European Stocks Reach Record High on First Session of the Year

(Bloomberg) -- European equities reached a fresh record high on their first trading session of 2022 amid optimism the global economy will be able to weather the impact of the omicron variant, while a surge in U.S. bond yields capped gains.

The Stoxx Europe 600 Index ended 0.5% higher, surpassing the previous record close hit in mid-November, while volumes were thin with U.K. markets closed for a holiday. The Euro Stoxx 50 index of euro-area blue chips gained 0.8%. Stocks trimmed gains in late trading as U.S. bond yields rose on mounting expectations for at least three Federal Reserve rate hikes this year.

“Markets tend to look through a variant once we've seen the peak in hospitalizations and that could come relatively quickly if we see that these numbers aren't going up so much,” Esty Dwek, chief investment officer at Flowbank SA, said in an interview with Bloomberg TV. “We're kicking off 2022 where we left off last year with the same questions and concerns, but probably with the same optimism going through markets for the year.”

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The omicron strain has contributed to a surge in global cases, with a record 10 million people being diagnosed with Covid-19 in the seven days through Sunday. Investors are monitoring the variant's impact on the recovery along with the direction of central banks' monetary policy.

Among individual movers on Monday, Deutsche Lufthansa AG jumped after Citigroup Inc. double-upgraded the German carrier to buy amid strong cargo business and the outlook for the reopening of Asia-Pacific routes, notably China. Also, Adler Group SA shares rallied after the embattled German real estate firm said it pocketed 800 million euros ($908 million) from the sale of apartments and commercial properties to rival landlord LEG Immobilien AG.

Meanwhile, Vestas Wind Systems A/S dropped after the company announced details of its fourth-quarter order intake. Sydbank AS said the order tally was “weak.”

European stocks gained 22% last year, and posted seven consecutive quarters of gains -- the longest winning streak since 1998. Most strategists expect this year's returns to be more muted, with an average target of 506 index points for the Stoxx 600.

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