MARKET WRAPS
Stocks:
European stocks rebounded Wednesday, with markets clawing back
some losses sparked by worries over the Omicron variant and the
unwinding of Federal Reserve stimulus.
The Stoxx Europe 600 rose more than 1%, led higher by shares of
travel, leisure and basic-resource companies, which would all be
exposed to an economic downturn in the event of renewed
restrictions. Strong performers included budget airline Wizz Air,
up more than 6%, Lufthansa, up 4.9%, and cruise operator Carnival,
which gained 4.6%.
Winners from the stay-at-home trade fell. German food-delivery
firm HelloFresh lost 4.3% and U.K.-listed takeout company Deliveroo
shed 2.8%.
"European markets are on the front foot today, as markets
oscillate between overwhelming fear and bouts of optimism that this
recent selloff could prove the perfect pre-cursor to a Santa
rally," wrote Joshua Mahony, Senior Market Analyst at IG.
One cause for concern, money managers say, is that the rapid
pace of inflation could prevent the Fed and other central banks
from unleashing stimulus in the event of severe disruption caused
by Omicron. Jerome Powell added to those worries Tuesday when he
opened the door to an interest-rate rise in the first half of
2022.
Economic News:
Eurozone manufacturing-sector growth stabilized in November,
following a four-month slowdown from June's record expansion, the
latest manufacturing purchasing managers index shows. The eurozone
manufacturing PMI increased slightly to 58.4 in November from 58.3
in October.
"A strong headline PMI reading masks how tough business
conditions are for manufacturers at the moment," said IHS Markit's
chief business economist Chris Williamson. Although demand remains
strong, supply chains continue to deteriorate at a worrying rate,
Williamson added.
Looking ahead, rising Covid-19 infection rates cast a darkening
cloud over the near-term outlook, threatening to further disrupt
supply chains while diverting spending from consumer services to
consumer goods again, worsening the imbalance of supply and
demand.
Economic Insight:
Wages in Germany are likely to increase again next year,
according to Commerzbank. However, the upcoming collective
bargaining rounds will only play a minor role in the rise, as less
than a third of employees will be affected by them, said
Commmerzbank's deputy chief economist Ralph Solveen. It is wage
increases and one-off payments agreed to earlier that will drive
the wage growth.
"Collectively agreed wages are still likely to increase more
slowly in 2022 than in the last two years before the pandemic, so
the stronger increase represents a normalization rather than a
sustained strengthening of wage growth caused by higher inflation
rates," Solveen said.
U.S. Markets:
Stock futures for the major U.S. benchmarks were higher,
although investors continue to struggle to assess the implications
of the Omicron variant on business and economies.
"We just don't know how much more infectious it is, how severe
the symptoms are and what the impact of that is," said Sebastian
Mackay, a multiasset fund manager at Invesco. "What I'd assume now
is this probably isn't enough to derail the recovery that's going
on."
Technology stocks headed for a strong start as futures for the
Nasdaq-100 added 1.3%.
Ahead of the bell in New York, Merck shares rose 4.8% after
scientific advisers recommended the Food and Drug Administration
authorize the company's experimental Covid-19 oral antiviral.
Salesforce.com fell 7.4% after the software company's guidance for
fourth-quarter earnings fell short of expectations.
For a reading on inflationary pressures, investors will parse
the Institute for Supply Management's manufacturing index.
Economists expect the survey to show factories experienced another
month of strong new orders in November, but also rising prices and
long waiting times for materials.
Forex:
Comments by Jerome Powell that the notion of 'transitory'
inflation should be retired is likely to cause the dollar to
strengthen into year-end, albeit dependent on how the Omicron
variant of coronavirus develops, said MUFG.
"This speech from Powell certainly reflects increased concerns
over inflation risks going forward and points to a faster QE taper
that points to further dollar strength into year-end," said Derek
Halpenny, head of research for global markets for EMEA.
For now, however, given the uncertainty over the new Covid-19
strain, investors remain unwilling to "revert completely back to
pre-Omicron level of rate hike expectations."
Sterling could receive a boost if a speech by Bank of England
Governor Andrew Bailey later follows Jerome Powell in acknowledging
increased inflation risks, said ING, adding that Bailey "may feel
emboldened" by Powell.
"Having moved to price out a December 16 BOE rate hike,
investors may start to put a 15 basis points hike back into UK
money market rates." Unless equities fall considerably further,
which would hit the risk-sensitive pound, the theme of high
inflation and monetary policy normalization should support the
currency, ING said. Bailey speaks at 1400 GMT.
The Turkish lira steadied after hitting a record low earlier on
renewed calls from President Recep Tayyip Erdogan to cut interest
rates further.
In an interview with state broadcaster TRT that aired late
Tuesday, Erdogan said he hoped rates would continue to fall until
Turkey's next national election in 2023.
"Hardly anyone is likely to have betted on Erdogan taking an
about-turn, " said Commerzbank analyst Antje Praefcke. It has
become increasingly difficult for the central bank to perform an
about-turn too, she said. That means the lira will continue to
weaken, potentially at an accelerated rate.
Bonds:
Eurozone government bonds sold off, led by the periphery,
pushing yields higher after Jerome Powell signaled a faster process
of asset-purchase tapering.
Jerome Powell is striking a distinctively more hawkish tone,
acknowledging that inflation might not be transitory and the Fed
could thus consider wrapping up tapering sooner, said Christoph
Rieger, head of rates and credit research at Commerzbank. "For
Bunds, the spectre of a more aggressive Fed is also bad news."
J.P.Morgan expects the 10-year German Bund yield to trade in a
-0.30% to -0.10% range in early 2022, and drift gradually higher to
0.10% by the end of the year.
The backdrop to rising Bund yields is the expected continued
economic recovery in the eurozone. JPM expects eurozone growth to
remain solidify above 4% pace until the end of 2022, before slowing
to an above-trend 2% pace in 2023.
"Our working assumption is that governments can now rely on less
restrictive measures than lockdowns thanks to vaccination campaigns
which allowed to reduce the link between new infections and
hospitalizations," said JPM strategists Aditya Chordia and
Elisabeth Ferrari.
Italy and Greece are JPM's favorites for strategic overweight in
eurozone peripheral government bonds for 2022, while Ireland and
Belgium are its favorites in core. In their intra-eurozone
positioning, JPM stays constructive in the first half of 2022,
while it expects a mild widening pressure in the second half of
next year.
For the 10-year Italian BTP-German yield spread, this means it
would trough around 100 basis points by mid-2022 and widen back to
around 120 bps by end-2022. "Nevertheless, expected tight ranges
and potential European Central Bank delivery/political events
warrant a tactical trading approach," JPM said.
Commodities:
Oil recovered most of Tuesday's losses, but prices are still
down 11-12% over the past week, a selloff described by Goldman
Sachs as overdone.
A lack of progress in Iran nuclear talks and a month-long pause
from OPEC+ in its policy of easing production curbs when it meets
Thursday could offset nearly half of the impact of Omicron and SPR
releases, said Goldman Sachs's Damien Courvalin.
Analysts said OPEC may pause plans to pump more oil in January,
or further cut output.
Gold edged higher after prices slumped following Jerome Powell's
comments, but likely higher rates, a firmer dollar and strong
global growth are factors why Fitch expects bullion prices to
weaken in 2022.
Fitch forecasts gold averaging $1,700 a troy ounce next year. We
"are now turning increasingly bearish as the balance of factors
affecting the asset are now weighted to the downside. We now
believe that prices are unlikely to reach once again the all-time
high of $2,075 an ounce."
DOW JONES NEWSPLUS
EMEA HEADLINES
Turkish Lira Plumbs Record Low on Erdogan's Continued Calls for
Rate Cuts
ISTANBUL-Turkey's currency crisis deepened after President Recep
Tayyip Erdogan defended his policy of demanding lower interest
rates despite rising inflation, sparking another selloff of the
lira.
The currency hit record lows after Mr. Erdogan said he hoped
interest rates would continue to fall until Turkey's next national
election in 2023. The president holds the unconventional view that
cutting interest rates is the best way to stop soaring inflation
and spur economic growth, a policy most economists say is a recipe
for disaster.
Blue Prism Agrees to Improved GBP1.23 Bln Offer from SS&C;
Withdraws Vista Recommendation
Blue Prism Group PLC said Wednesday that it has agreed a new,
higher 1.23 billion-pound ($1.64 billion) takeover by SS&C
Technologies Holdings, Inc. and withdrawn its recommendation for
Vista Equity Partners' offer.
Under the offer, accepting shareholders of the U.K.
automation-software company will get 1,275 pence in cash for each
share held, a 53% premium to the company's closing share price of
832 pence on Aug. 27, the last day before the Vista offer
period.
Drax Sees 2021 Adjusted Ebitda at Top End of Expectations
Drax Group PLC on Wednesday forecast that its 2021 adjusted
earnings before interest, taxes, depreciation and amortization will
be around the top end of current analysts' expectations.
The current market consensus range for 2021 adjusted Ebitda is
374 million to 391 million pounds ($497.5 million-$520.1 million),
the U.K. power generation company said.
Monte Dei Paschi Seeks to Restart Talks With EU as It Looks to
Chart Its Future
Banca Monte dei Paschi di Siena SpA has taken steps to restart
talks with the European Commission, as it tries to chart its future
after the collapse of talks for it to be sold to UniCredit SpA.
The bank said late on Tuesday that it has made contact with
Italy's Ministry of Economy to restart discussions with the
Commission's Directorate-General for Competition.
UBS Appoints JPMorgan's Sarah Youngwood as New CFO
UBS Group AG said Wednesday that it has named Sarah Youngwood
its new chief financial officer, starting May 2022.
Sarah Youngwood has been CFO of JPMorgan Chase & Co.'s
consumer and community banking since 2016 and will replace Kirt
Gardner at the head of the financial department of the Swiss bank
after Mr. Gardner decided to step down, UBS said.
UK Retail Prices Rose in November, Set to Accelerate Further
U.K. retail prices rose year-on-year in November for the first
time in two and a half years, with prices set to continue rising
over the Christmas period, according to the latest report by
Nielsen and the British Retail Consortium.
Overall, prices in British stores rose 0.3% in the month
compared with a decline of 0.4% in October, the report said.
UK National Average House Prices Set to Continue to Rise in
2022
U.K. national average house prices are set to climb by 5% on
average in 2022 but by 3% in London, according to new data from
property portal Rightmove PLC.
Despite sector and regional market variations, strong buyer
demand and a historically low available amount of property will
continue to raise prices next year, Rightmove said Wednesday.
OPEC+ at a crossroads as oil prices post worst monthly drop
since the pandemic began
Major oil producers face a difficult decision on production
levels Thursday as a recovery in energy demand hit a setback with
the discovery of a new variant of the coronavirus that causes
COVID-19.
"This week's meeting of OPEC+ ministers is shaping up to be one
of the most significant since the pandemic demand recovery began,
and the key signal will be how much more oil will be added to
supply to start the new year," Peter McNally, vice president and
global lead at Third Bridge, told MarketWatch.
Omicron Variant Adds Urgency to Covid-19 Vaccine Talks, WTO
Chief Says
WASHINGTON-The new Omicron Covid-19 variant has added urgency
for the World Trade Organization to act faster on vaccines, the
group's leader said Tuesday, as the variant disrupted contentious
negotiations aimed at boosting vaccine supplies to poorer countries
around the world.
Omicron's emergence forced the WTO to postpone a key ministerial
meeting scheduled to start Tuesday in Geneva, with the agenda
including discussions over vaccinating billions of people in
developing countries by suspending intellectual property rights for
vaccines.
GLOBAL NEWS
Derby's Take: Powell Reiterates Importance of Diversity in
Boston, Dallas Fed Searches
Federal Reserve Chairman Jerome Powell reiterated Tuesday that
two regional leadership openings at the central bank could be a
chance to broaden the diversity of those who help set monetary
policy.
Mr. Powell, who was speaking before a Senate committee, was
addressing the process under way to replace the leaders of the
Boston and Dallas Federal Reserve banks. The leaders of those two
institutions stepped down at the end of September after it emerged
they actively traded stocks and other investments, some of which
are sensitive to changes in monetary policy, while helping to set
central-bank policy. The officials' trading drew disapproval from
Mr. Powell and others.
Credit-Card Applications Hit Pandemic High
Americans are applying for credit cards at a rate not seen since
before the pandemic.
Close to 27% of U.S. consumers said in October that they had
applied for a credit card in the past 12 months, according to the
Federal Reserve Bank of New York. That is the highest level since
2019 and well above the record low of 16% recorded a year ago.
China's Caixin Manufacturing Gauge Slips in November on Weaker
Demand
A private gauge measuring activity in China's manufacturing
sector slipped in November and fell into contractionary territory,
as both domestic and overseas demand waned.
The Caixin China purchasing managers index dropped to 49.9 from
50.6 in October, indicating that overall business conditions faced
by Chinese manufacturers were broadly unchanged, according to data
released Wednesday by Caixin Media Co. and researcher Markit. A
reading below 50 indicates contraction of activity, while a result
below 50 means an expansion.
BOJ Policy Board Member Sees Path Toward Higher Prices in
Japan
Bank of Japan policy board member Seiji Adachi said Wednesday
that he sees a greater chance that the nation's inflation rate will
increase after years of flat prices.
Mr. Adachi pointed out changes in Japanese companies'
price-setting behavior and improvements in their growth
expectations.
Australia Economy Shrinks in Third Quarter But Rebound Already
Underway
SYDNEY-Australia's economy shrank in the July-September quarter
as efforts to combat the Delta variant of the Covid-19 virus forced
more than half the country into strict and lengthy lockdowns.
The economy contracted by 1.9% in the third quarter from the
previous quarter and grew 3.9% over the year, the Australian Bureau
of Statistics said Wednesday. Economists had expected a 2.5%
contraction in the third quarter.
Americans Consider China Top National-Security Threat, Survey
Finds
Americans listed China as the nation's top foe and their trust
in the U.S. military dropped to its lowest levels in three years,
according to the first major national-security survey conducted
since the U.S. withdrawal from Afghanistan.
For the first time since the Ronald Reagan Presidential
Foundation and Institute began surveying Americans about national
security four years ago, a majority of Americans-52%-named China as
the nation posing the greatest threat to the U.S. That is up from
21 percent four years ago. Russia came in at a distant 14%-a shift
from three years ago when 30% of Americans considered that country
to be the biggest risk, while China came in second place at
21%.
Stricter Covid-19 Testing Requirements for Travelers to U.S.
Being Considered to Curb Omicron Spread
WASHINGTON-The Biden administration is weighing stricter
Covid-19 testing requirements for travelers entering the U.S.,
including U.S. citizens, to slow the spread of the emerging Omicron
variant.
The Centers for Disease Control and Prevention said rules under
consideration would require all travelers, regardless of their
vaccination status, to present a negative Covid-19 test within 24
hours of boarding a plane to the U.S., rather than the 72 hours
currently allowed for vaccinated travelers. Travelers could also be
required to take a second test three to five days after arriving in
the U.S.
Judge Temporarily Blocks Biden Vaccine Mandate
A federal judge issued a temporary nationwide block against a
Biden administration mandate that millions of healthcare workers
get vaccinated against Covid-19 starting next week.
In a ruling issued Tuesday in the United States District Court
for the Western District of Louisiana, Judge Terry Doughty said
there was no question that mandating a vaccine for healthcare
workers at facilities participating in Medicare and Medicaid is
something that should be done by Congress and not by a government
agency. Even then the judge said it was unclear whether such a
mandate would be constitutional.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
December 01, 2021 06:18 ET (11:18 GMT)
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