MARKET WRAPS
Stocks:
European stocks rose with oil stocks making gains as crude
prices increase after Saudi Arabia raised its official selling
price for Asian customers.
In recent days, markets have swung on conflicting signals from
scientists and vaccine makers regarding the severity of the Omicron
variant and how well existing vaccines may work against it. It
still may be weeks before a more definitive picture forms.
Some positive news emerged over the weekend, boosting market
sentiment. A small study of people hospitalized from Omicron in
South Africa found a pattern of milder illness than in previous
waves of Covid-19, though scientists cautioned that it was too
early to say for sure.
U.S. chief medical advisor Anthony Fauci said on CNN that there
didn't appear to be a "great deal of severity" to Omicron, adding
the same caveat. Meantime, regulators said Sunday that the Food and
Drug Administration planned to streamline authorization for
revamped vaccines.
"It seems like this is not going to lead to the worst-case
scenario. I wonder if we're being complacent, but the early
indicators suggest we're not," said Fahad Kamal, chief investment
officer at Kleinwort Hambros.
Shares on the move: Travel and shopping-center stocks were among
the best performers, with Unibail-Rodamco-Westfield adding 3.2% and
Ryanair up 2.4%.
Orange has a stretch of strategic uncertainty ahead after the
departure of Chairman and Chief Executive Stephane Richard, Credit
Suisse said, cutting its rating on the French telecommunications
company to neutral from outperform.
Richard stepped down last month after being handed a one-year
suspended jail sentence for his involvement in an embezzlement
case. While Orange isn't immediately likely to lower either its
outlook or its dividend, a new boss could mean a reset, CS
said.
In the short term, a period of uncertainty will weigh on Orange
until a new CEO and chairman is appointed, the Swiss bank added,
cutting its target on the stock to EUR11 from EUR11.50.
Saint-Gobain's agreement to acquire U.S.-based GCP Applied
Technologies for a price of $32 a share should be well-received by
investors, Bryan Garnier's Eric Lemarie said.
The deal "strengthens the exposure of Saint-Gobain to
construction chemical, which is usually considered as an attractive
business combining growth and profitability (although we observe
GCP is less performant in chemical construction than Chryso)," the
analyst said.
The French construction-materials company agreed to acquire
Chryso earlier this year. Overall, multiples of the GCP deal
suggest it might not be cheap but it also seems compensated by
synergies, Lemarie said. Shares in Saint-Gobain traded 1.2%
higher.
Data in focus: German manufacturing orders dropped by 6.9% in
October on the month, hit by a drop in orders for big-ticket items.
Read a selection of analysts' comments here .
Fitch upgraded Italy's credit rating by one notch to 'BBB' from
'BBB-' with stable outlook in a scheduled review on Friday. The
ratings firm pointed to its forecast of 6.2% GDP growth in Italy in
2021, faster than previously expected, and it expects GDP to reach
its pre-pandemic level in 1Q 2022.
"The contrast of this performance with the incomplete and
significantly weaker recoveries following the global financial and
the eurozone debt crises highlights the success of the policy
support provided since March 2020," Fitch said, referring to the
EU's NextGenerationEU funds and to the European Central Bank's
Pandemic Emergency Purchase Programme.
Fitch however adds that Italy's very high government debt and a
record of weak economic growth pre-pandemic weigh on Italy's
rating.
U.S. Markets:
U.S. stock futures were mixed, as investors digested the latest
news on the spread of the coronavirus and prepared for new
inflation data later in the week.
Science Applications International is scheduled to report Monday
ahead of the opening bell and Coupa Software and Healthequity after
markets close.
Earnings from home builder Toll Brothers are planned for
tomorrow and Campbell Soup and GameStop are scheduled for
Wednesday. Companies including Lululemon, Costco and Oracle are
expected to post earnings Thursday.
Traders were left trying to parse the implications of Friday's
mixed report on jobs, which showed slowing jobs growth but a steep
decline in unemployment, as they prepare for Friday's release of
consumer price data.
Forex:
The dollar rose as investors bet on the Federal Reserve
accelerating asset purchase tapering at its next policy meeting
after data showed U.S. unemployment fell sharply in November even
as jobs growth slowed.
"The release of the latest non-farm payrolls report on Friday
provided further evidence that the U.S. economy is continuing to
recover from the initial negative Covid-19 shock," MUFG Bank
currency analyst Lee Hardman said.
"The developments support the Fed's plans to speed up tightening
and are encouraging a stronger U.S. dollar." The Fed holds its next
meeting on December 14-15.
The euro could remain at weaker levels for the remainder of the
year unless the ECB's policies become less accommodative, ING said.
Noting that the ECB's trade-weighted euro has fallen just over 5%
this year, ING analysts said: "A dovish ECB plus Europe's greater
exposure to the global manufacturing cycle, along with vaccine
hesitancy, have all contributed to the euro's poor
performance."
The only help the euro may receive before year-end is if the ECB
turns "less dovish," the analysts said. EUR/USD could trade in a
1.1180-1.1280 range before the ECB and Federal Reserve policy
decisions on Dec. 16 and Dec. 15, respectively, they said.
Sterling could weaken against the dollar if the Fed accelerates
its tapering of asset purchases and the Bank of England delays
raising interest rates this month, MUFG Bank said.
In that case "the timing of the gap between the first Fed and
BOE and rate hikes could be a lot shorter than expected and keeps
risks tilted to the downside for [GBP/USD] in the near-term,"
MUFG's Lee Hardman said.
Fed policymakers have signalled a faster withdrawal of asset
purchases at the December 14-15 meeting despite the emergence of
the Omicron coronavirus variant, while BOE policymaker Michael
Saunders on Friday said there could be advantages to assessing the
variant's impact before raising rates.
Bitcoin and other cryptocurrencies including ether and Solana
edged up from weekend lows. Bitcoin traded at around $48,400,
nearly 10% down on its level at 5 p.m. ET Friday, but up from
Saturday's low of $42,000.
Bitcoin's price action in the past couple of weeks help rule out
the idea that the cryptocurrency is a safe haven and a hedge
against inflation, Swissquote Bank analyst Ipek Ozkardeskaya said.
"Bitcoin is a very high-risk asset, and it is not a proven hedge
against inflation," she said.
Bonds:
HSBC expects German Bunds to rally next year, bringing the
10-year yield down to -0.50% by the end of 2022, said strategist
Chris Attfield. Bund yields may be slow to fall in the first half
of 2022, however, as headline inflation is likely to remain high.
This creates a more neutral short-term outlook, he said.
"Unless the European Central Bank terminal rate is significantly
positive, we do not think Bund valuations greater than zero are
sustainable," he said. HSBC expects early rate rise expectations to
be priced out in 2022, causing renewed curve steepening.
The ECB's QE purchase volumes in 2022 will likely affect the
extent to which maturity extension, or terming out, in the
eurozone's government bond space continues, Barclays's rates
strategists said.
Barclays expects governments to heavily frontload long-end
government bond supply in 1Q 2022, "as issuers take advantage of
the final months of support for the eurozone government bond market
from notable PEPP [Pandemic Emergency Purchase Programme] net
purchases."
If the ECB allows its monthly QE pace to fall sharply after 1Q
2022, "we think the terming out theme could start to lose momentum,
at least to some extent," Barclays said.
Italian government bonds, or BTPs, outperformed their eurozone
peers in early trade Monday after Fitch Ratings upgraded the
country to BBB from BBB- with a stable outlook on Friday.
The 10-year BTP yield was trading 3.5 basis points lower at
0.899%, according to Tradeweb. "The rating upgrade provides
tailwind for BTPs and the Eurogroup should add to the positive tone
for spreads," said Commerzbank's rates strategist Rainer
Guntermann.
Other 10-year eurozone government bond yields were trading lower
across the board.
Commodities:
Oil prices rose after Saudi Arabia raised its official selling
prices for crude sold to Asia and the U.S. over the weekend. Higher
premiums can be viewed as a sign of robust demand, according to
analysts at Commerzbank, supporting last week's decision by the
Organization of the Petroleum Exporting Countries and their allies
to raise oil production by 400,000 barrels a day in January in
spite of concerns related to the Omicron variant.
Prices are also supported by slimming prospects of an imminent
rise in Iranian oil exports following indirect talks between the
U.S. and Iran last week.
Comex gold futures ticked slightly lower as they navigate
between a slide in U.S. bond yields and speculation over the Fed's
bond-buying program trajectory. According to analysts at
Commerzbank, "all in all, the U.S. labour market is continuing to
recover" and their economists still expect the Fed to step up the
pace of tapering at its meeting next week.
As for base metals, they were off to a weak start for the week
due to concerns related to the Omicron variant and a strong U.S.
dollar, the German bank said.
EMEA HEADLINES
German Manufacturing Orders Dropped in October
German manufacturing orders fell in October, missing
expectations of an increase amid continuing supply chain
disruptions that is curtailing factory activity.
Manufacturing orders declined 6.9% on month in October in
adjusted terms, following a revised 1.8% rise in September,
according to data from federal statistics office Destatis released
Monday.
Italian Billionaires, Fondazione CRT Raise Overall Stake in
Generali
Billionaires Francesco Gaetano Caltagirone and Leonardo Del
Vecchio together with banking foundation Fondazione CRT have taken
their overall stake in Assicurazioni Generali SpA to more than 15%,
the Italian insurer said on Saturday.
The Caltagirone Group currently holds a 7.558% stake in
Generali, while Delfin Sarl, steered by Mr. Del Vecchio, has a
6.139% stake. Turin-based Fondazione CRT holds a 1.474% stake in
the company.
Saint-Gobain Agreed to Buy GCP Applied Technologies
Compagnie de Saint-Gobain SA said Monday that it has agreed to
acquire GCP Applied Technologies in a deal valued at around $2.3
billion.
The French construction-materials company plans to take over all
outstanding shares of GCP for $32 a share in cash. The price
represents a premium of 39% above the volume-weighted average price
of each GCP share for the 30 trading days ended on Nov. 30, it
said.
U.S. Plans to Fast-Track Revamped Covid-19 Vaccines
The Biden administration is preparing to fast-track
authorization of revamped Covid-19 vaccines to combat Omicron as a
study from South Africa suggests the fast-spreading variant might
cause less severe illness than its predecessors.
Federal regulators on Sunday said cases have been identified in
16 states and that the Food and Drug Administration is already in
conversations about streamlining authorization for revamped
vaccines. Agency officials have met with vaccine makers and are
working to set guidelines for the type of data that will be needed
to swiftly evaluate the safety and efficacy of changes to current
vaccines.
Omicron's Spread Exposes South Africa's Vaccination Struggles,
Public Distrust
JOHANNESBURG-South Africa's sputtering Covid-19 vaccine rollout,
hampered first by dose shortages and more recently public distrust,
has left many of its 60 million people potentially exposed as the
new Omicron variant spreads across the country.
In recent days, more people have turned out to get their shots
amid warnings from scientists and the World Health Organization
about Omicron, which has driven a sharp increase in Covid-19
infections in the country's most populous province of Gauteng, home
to Johannesburg, over the past two weeks.
China Seeks First Military Base on Africa's Atlantic Coast, U.S.
Intelligence Finds
BATA, Equatorial Guinea-Classified American intelligence reports
suggest China intends to establish its first permanent military
presence on the Atlantic Ocean in the tiny Central African country
of Equatorial Guinea, according to U.S. officials.
The officials declined to describe details of the secret
intelligence findings. But they said the reports raise the prospect
that Chinese warships would be able to rearm and refit opposite the
East Coast of the U.S.-a threat that is setting off alarm bells at
the White House and Pentagon.
Explosion Heard Near Iranian Nuclear Site Natanz
TEHRAN, Iran-An explosion shook the area near Iran's main
nuclear-enrichment plant late on Saturday, prompting conflicting
explanations from Iranian officials as Tehran engages in talks with
world powers over its nuclear program.
The blast was heard in the area of Badroud, around 12 miles from
the Natanz nuclear site, according to IRNA, Iran's state news
agency. The incident involved a sound and then a flash of light in
the sky, reported Fars News Agency, an organization close to the
Islamic Revolutionary Guard Corps.
Arab Gulf States Compete for Influence in Taliban-Ruled
Afghanistan
DUBAI-America's Gulf Arab allies are stepping up their
involvement in Afghanistan, expanding their diplomatic presence and
resuming flights as competition for influence over the new Taliban
administration heats up.
Qatar, which housed the Taliban's political office for several
years and served as the venue for the Islamist movement's peace
talks with the U.S., capitalized on that influence to become a key
conduit between Afghanistan and the West after the Taliban seized
power on Aug. 15.
GLOBAL NEWS
China's Central Bank Cuts Reserve Requirement Ratio for
Banks
BEIJING-China's central bank said Monday it would lower the
amount of funds banks have to set aside, replenishing liquidity
into the financial system in a bid to support the economy and cut
financing costs for businesses.
The People's Bank of China said in a statement that it would cut
banks' reserve requirement ratio by 0.5 percentage point, which
will bring the weighted average RRR level for the whole banking
system to 8.4%. The cut won't apply to county-level rural lenders
whose RRR stands at 5%, the central bank added.
High Inflation, Falling Unemployment Prompted Powell's Fed
Pivot
Just four weeks ago, the Federal Reserve set in motion carefully
telegraphed plans to gradually wind down a bond-buying stimulus
program by June. Officials are making plans to accelerate the
process at their policy meeting next week, ending it by March
instead.
The abrupt shift opens the door to the Fed raising interest
rates next spring rather than later in the year to curb inflation,
marking a significant policy pivot by Chairman Jerome Powell
shortly after President Biden offered him a second four-year term
leading the central bank.
Nasdaq Is On Track to Beat NYSE in Record Year for IPOs
Nasdaq Inc. is poised to beat the New York Stock Exchange in
initial public offerings this year, far outpacing its crosstown
rival during a record year for capital raised in U.S. public
markets.
IPOs at Nasdaq have raised $191 billion this year through
Friday, compared with $109 billion for new listings at the NYSE,
according to Dealogic. Nasdaq's commanding lead with only a few
weeks left in 2021 means it is likely to beat the Big Board for the
third year in a row.
Putin Troop Buildup Near Ukraine Raises Concerns of Potential
2022 Invasion, U.S. Officials Say
WASHINGTON-Russian President Vladimir Putin is amassing a force
expected to total 175,000 troops near Russia's border with Ukraine,
giving him the capability for a potential invasion of his neighbor
by early 2022, administration officials said Friday.
The officials, citing new intelligence reports that include
images from spy satellites, said the Russian military buildup
differs markedly from an earlier massing of troops in the spring.
When completed, they said, it will be twice the size of that
previous buildup. In addition, Russia has embarked on a rapid
mobilization of reservists.
Russia, India to Reinforce Defense Ties as U.S. Considers
Sanctions
Russian President Vladimir Putin is expected to extend his
country's close defense ties with India this week on a visit that
highlights the challenges facing the U.S. as it courts Indian
assistance in countering China.
Mr. Putin and Indian Prime Minister Narendra Modi are expected
to sign agreements including one extending military technical
cooperation until 2031 and another to produce more than 500,000
Russian-designed rifles in India, according to officials involved
in the visit.
Venezuela's U.S.-Backed Opposition Movement in Danger of
Breaking Up
The political movement the U.S. has backed in Venezuela to
challenge the country's authoritarian government is on the verge of
breaking up after a major faction announced its withdrawal on
Sunday.
Julio Borges, a leading figure in the antiregime coalition,
called for an end to the leadership of Juan Guaidó, whom the U.S.
and dozens of allies have backed as Venezuela's legitimate
president since January 2019 in a strategy to remove strongman
President Nicolás Maduro. Until now, Mr. Guaidó has been leader of
a movement that calls itself an interim government, complete with a
bureaucracy and diplomats.
Write to sarka.halas@wsj.com
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(END) Dow Jones Newswires
December 06, 2021 06:33 ET (11:33 GMT)
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