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 recovery.

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 added.

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.

Market Insight:

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.

Economic Insight:

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.

U.S. Markets:

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 underpin volatility.

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 margins.

"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 auctions.

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 month."

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 volatility.

"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.




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 transitory.


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 directors.


Impala Platinum Makes Firm Intention to Acquire Royal Bafokeng Platinum

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 million).

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 said Saturday.


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 year.

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, it said.


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 protection.



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 mask-wearing guidelines.


Japan to Bar Entry of Foreigners in Response to Omicron Variant

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' Defamatory Comments

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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