destruction can help balance the market, which will "require ever rising oil prices given the reluctance to invest in oil during the energy transition and the gradual depletion of shale's geological, midstream and service capacities."
Copper prices weakened as inventories climb to a two-month high. After falling almost constantly since August 2021, LME stocks of the red metal have turned higher this year rising to 94,525 tons this week.
However, supply risks could still support prices after Peruvian community groups on Monday rejected the latest proposals to end a standoff with a major mine.
The communities have been blockading access to the Las Bambas copper mine over environmental concerns. Peru is the world's second-largest copper producer and Las Bambas is the second-largest mine in the South American nation.
German Economic Expectations Rebounded to a Five-Month High in January
(MORE TO FOLLOW) Dow Jones Newswires