Risks rise as global shares push on to new highs

Risks rise as global shares push on to new highs

By Eamon Quinn

Global shares shrugged off weaker-than-expected American employment numbers and US and UK stock indices reached new record high levels, as the heady prospects of world growth and US corporate tax cuts propelled company valuations even higher.

Many experts have warned that although European stock may still be relatively good value, there will be an increased risk of some sort of correction to world stock markets, if US stocks continue to climb.

Extending their stellar start to 2018, US stock indices rose to new highs for a third consecutive day. Selling pressure eased for Intel after the chip-maker, which has a market value of €173bn, suffered a drop of more than 5% since it emerged this week that its chips make devices susceptible to hackers. Intel is working with chip-makers including Advanced Micro Devices and ARM Holdings and operating system makers to resolve the issue, and has said it doesn’t foresee a material effect on its business.

Figures showing that US payrolls grew less than forecast in December failed to dent the rally in Europe.

The Stoxx Europe 600 climbed, with car-makers and healthcare stocks outperforming. Earlier, in Asia, benchmark indices in Japan, South Korea, and China were among the gainers, while emerging-market equities reached their highest levels since 2011.

“The first week of the year has proceeded in a very similar fashion to 2017, as equities continue to rally despite further outflows from funds,” said Chris Beauchamp, chief market analyst at online broker IG. In the UK, the focus next week falls on British retailers, supermarkets, and housebuilders, he said.

On the record levels for US stocks, Kevin Logan, chief US economist at HSBC Securities, said: “There’s been a really big policy change in the last month; we got this big tax bill through Congress, and that changes the outlook now.”

He added: “It’s likely that we’ll see a tick up in the growth of spending. And that could lead to more demand for [US] workers, in which case things will change in terms of the [US] growth in employment and potentially in wages.”

US non-farm payrolls increased by 148,000 jobs last month, the US Labour Department said, while economists had forecast a rise of 190,000. US monthly wage gains was a bright spot that pointed to labour market strength there and could strengthen the chances of the US Federal Reserve increasing interest rates in March. The odds of a March hike stood at 67.5%, according to CME Group’s Fedwatch, nearly unchanged from before the release of the non-farm jobs report.

In a review of credit markets, John Lonski, chief economist at Moody’s Capital Markets Research, said a combination of increasing profits and a “benign outlook” for corporate debt defaults may help support stock valuations.

“Though benchmark interest rates are likely to climb higher, the combination of corporate earnings growth and a benign outlook for corporate defaults should be enough to prevent a deep and extended slide by share prices. Except for late 1987’s stock market crash, the historical record shows that since 1982, interest-rate inspired declines by the broad equity indices have been relatively brief and shallow,” said Mr Lonski.

Additional reporting by Bloomberg and Reuters

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