MARKET WRAPS

Watch For:

Germany Foreign Trade, Labour Cost Index; UK Business Finance Review, Office for Budget Responsibility Forecast Evaluation Report; OECD Composite Leading Indicators; updates from Vonovia, DS Smith, FirstGroup, Frasers, HelloFresh, Ferguson, Rolls-Royce, Yandex

Opening Call:

Shares in Europe may struggle early on, after the U.K. tightened rules to combat the spread of Omicron. In Asia, most stock markets tracked Wall Street higher; Treasury yields and oil extended their gains; while dollar and gold were little changed.

Equities:

European shares are seen near-flat on Thursday as new Covid-related restrictions heighten fears again that economic growth will be stifled.

Late Wednesday, British Prime Minister Boris Johnson announced tighter restrictions to stem the spread of the Omicron variant, urging people in England to work from home and mandating Covid-19 passes for entrance into nightclubs and large events.

Johnson said it was time to impose stricter measures to prevent a spike of hospitalizations and deaths as the new coronavirus variant spreads rapidly in the community.

"I expect gains [in Europe] to be limited, as Eurozone and U.K. markets are crimped by the spectre of tighter Covid-19 restrictions, Omicron or not," wrote Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

Market Outlook: JPMorgan said in its "2022 Year Ahead Outlook" that it expects the Covid pandemic to end next year, which will allow the global economy to go back to normal pre-Covid conditions.

"In 2021, economies around the globe made great progress towards recovery and re-opening. Our view is that 2022 will be the year of a full global recovery, an end of the global pandemic, and a return to normal conditions we had prior to the Covid-19 outbreak. In our view, this is warranted by achieving broad population immunity and with the help of human ingenuity, such as new therapeutics expected to be broadly available in 2022."

Forex:

The dollar was little changed in Asia with the USD Index remaining below 96.00, as investors await economic data to assess the strength of the U.S. economy, ahead of next week's Fed policy meeting.

Weekly jobless claims are due later, followed by the consumer-price index figures on Friday. Strong prints could boost expectations for a faster shift to Fed policy tightening, though uncertainty remains over the outlook, due partly to the emerging Omicron variant.

Capital Economics said price pressures in China are generally easing, especially in heavy industry, and won't hold back the PBOC from further loosening measures, including policy rate cuts.

Economist, Julian Evans-Pritchard, expects PPI will continue to drop over the coming months, as base effects start to ease on the headline PPI rate around the turn of the year, while cooling property construction will add downside pressure to industrial metal prices.

China's CPI may drop back below 2% before long, with vegetable prices already reversing some of their gains during the past couple of weeks and the economic slowdown likely making core inflation subdued, Evans-Pritchard said.

Bank of America said foreign exchange options are an effective hedge against potential declines in the stock market and investors could consider out-of-the-money digital put options that bet against the Australian or Canadian dollars to protect themselves against any losses in the case of a near-term equity shock.

"AUD and CAD, the so-called high-beta currencies in G10, often depreciate versus the so-called safe-haven currencies when an equity shock occurs. AUD/JPY and EUR/CAD puts tend to be the best hedges for stock market falls."

Bonds:

Long-dated yields for U.S. government debt edged higher still in Asia, after they posted their biggest three-day rise in weeks following the Pfizer/BioNTech Omicron report. Meanwhile, the 2-year yield, which is most closely associated with the near-term path of Fed policy, declined on Wednesday.

Bank of America said the yield curve will keep flattening: "The hawkish Fed pivot suggests risks of further curve flattening and further pull forward of rate hikes."

Higher U.S. front-end rates "are a clear reflection of the recent shift in Fed policy due to elevated inflation concerns," while fears of policy errors help drive the long-end trend, as tightening begins when the economy still struggles, said BofA.

"We recommend clients not fight the Fed or curve. The path of least resistance is for the curve to keep flattening regardless of the Fed policy-error signals it might send."

Fitch said sovereign credit conditions will improve next year, with fiscal balances forecast to strengthen for nearly 90% of rated sovereigns. It sees economic recoveries remaining subject to Covid-19 setbacks, but expects them to become more entrenched. This will allow for policy tightening as some support measures are unwound.

Fitch forecasts global government debt to reach $91 trillion by end-2022, equivalent to around 92% of global GDP and a record high. "The overall impact on debt trajectories depends on the comparative strength of nominal GDP growth as well as primary balance positions."

Energy:

Oil prices extended their gains in Asia as Omicron fears continued to ease.

"Traders are starting to realize that Omicron, though it may cause some slight demand destruction, is not going to be as deadly as feared," Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

"Oil prices did dip after the U.K. suggested there might be limited restrictions put in place," but after the Pfizer/BioNTech announcement, "that seemed to bring the oil market back," he said.

Oil closed moderately higher on Wednesday, with U.S. prices marking their highest settlement in two weeks.

Metals:

Gold futures were little changed, with investors focusing on Friday's U.S. inflation data.

Commerzbank said geopolitical tensions between the U.S. and Russia may help support demand for safe haven assets like gold in the near term but some analysts were more skeptical.

There's "no real safe haven demand" at the moment, given that President Biden and Vladimir Putin discussed the Ukraine crisis, but "nothing changed," Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.

"The recent risk appetite in equity markets have stifled momentum for gold in near term," he said. Gold has had "multiple chances" to break through and hold $1,800, but failed once again.

Copper was around 0.3% lower after data Wednesday showed that China's car sales declined for the sixth straight month in November. Demand for the base metal is often driven by car sales as it is used in many components. However, China's electric vehicle sales, which rose 18% on month in November, could help to support prices, said ANZ.

Iron ore has become Morgan Stanley's top mined-commodities pick on a six-month horizon, citing an expected recovery in Chinese steel output following the Beijing Winter Olympics in February.

A recent slip in aluminum prices should give investors a good entry point to buy into that commodity as well in the coming months, supported by constrained Chinese supply, said Morgan Stanley.

"We also highlight nickel's strong demand story, supported by both stainless steel output and EVs, and supply risks in Indonesia." Coal and zinc are toward the bottom of its list of picks, given Beijing has intervened to boost coal supply and zinc is facing risks to demand.

Meantime, Citi expects a U-shaped swing in iron-ore prices in 2022 as an easing in Chinese credit will likely prompt a recovery in property starts and sales in the second half of 2022, following major declines in the first half. Citi said China already has plenty of iron ore sitting in stockpiles at its ports to meet upticks in demand.

"Steel mills' weak appetite for purchasing iron ore, owing to lower output and rising use of steel scrap, has resulted in 30-million-ton inventory builds at Chinese ports since July 2021."

   
 
 

TODAY'S TOP HEADLINES

Rise in China Factory-Gate Prices Moderated in November

BEIJING-China's factory-gate prices moderated in November, thanks to government interventions to dent price increases in coal, metals and other raw materials, official data showed Thursday.

The producer-price index rose 12.9% from a year earlier in November, down from a 13.5% increase in October, which was the fastest pace in 26 years, according to the National Bureau of Statistics.

   
 
 

Biden Commits U.S. Government to Net-Zero Emissions by 2050

WASHINGTON-President Biden on Wednesday committed the federal government to net-zero emissions by 2050, including directing federal agencies to make all of their vehicle purchases zero-emission units by 2035.

Mr. Biden signed a wide-ranging executive order steering the business of the U.S. federal government, which spends $650 billion a year on goods and services, toward sustainable products and low-carbon industries.

   
 
 

U.K. Imposes New Covid-19 Restrictions as Omicron Cases Double Every Few Days

LONDON-The British government warned that Covid-19 infections caused by the Omicron variant are doubling every two or three days, as it imposed new restrictions in England, including a work from home order and a requirement for proof of vaccination for indoor venues such as nightclubs.

The news is a sign of increasing concern over the trajectory of the Omicron variant, which British authorities say could crowd out the currently dominant Delta variant within weeks and result in over a million total Covid-19 infections by the end of the month. Britain has recorded 10.6 million cases over the course of the whole pandemic.

   
 
 

Crypto Executives Defend Industry as Congress Considers Oversight

WASHINGTON-Cryptocurrency industry executives appeared before Congress on Wednesday to argue that their technologies hold promise for the future, as lawmakers and regulators wrestle with how to bring the more than $2 trillion market under government oversight.

The House Financial Services Committee, led by Rep. Maxine Waters (D., Calif.), called the hearing in hopes of improving lawmakers' understanding of crypto assets and how the sector fits into existing regulations. While millions of Americans have invested in crypto assets, many experts say the asset class needs clearer rules of the road, which Congress could provide.

   
 
 

AstraZeneca Covid-19 Antibody Authorized by FDA as Novel Tool to Prevent Symptomatic Disease

The U.S. Food and Drug Administration authorized a preventive antibody combination from AstraZeneca PLC that has shown strong efficacy in reducing risk of symptomatic Covid-19, offering a first-of-its-kind alternative for a minority of people for whom vaccines are considered less effective.

The antibody cocktail, called Evusheld, is aimed primarily for use in a minority of adolescents and adults age 12 and older with moderate to severely compromised immune systems. That may be because they have cancer or another illness or take medications or undergo treatments such as chemotherapy that inhibit an immune response to Covid-19 vaccines, the FDA said in a statement.

   
 
 

Justice Department Told Deutsche Bank Lender May Have Violated Criminal Settlement

The Justice Department has informed Deutsche Bank AG that the German lender may have violated a criminal settlement when it failed to tell prosecutors about an internal complaint in its asset-management arm's sustainable investing business, according to people familiar with the matter.

The complaint alleged that the asset manager, DWS Group, overstated how much it used environmental, social and governance criteria, known by the industry acronym ESG, to manage its assets. U.S. authorities learned of the issue in an August Wall Street Journal article, rather than from the bank, which had ongoing disclosure and compliance obligations under the earlier criminal settlement, according to people familiar with the matter.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Thursday

00:01/UK: Nov RICS Residential Market Survey

01:01/UK: Nov KPMG and REC UK Report on Jobs

07:00/GER: 3Q Labour cost index

07:00/GER: Oct Foreign Trade

07:00/DEN: Oct Balance of payments (provisional figures)

07:00/DEN: Oct External trade (provisional figures)

07:00/NOR: Oct Monthly GDP

08:00/HUN: Oct Preliminary External Trade

08:00/SVK: Oct Foreign trade

09:30/UK: 3Q Business Finance Review

10:00/CRO: Oct Foreign Trade

10:00/MLT: Oct Industrial Production Index

11:00/IRL: Oct Industrial Production and Turnover

11:00/FRA: Oct OECD Composite Leading Indicators

11:00/IRL: Nov CPI

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(END) Dow Jones Newswires

December 09, 2021 00:38 ET (05:38 GMT)

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