European stocks kick off 2023 with gains after steep falls last year

European stocks kicked off 2023 on a high note as traders scooped up equities at a discount following steep falls across global markets last year.

The regional Stoxx 600 rose 1 per cent on Monday after the index fell 12.9 per cent in 2022 in its worst year since 2018. France’s Cac 40 rallied 1.9 per cent on Monday, Spain’s Ibex rose 1.7 per cent, Italy’s FTSE Mib gained 1.9 per cent and Germany’s Dax drifted 1.1 per cent higher. Markets in London and New York were closed for public holidays.

Global equities and bond markets shed more than $30tn in 2022, as central bank rates rises and the war in Ukraine triggered heavy losses. The MSCI All World share index lost 19.8 per cent of its value, with many pandemic-era high flyers such as electric carmaker Tesla tumbling.

Monday’s gains in Europe were broad, with most sectors of the Stoxx 600 rising on the day. Economically sensitive industries including real estate, energy and retail led the way higher. Healthcare and consumer staples, both defensive sectors, lagged behind.

Despite the upbeat start to the year, many investors and analysts remain cautious on 2023, with monetary policymakers expected to continue their battle against inflation. Higher borrowing costs and elevated energy prices have also heightened the risk of recession in major economies. Meanwhile, widespread coronavirus outbreaks in China, which began lifting Covid-19 curbs late last year, have prompted fresh concerns about the world’s biggest emerging market.

“The market year 2022 was exceptional in many ways with war in Europe, rampant inflation, energy crisis and sharp interest rate hikes from the world’s central banks,” said Filip Carlsson, a strategist at Swedish bank SEB. “Looking into 2023, it is difficult to be overly optimistic as most of the problems remain.”

Currency markets were muted on Monday. The pound fell 0.4 per cent against the dollar to $1.205, while the euro slipped by the same margin to $1.066. Japan’s yen edged up 0.3 per cent to ¥130.7 at open and slid nearly 0.3 per cent by mid afternoon.

This week, market watchers await the publication of preliminary inflation figures from several key European countries, along with a manufacturing survey from the US. Weekly jobless claims figures out of the US are also expected to provide further clues on the Federal Reserve’s plans for rate rises in the world’s biggest economy.