European stocks were deep in the red on Thursday, following a
turbulent day on Wall Street, as traders struggle to forecast the
impact of the Omicron variant on the global economy and central
bank policy decisions.
Investor sentiment continues to seesaw following the latest
headlines on Omicron that has prompted waves of travel restrictions
and fears of a renewed global surge of Covid-19. The specter of the
Federal Reserve speeding up its plans to slow, or taper, its
program of monthly asset purchases due to higher inflation, as well
as a looming deadline to fund the U.S. federal government,
represent other market pressures.
"The bounce of Wednesday's European session is now a distant
memory, as the discovery of U.S. cases of the new variant show that
the spread of this new enemy has already begun," wrote Chris
Beauchamp, Chief Market Analyst at IG.
"Now the issue becomes one of mitigation, and here the policy
responses may yet provoke a further short-term hit to
The oil sector managed to buck the downward trend, helped by
rising crude prices ahead of decision day for OPEC+.
Shares on the Move:
STMicroelectronics shares traded 4% lower but estimates for next
year aren't expected to suffer from news that demand for Apple's
iPhone 13 line-up has weakened, Equita Sim said, citing a report
from Bloomberg that Apple informed its component suppliers of the
Jean-Marc Chery, CEO at the European chip maker, in a recent
speech talked about a semiconductor market expected to grow by 10%
in 2022 with STMicroelectronics expected to outperform, Equita Sim
added. "We do not see major risks for STMicroelectronics 2022
estimates at the moment."
Shares in Thyssenkrupp traded 0.5% higher after the industrial
group set mid-term targets and provided some detail on the
restructuring it has been going through. Among other measures, it
plans a possible stock market listing of the Ude Chlorine Engineers
business and will hold a separate Capital Markets Day on Jan. 13
next year to announce more details.
However, Jefferies said Thyssenkrupp is set to focus on gradual,
structural improvement in profitability as well as sustainable and
positive free cashflow generation, as expected.
The eurozone pushed on with a strong recovery in 2021, but in
many ways that has been the easy part, said Oxford Economics' head
of Europe economics. "With reopening tailwinds mostly exhausted,
the recovery will need to be driven by fundamentals, with a strong
consumer and corporate sector stepping up at a time when fiscal
policy starts to shift," said Angel Talavera.
The near-term path will be fraught with obstacles given the
resurgent Covid-19 risks, supply-chain problems and surging energy
prices. However, Oxford Economics still expects another year of
robust growth of close to 4% and it envisages a strong disinflation
dynamic reasserting in late 2022 after the current price surge.
Oxford Economics said the U.K.'s economic growth in 2022 should
be strong by recent historical standards provided the Omicron
variant doesn't result in renewed restrictions.
GDP growth will likely slow from the pandemic economic rebound
in 2021, and the recovery will enter a tougher phase as policy
support is being withdrawn, said chief U.K. economist Andrew
Goodwin. However, both household consumption and corporate
investment should support growth in 2022, as deductions encourage
firms to spend some of their cash and consumers spend some of their
excess savings, Goodwin added.
Inflation fears should calm in the second half of the year as
there is little evidence of underlying pressures building and
commodity prices should fall back.
Stock futures rose as investors digested the latest headlines on
the Omicron variant ahead of fresh data on the labor market.
Commentary from scientists and pharmaceutical executives has
helped drive market sentiment, as investors await more concrete
data on vaccine efficacy against the variant. On Thursday,
investors were focused on comments from the World Health
Organization's chief scientist suggesting vaccines were likely to
still offer some protection.
"More than anything, people are still dealing with uncertainty
about Omicron and how much of a threat it poses," said Salman Baig,
a multiasset investment manager at Unigestion. "Some might see this
as a buy the dip opportunity. But it wouldn't surprise me if the
market action reverses or loses steam later today."
Four Fed officials are due to speak Thursday, as the latest
jobless claims report gets released.
Earnings season is ongoing, with food-retailer Kroger and Dollar
General scheduled to report Thursday before the opening bell.
Cosmetics company Ulta Beauty and gunmaker Smith & Wesson
Brands are expected to post earnings after markets close.
Shares of WeWork dropped over 5% in off-hours trading. The
office-sharing company said in a securities filing that it would
restate several quarters of its results, including its latest one,
and that management had concluded there was a material weakness in
its internal controls.
The dollar inched higher in Europe as concerns about omicron
continued to dominate markets, leaving limited effect for now from
the prospect of faster monetary tightening by the Federal
However, the dollar should strengthen by the beginning of next
year as monetary policy takes center stage, said MUFG. "We expect
the Fed to continue to tighten policy. It leaves room for rates and
the dollar to rise further at the start of next year," said
currency analyst Lee Hardman.
Comments this week from Jerome Powell "provided strong guidance"
that the pace of asset-purchase tapering would be speeded up,
potentially allowing interest rates to rise sooner, Hardman
The Turkish lira weakened after President Recep Tayyip Erdogan
replaced finance minister Lutfi Elvan following reported clashes
over Erdogan's unorthodox view that high interest rates stoke
inflation. Erdogan named loyalist Nureddin Nebati as the new
The market may interpret the move as "another representative of
a stability-orientated policy being dismissed and as an indication
that Erdogan is replacing the last critic of his approach," said
Commerzbank currency analyst Ulrich Leuchtmann.
"If this view takes hold, it would become even more obvious from
the market's point of view that we cannot expect to see a change in
a policy that has been weakening the lira so effectively so
Uncertainty over the European Central Bank's monetary policy
leaves eurozone noncore government bond spreads little leeway to
tighten again, said Florian Spaete, senior bond strategist at
Generali Investments. "On the contrary, in view of the emerging
scaling back of policy support, we consider a further spread
widening to be likely."
Uncertainty about the Omicron Covid-19 variant is currently
high, which is likely to prevent a sustainable strong upward move
in government bond yields, but if the existing or modified vaccines
prove effective, the upward trend in yields is likely to continue,
The emergence of Omicron will affect the ECB's Dec. 16 monetary
policy meeting, said Martin Wolburg, senior economist at Generali
The ECB is expected to adjust its inflation outlook to the
upside, and it will also continue to make clear that an interest
rate rise in 2022 isn't in the cards, Wolburg said. Generali also
expects potential for a more dovish stance on post-PEPP QE. "Given
increased pandemic risks again, there is a good chance the ECB
becomes more dovish on post-PEPP QE than currently thought and
announces this in December."
A number of uncertainties make any changes to Italy's rating
unlikely when Fitch reviews it on Friday, said Citi, although
S&P's move to a positive outlook on Italy in October could put
upward pressure on other agencies to catch up.
"With the uncertainty on ECB purchases, recent increase in
borrowing costs, Omicron uncertainty and potential political risk
on the horizon, Fitch might wait to decide on any upward rating
action in our view," said Citi.
Oil held gains of more than 1% as investors awaited signals from
OPEC on what policy it will take into its ministerial summit with
Previous OPEC+ policy had been to raise production by 400,000
barrels a day in January. Now, with Omicron and recent U.S.
Strategic Petroleum Reserve releases, analysts expect no action
this month. "The combination of both these forces will be enough to
push OPEC+ to pause its monthly output hikes for one month," said
MUFG's Ehsan Khoman.
Gold prices weakened around 0.7%, with Jerome Powell's comments
on tapering prompting investors to exit gold exchange traded
Gold ETFs tracked by FactSet registered net outflows just shy of
$170 million on Wednesday. The outflows came in the wake of
Powell's comments that the tapering of stimulus measures could
happen faster, opening the door to earlier rate hikes.
DOW JONES NEWSPLUS
Glaxo's Covid-19 Antibody Drug Found to Be Effective Against
A Covid-19 antibody treatment developed by GlaxoSmithKline PLC
and Vir Biotechnology Inc. was effective against the Omicron
variant in early laboratory studies, the companies said, setting it
apart from similar therapies that appear to work less well against
the highly mutated strain.
The companies said Thursday that they had tested the drug,
called sotrovimab, against certain individual mutations found in
Omicron, which has now been detected in at least 24 countries,
including the U.S. Glaxo and Vir said the findings were preliminary
and they would need to test the treatment against the whole of the
mutated spike protein found in the variant to confirm the result.
The companies published a preliminary research paper on the
findings, which haven't yet been peer reviewed.
Turkey's Erdogan Names Loyalist as Finance Minister Amid Lira
ISTANBUL-Turkey's President Recep Tayyip Erdogan named a
loyalist as the country's new finance minister Thursday, after the
incumbent resigned over clashes with the longtime leader's
unconventional economic policies that have intensified a currency
crisis shaking the country.
Nureddin Nebati, a former deputy finance minister, replaces
Lütfi Elvan at the top of the finance ministry.
Novartis Says Top Drugs Should Fuel Sales Growth Through
Novartis AG said Thursday ahead of its research-and-development
day starting later today that it expects sales to keep growing in
the mid-term mainly thanks to its main in-market growth drivers,
while several new assets could be approved by 2026.
The Swiss pharma giant said that sales should continue to rise
at a compound annual growth rate of at least 4% through 2026,
driven by multi-billion dollar sales from its medicines Cosentyx,
Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio.
Thyssenkrupp Unveils Mid-Term Targets as Restructuring
Thyssenkrupp AG on Thursday set mid-term targets as it continues
to restructure its operations.
The industrial company said as part of its capital-market day
that it targets a margin for adjusted earnings before interest and
taxes of between 4% to 6% in the medium term.
Safran Sees Income Margin, Revenue Growth Through 2025
Safran SA said Thursday at its capital markets day that it
expects profit margin and revenue to grow through 2025, and
disclosed other mid-term targets such as for free cash flow and
The French defense-and-aerospace company said it expects
recurring operating income margin to reach 16% to 18% by 2025. The
target would represent "more than 5 points margin expansion from
2021, mainly driven by growth in services across all divisions," it
said. In 2024 and 2025, its margin should expand faster than during
the 2021-23 period.
Aston Martin CFO Kenneth Gregor to Step Down for Personal
Aston Martin Lagonda Global Holdings PLC said Thursday that
Chief Financial Officer Kenneth Gregor will step down from the role
and as a director by the end of June for personal reasons.
The British luxury car maker said that it has begun the process
of finding a new CFO, and will provide an update once that has
Low Initial Jobless Claims Reflect Tight Labor Market
The number of people filing new claims for unemployment benefits
is expected to have remained near pandemic lows last week as
employers continued to hold on to their workers in a tight labor
Initial jobless claims, a proxy for layoffs, are expected to
total a seasonally adjusted 240,000 for the week that ended on Nov.
26, according to economists surveyed by The Wall Street Journal,
following the prior week's report showing the lowest number of new
claims in 52 years.
Bond Investors Bet on Low Peak Interest Rates
U.S. government-bond yields have climbed a lot this year. Some
analysts are concerned that they haven't risen even further.
The reason is that the world has moved closer with each passing
month to the day when investors think that the Federal Reserve will
raise its benchmark federal-funds rate above its current level near
Derby's Take: Fed Taper Not Taking Wind Out of Treasury Market's
The performance of the Treasury bond market over recent weeks is
again suggesting that the idea of a clear link between the central
bank's asset buying and the movement of yields remains tenuous.
In the time the Fed has employed bond purchases to bolster the
economy, an unorthodox strategy during the financial crisis and its
aftermath now elevated to a normal part of the monetary-policy
toolkit, economists have struggled to measure what the central bank
gets for its buying.
Supply Imbalances Continued to Hold Back U.S. Growth This Fall,
Fed's Beige Book Says
The U.S. economy grew at a "modest to moderate" pace this fall,
with supply-chain issues and labor shortages holding back growth
despite strong demand, the Federal Reserve said Wednesday.
The Fed report, a periodic collection of business anecdotes from
around the country known as the Beige Book, found that consumer
spending throughout the country was strong but held back by low
inventories. Strong demand allowed firms to raise prices with
"little pushback" from consumers, and increases were widespread
throughout the economy.
Biden to Toughen Testing for International Travelers to Slow
WASHINGTON-President Biden plans to tighten up Covid-19 testing
timelines for travelers entering the U.S. and extend a mask mandate
on airplanes and other public transportation as part of a broad
administration effort to combat the Omicron variant.
International travelers coming to the U.S. will have to test
within a day of departure, regardless of vaccination status, rather
than the 72 hours currently required for vaccinated travelers,
under new protocols early next week, senior administration
officials said. The new testing rules will apply both to U.S.
citizens and foreign nationals entering the country.
U.S. and South Korea to Update Wartime Plans for North Korea
SEOUL-The U.S. and South Korea said they would update their
joint wartime contingency plans for North Korea, as the Kim Jong Un
regime has kept pursuing military advances amid a stall in nuclear
During a visit to Seoul, Defense Secretary Lloyd Austin,
alongside his South Korean counterpart, approved an update to the
strategic guidance used for wartime operation plans, a document
that hadn't been updated since 2010. The precise nature of the
review, or what might change, wasn't immediately disclosed.
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(END) Dow Jones Newswires
December 02, 2021 06:32 ET (11:32 GMT)
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