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Wall Street set to open lower; Fed and U.S. tech earnings in focus

[January 27, 2021] By Elizabeth Howcroft

LONDON (Reuters) - Europe's share indexes fell on Wednesday and Wall Street futures were in the red as investors turned more cautious about COVID-19 and stretched stock valuations, with the U.S Federal Reserve meeting and tech giants' earnings also in focus.

The MSCI world equity index, which tracks shares in 49 countries, was down 0.2% at 1104 GMT, having fallen around 1% since it hit a new all-time high on Jan. 21.

Following a weak Asian session in which shares were hurt by profit-taking, European indexes also retreated, with the STOXX 600 down 0.8%.

London's FTSE 100 was down 0.7% while Germany's DAX was down 1%.

The dollar rose against a basket of currencies and was last at 90.359, up 0.2% on the day.

“There’s been a bit of a shift of tone in markets in the last few days," said Catherine Doyle, investment specialist at Newton Investment Management.

"Markets are starting to worry about COVID again," she added, highlighting in particular the Brazilian and South African variants of the virus.

"We’re now going into a seasonally more difficult period, as you come into February that’s typically when you might see markets pause if they started off the year very strongly," Doyle said.

"Within our portfolio we’ve put on some protection to potentially cushion us in case there is some volatility."

Quarterly earnings from U.S. tech giants including Facebook and Apple, are due later in the session.

"With some financial assets currently trading at what many are describing as bubble territory, there’ll be heightened attention on these releases to see whether these current valuations are justified," Deutsche Bank strategist Jim Reid said in a note to clients.

S&P 500 e-minis were down around 0.4%, but Nasdaq futures were up 0.2%, helped by strong Microsoft earnings the previous session.

Microsoft said its Azure cloud computing services grew by 50%.

Heightened participation of retail investors in the stock market has come into focus this week, as amateur traders on Reddit's r/WallStreetBets stock trading discussion group piled into GameStop, causing it to skyrocket while professional shortsellers scrambled to cover losing bets.

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A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo/File Photo

To some stock market professionals, the recent moves look symbolic of a stock market that may be overvalued at the end of a year dominated by floods of fiscal and monetary stimulus to ease the coronavirus crisis.

Newton Investment Management's Doyle said that people "taking a punt on the market" is a sign that "risk appetite has got carried away".

Also in focus is the U.S. Federal Reserve's policy meeting. The Fed is not expected to make any policy changes but investors will be listening for shifts in tone around the economic outlook and any mention of slowing down - or "tapering" - the Fed's asset purchases.

The U.S. 10-year Treasury yield held close to the three-week low it hit in the previous session, and was broadly flat on the day at 1.0432%.

The International Monetary Fund raised its forecast for global economic growth in 2021, and said the coronavirus-triggered downturn last year would be nearly one percentage point less severe than expected.

Global COVID-19 cases surpassed 100 million on Wednesday and countries around the world are struggling with new variants of the virus and delays in vaccine rollouts.

The euro was down 0.3% at $1.21245, while euro zone government bond yields edged up slightly.

Gold was down 0.4%. Bitcoin was down around 3%.

Oil prices rose after industry data showed U.S. crude stockpiles fell unexpectedly last week and China recorded its lowest daily rise in COVID-19 cases in more than two weeks.

(Reporting by Elizabeth Howcroft; Editing by Nick Macfie, Kirsten Donovan)

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