European shares posted modest gains Monday, recouping some
losses from Friday's steep selloff as investors continued to
monitor the likely implications of a new variant of Covid-19.
"Friday was a panic selloff," said Ipek Ozkardeskaya, senior
analyst at Swissquote Bank. "Traders have had time to sit back and
breathe a bit," she added, saying that trading volumes were lower
over the Thanksgiving holiday, likely exacerbating declines.
Investors are awaiting more clarity on the likely
transmissibility and severity of the Omicron variant and whether it
will weigh on the efficacy of vaccines. Some money managers worry
that the new strain could hit global mobility and the economic
Shares on the move:
BT shares rose close to 9% after a media report that Indian
conglomerate Reliance may bid for control for the U.K. company, AJ
Bell said. The report about BT comes after Reliance was recently
outbid on a deal for control of a Dutch unit of T-Mobile. French
billionaire and Altice founder Patrik Drahi has built up a stake in
BT and Deutsche Telekom also has a sizeable holding, so a bidding
war may be afoot, the brokerage said.
"Despite its substantial pension liabilities and debts and iffy
track record, it has a near-monopoly position in the U.K.'s
broadband network. And, for all its recent woes, BT has the
capacity to generate substantial cash flows," AJ Bell said.
HeidelbergCement shares fell more than 1% after Jefferies cut
its rating on the stock to hold from buy, with a EUR65.30 target
price. However, the brokerage said the shares were fairly cheap but
lacked a catalyst. Recent acquisitions--such as digitization firm
Command Alkon and Tanzania's Tanga Cement--are failing to inspire
and acceleration of share buybacks is unlikely, Jefferies
The German construction-materials maker also faces tough
comparables in the first half of 2022, which may give rise to
investor concerns about the sustainability of growth, especially in
Europe. The market may not pay for potential at this stage, and it
may take time for investors to rebuild confidence in the
medium-term potential of the company, Jefferies said.
Telecom Italia shares were down more than 2% following news of
the CEO's resignation. Bryan Garnier said the exit of Luigi
Gubitosi as the company starts examining a takeover offer by KKR
highlights how much power Vivendi has over the deal.
Telecom Italia received a friendly and non-binding indication of
interest from KKR to buy out the company at EUR0.505 a share, a
price which Vivendi believes doesn't reflect the value of the
company. Vivendi has a 23.75% stake in Telecom Italia.
"Vivendi can accept an offer below its average entry price but
we doubt the group will accept another significant depreciation,
below the current book value. As such we do not expect Vivendi to
accept anything below EUR0.8," Bryan Garnier said.
Markets will likely remain volatile until more is known about
the new variant of the coronavirus, but keeping equities at a small
overweight and bonds at an underweight is still the right strategy,
Michael Strobaek, global chief investment officer at Credit Suisse,
said. News of the spread of the variant caused sharp risk-off moves
on Friday, and there will likely be further market reactions this
week, he added.
"Financial markets will be inevitably affected by bouts of
volatility into 2022... When they affect risk assets and raise the
equity risk premium, it is an opportunity to take exposure to
selected equities." Specific sectors favored by Credit Suisse
include logistics and pharmaceuticals, which are considered more
defensive by nature.
UniCredit expects a further strong rise in Germany's annual
inflation rate to 5.4% in November, from 4.5% previously, its
highest reading since the summer of 1992. The key driver of
November's rise is expected to be a base effect stemming from the
VAT cut in the second half of 2020 and lower energy prices last
year, UniCredit said. By European Union-harmonized standards, the
reading may even surge to nearly 6% year-on-year, as a change in
the index weightings will add to the base effect.
Economists polled by The Wall Street Journal forecast inflation
will rise to 5.1% year-on-year. However, the rate is already likely
to decline again at the turn of the year, UniCredit added. The data
is due to be published at 1300 GMT.
Stock futures were higher after Wall Street on Friday suffered
its worst day in more than a year amid growing concerns over the
new omicron variant.
"The pandemic and Covid variants remain one of the biggest risks
to markets, and are likely to continue to inject volatility over
the next year(s)," Keith Lerner, co-chief investment officer and
chief market strategist at Truist Advisory Services, wrote in a
note. "It's hard to say at this point how lasting or impactful this
latest variant will be for markets."
The dollar has started the week higher against a range of
currencies, including the euro, as investors continue to evaluate
the danger of the newly-emerged omicron variant of the coronavirus.
So far, there are encouraging signs that the symptoms appear mild
compared with other variants, but the uncertainty is still likely
to lead to greater volatility in currencies, said MUFG.
"The developments should continue to favor higher FX volatility.
European assets and currencies had already been undermined in
recent weeks by another Covid wave heading into the winter. The new
variant risks making that situation worse," MUFG said.
CBA said the dollar is likely to remain elevated this week,
particularly against commodity currencies, even as markets pare
back Fed tightening expectations due to Omicron uncertainty.
Some FOMC officials have recently suggested they are open to
upping the pace of tapering in December, but "the emergence of
omicron may delay such a policy change," CBA said.
Bannockburn Global Forex said Omicron has injected a new dynamic
into foreign exchange markets and a key risk is that uncertainty
about the level of threat is not lifted quickly, which would
It said there are three key changes since the middle of last
week: odds of a Bank of England rate increase next month have
fallen further; acceleration of Fed tapering seems unlikely, and
prospects for stronger world growth are diminished on the
"This undermines risk appetite and weakens those currencies that
often appear to do better in robust growth phases, e.g., dollar
bloc, Scandis, and most emerging market currencies."
The discovery of the omicron Covid-19 mutation has upended
market pricing of future interest rates globally. Fears that the
new variant may derail the nascent economic recovery as governments
reimpose social restrictions and travel bans have prompted
investors to cut risk and piled back into safe assets, including
U.K. government bonds. The setback from the new virus strain has
increased the chance that Bank of England policymakers may hold
interest rates in December.
"Market participants will now have to be prepared for a
substantially wider range of possible outcomes," UniCredit analysts
said. The BOE's policy decision is due on Dec. 16.
The underlying flight to safety remains and is likely to extend
in eurozone government bond markets, while a prospective bounce in
German inflation underscores the dilemma for the European Central
Bank, said Commerzbank's rates strategist Rainer Guntermann.
In its exit from accommodative policy, the ECB balances between
growth and inflation concerns. News about the Omicron coronavirus
variant hasn't added to investors' concerns over the weekend, but
visibility remains low, he said.
Government bond supply in the eurozone will be reasonably high
this week, with Italy, Germany, Spain and France lining up for
Societe Generale has forecast the end-2022 level of German
10-year Bund yields at 0.25% in an environment of "growthflation,"
it said. This is around 58 basis points above current levels.
"While the ECB's policy normalization is taken for granted, its
speed and extent will depend on inflation developments," said Adam
Kurpiel, head of rates strategy at the SocGen.
Inflation should decline in 2022, but eventually stabilize at
levels higher than in the 2013-20 period, Kurpiel said. The bank's
base case is "growthflation" in Europe, with the outlook firmly
skewed towards higher rates and steeper bond curves, even as
structural, regularly and climate-related developments are altering
the usual relationship between the rates market and the economic
and monetary cycles.
SocGen said next year is set to prove trickier for eurozone
government bond yield spreads, as the ECB will be scaling back its
asset purchases. "Even if the central bank engineers a gradual
transition, an environment of rising yields and wider credit
spreads should widen EGB [eurozone government bond] spreads."
A spread widening doesn't need to be disorderly, but some
"pockets of stress" could exaggerate moves in a busy
election-calendar period in the first quarter of 2022, SocGen said.
"Overall, we see less risk of a full-blown political crisis, which
is likely to play second fiddle to the ECB's gradual exit."
DZ Bank keeps government bonds underweight in its overall
eurozone fixed-income strategy, as climbing yields and higher risks
of spread widening cloud the outlook for total returns of eurozone
government bonds next year.
Analyst Daniel Lenz said he sees room for a possible uptick in
political risks, in particular in France and Italy. In the current
environment, DZ Bank sees sovereign bonds with low index duration
or with carry pick-up more attractive, with preference for short
and medium maturities across the board.
Government bond issuance in the eurozone is set to fall to an
all-year low in December in a seasonal pattern as sovereigns end or
have already ended their annual funding programs, LBBW said.
"Historical experience indicates a marked supply slump is to be
expected for the final month of the year," said Elmar Voelker,
senior fixed-income analyst at LBBW. "The typically quiet Christmas
period extends into a significant portion of December, having a
particularly pronounced effect in the second half of the
LBBW forecasts gross government bond issuance of EUR36 billion
in December, slightly up from EUR28 billion in December 2020, with
the issuance concentrating at the beginning of the month.
Oil futures gained more than 5% in Europe, clawing back
significant proportions of their sharp losses on Friday that came
as major economies imposed travel restrictions on countries where
the Omicron variant of the coronavirus has spread. Low trading
volumes--with the U.S. celebrating Thanksgiving--added to the
"Given the lack of information on the latest variant, one could
probably question the scale of Friday's selloff and whether it is
really justified," said ING's Warren Patterson, adding that "the
market seems to be coming to that realization in early morning
trading today, with a relief rally underway." The market's
attention will soon turn to OPEC+, which meets later this week.
Jefferies said Omicron jeopardizes what was an increasingly
positive near-term outlook for mining stocks.
"Regardless of whether this new variant is a real issue, the
sector is likely to be under short-term pressure as there is a
renewed risk of lockdowns, which would negatively impact demand and
push investors away from such a highly cyclical sector."
Still, Jefferies--which said the mining sector is otherwise
"underowned" and poised to benefit from higher metals
prices--reckons investors should buy mining stocks in bouts of
short-term weakness because the medium- to long-term fundamental
outlook is unchanged and still very positive.
DOW JONES NEWSPLUS
Omicron Variant Is Reported in More Countries as Officials
Grapple With How to Respond
Countries around the world reported their first cases of the
Omicron variant over the weekend and some imposed new travel
restrictions, racing to protect themselves against the potentially
more contagious strain even as scientists cautioned they don't yet
know how severe it will prove to be.
Canada, Australia, the Netherlands and Austria on Sunday joined
a group of countries that have detected a strain first documented
in South Africa that authorities said could pose a greater risk of
people falling ill with Covid-19 a second time and could be more
transmissible than other variants.
Eurozone Economic Sentiment Declines in November
Confidence among businesses and households in the eurozone fell
in November amid rising inflation, supply-chain constraints and a
surge of coronavirus cases.
The European Commission said Monday that its economic sentiment
indicator, an aggregate measure of business and consumer
confidence, fell to 117.5 in November from 118.6 in October. The
result was in line with the forecast from economists polled by The
Wall Street Journal.
Eurozone Inflation Likely Hit Record High in November
Consumer-price inflation in the eurozone likely hit a record
high in November, but many economists think that might mark a peak
for now, and therefore don't expect the European Central Bank to
raise its key interest rate next year.
As in the U.S., consumer prices in the eurozone have risen
faster over recent months than most economists and policy makers
had expected. The data have raised questions for investors,
businesses and households about the credibility of central bank
assertions that this period of high inflation is likely to prove
Telecom Italia CEO Resigns as Board Reviews KKR Offer
Telecom Italia SpA said late Friday that Chief Executive Officer
Luigi Gubitosi resigned from his position and the
telecommunications company would start to examine a takeover offer
by private-equity company KKR & Co. Inc.
The company said that Mr. Gubitosi also resigned as general
manager of the group but he will remain a member of the board of
Impala Platinum Makes Firm Intention to Acquire Royal Bafokeng
Impala Platinum Holdings Ltd. said Monday that it firmly intends
to make an offer to acquire peer mining company Royal Bafokeng
Platinum Ltd., after acquiring a 24.52% stake in the company for
10.6 billion South African rand ($650.3 million) last week.
Implats, a South African precious-metals company, said it will
offer RBPlat shareholders 150 South African rand ($9.20) a share,
consisting of a cash amount of ZAR90 per offer share and 0.3
ordinary shares in Implats, valued at ZAR60. The offer price
represents a 24% premium to its closing price Friday.
BP Plans Major Green Hydrogen Project in England
BP PLC said Monday that it is planning a major green hydrogen
project in Teesside, in the northeast of England.
The HyGreen Teesside project could deliver up to 500 megawatts
of electrical input of hydrogen production by 2030, the oil-and-gas
company said. The facility is to be developed in multiple stages,
and BP is aiming to start production by 2025 with an initial phase
of around 60 megawatts.
Eni Sells Stake in Algeria-Italy Gas Pipelines to Snam
ENI SpA agreed to sell a 49.9% stake in subsidiaries operating
gas pipelines between Algeria and Italy to energy infrastructure
company Snam SpA for a consideration of 385 million euros ($435.7
The deal includes the onshore gas pipelines running from the
Algeria and Tunisia borders to the coast of Tunisia, and the
offshore gas pipelines connecting the Tunisian coast to Italy, Eni
Standard Bank Says Revenue Has Continued to Recover
Standard Bank Group Ltd. said Monday that revenue has continued
to recover over the past ten months and backed its guidance for the
The South African bank said card spend in South Africa recovered
to 2019 levels, while merchant acquiring turnover was well above.
In Africa regions, transaction volumes also reflected good growth,
Iran's Nuclear Advances Weigh on Renewed Talks
As negotiators gather in Vienna for talks aimed at reviving an
international nuclear agreement with Iran, one big question looms:
Has Tehran advanced its nuclear work so much in the past two years
that the 2015 deal can no longer be rescued?
Restoring the pact, which placed limits on Iran's nuclear
activities in exchange for relief from economic sanctions, is a top
foreign-policy goal of the Biden administration. Iran's new
president, however, has delayed restarting talks while pressing
ahead with nuclear work.
U.K. Looks to Compete on Financial Regulation
London wants to regain the mantle of the world's busiest
financial center from New York by overhauling how banks and other
financial firms are regulated after Brexit.
The U.K. government said this month its top financial regulators
will be required to help boost growth and international
competitiveness in the financial sector, as secondary mandates to
existing tasks such as maintaining financial stability and consumer
Labor Talks to Start in 2022 at Congested West Coast Ports
U.S. shippers struggling with supply-chain gridlock on the West
Coast face new concerns in the coming year as dockworkers and
marine terminals gird for talks on a new labor contract.
Australian Regulator Finalizes New Bank Capital Framework
SYDNEY-Australia's regulator of financial institutions won't
require the country's banks to raise extra capital as part of its
finalized new system to strengthen financial system resilience.
The Australian Prudential Regulation Authority on Monday
released its well-flagged new bank capital framework. It said it
had the goal of embedding "unquestionably strong" levels of capital
and aligning Australian standards with internationally Basel III
requirements, which are due to come into force around the world
from 2023. Australian banks must implement APRA's capital framework
by Jan. 1, 2023.
Buyout Boom Gains Steam in Record Year for Private Equity
Big leveraged buyouts are back, and this year's crop might just
be a taste of things to come.
Private-equity firms have announced a record $944.4 billion
worth of buyouts in the U.S. so far this year, 2.5 times the volume
in the same period last year and more than double that of the
previous peak in 2007, according to Dealogic. So far this year,
there have been five $10 billion-plus deals in the U.S., equaling
the total in all of 2007, though still below the high-water mark of
nine in 2006.
Omicron Variant Not Detected Yet, but Likely Already in U.S.,
Health Officials Say
Top U.S. health officials said Sunday that the newly discovered
Omicron variant of the coronavirus is likely already in the U.S.
even though it hasn't been detected yet and urged Americans to take
precautions while scientists study its potential impact.
"If and when, and it's gonna be when, it comes here, hopefully
we will be ready for it," said Anthony Fauci, director of the
National Institute of Allergy and Infectious Diseases, in an
interview on ABC on Sunday. He said that includes getting more
people vaccinated and boosted and making sure people follow
Japan to Bar Entry of Foreigners in Response to Omicron
TOKYO-Japan will bar newly entering foreigners such as business
travelers from entering the country starting Tuesday, in response
to the Omicron coronavirus variant.
Japanese citizens and foreign residents of Japan who are
returning from trips abroad will still be allowed to enter the
country, the government said Monday.
Australia Seeks to Make Social-Media Firms Liable for Users'
SYDNEY-Australia said on Sunday that it would introduce
legislation to make social-media companies liable for defamatory
comments published on their platforms, in a move that risks
exposing tech companies to future lawsuits.
Prime Minister Scott Morrison said the legislation also aims to
unmask people who make hurtful comments online by requiring
companies such as Meta Platforms Inc.'s Facebook to disclose their
details, such as an email address or cellphone number, when a
complaint is made.
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(END) Dow Jones Newswires
November 29, 2021 05:56 ET (10:56 GMT)
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