European stocks were higher Wednesday as investors continue to grapple with elevated bond yields and the likelihood of multiple interest-rate increases in the year ahead.

Investors have stepped up bets that the Federal Reserve and other major central banks will tighten monetary policy in the coming months, withdrawing a pillar of support for markets. Mounting expectations of interest-rate rises follow evidence that the drivers of inflation have broadened beyond the supply-chain shock that fueled price gains for much of 2021.

Recent volatility is "really all about inflation and how aggressive central banks are going to be to counteract it," said Brian O'Reilly, head of market strategy at Mediolanum Asset Management, adding that inflation could also curtail economic growth by knocking consumption. "Certainly, the market is nervous at the moment."

Stocks on the Move: Many luxury stocks rose Wednesday after Swiss group Richemont and U.K. fashion firm Burberry posted consensus-beating sales for their third quarters, demonstrating continued strong demand for the sector's products.

Richemont sales rose 38% organically compared with the same period of 2019, before the pandemic, showing a sharp trajectory in luxury demand as the new year gets underway, brokerage Bernstein said following the print. Track the analysts' views on Richemont's third-quarter update here [[%7B%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:CFR.EB%22,%22c%22:%22CH:CFR%22,%22n%22:%22Compagnie%20Financiere%20Richemont%20S.A.%22,%22cs%22:%22STOCK/CH/XSWX/CFR%22,%22ds%22:%22CFR.EB%22%7D, %7B%22t%22:%22operator%22,%22q%22:%22and%22,%22n%22:%22and%22%7D, %7B%22t%22:%22freetext%22,%22q%22:%22market%20talk%22,%22n%22:%22market%20talk%22%7D]&searchFilterState=open&includeDefaultFilter=true].

Burberry meanwhile raised FY 2022 earnings guidance following the results.

Richemont surges 8.6% and Burberry advances 5.9% in early trade, while Swiss watchmaker Swatch rises more than 4% and Italian luxury-fashion firm Prada, which itself booked strong preliminary 2021 revenue Tuesday, is up almost as much. French luxury players Kering, LVMH and Hermes rose 3.7%, 3.3% and 3%, respectively, while Italy's Moncler climbed 2.8%.

Microsoft's $75 billion deal to buy Activision Blizzard is positive for French videogames maker Ubisoft Entertainment, Citi said, a day after the company's shares jumped more than 10% on news of the deal.

"As a scale player with multiple established franchises as well as significant future optionality for growth/margins from both free-to-play and further development of in-game monetization, we think it is impossible to dismiss the risk of M&A interest," Citi said. Still, the U.S. bank notes there's no indication that Ubisoft is an M&A target at this stage. Ubisoft shares trade 1% higher.

Stocks to Watch: Commerzbank's positives are underappreciated by the market, Deutsche Bank analysts said, raising the stock to buy from hold. The German bank has improved its top-line momentum, continues to deliver on cost control and continues to post low loan losses, DB said.

Improving profitability should be the main positive theme in 2022 for Commerzbank, and it should allow for attractive dividends and share buybacks from next year, DB said.

Plus, Commerzbank stands to benefit significantly from rising long-term interest rates, DB added. Commerzbank's 4Q earnings and upcoming capital markets day should inspire more confidence in its story and could act as a catalyst for shares, DB said, raising its target price on the stock to EUR10 from EUR7.

Siltronic's takeover by GlobalWafers may hang in the balance, but the German chip maker's future still looks bright, Jefferies analysts said, upgrading the stock to buy from hold. Siltronic shares dropped sharply Monday after news that the German government hadn't approved the takeover, with just weeks remaining until the lapse of the offer period.

If the deal falls through--which Citi sees as likely--they could drop even further. This creates an attractive entry point, Citi said. Demand for semiconductors is expected to stay strong this year and should remain ahead of supply in the medium term, Citi said. This should support higher prices, sales growth and further profitability improvements for Siltronic, Citi said, raising its price target to EUR160 from EUR150.

While countries have reintroduced more severe travel restrictions since the advent of Omicron, this should only be a brief step back with European airlines remaining on the road to recovery, Liberum said.

"Prior to the emergence of the Omicron variant in November 2021, these restrictions were being steadily relaxed worldwide," the brokerage said. European airlines are facing near-term financial challenges because of Omicron but important markets such as the U.S. are still open and signs show that Omicron-related travel restrictions are already starting to be eased, it said.

"We believe the end destination of a recovery in air travel activity is unchanged," Liberum said.

Economic Insight: In the U.K., data showed consumer prices rising at 5.4% in December, the fastest rate since March 1992-shortly before the country was compelled to leave the European Exchange Rate Mechanism on 'Black Wednesday.'

The pace of price growth was far above the 2% target set by the Bank of England, which in December became the first major central bank to raise rates since the start of the pandemic. Read a selection of comments here .

Accelerated inflation in food and core goods was the main driver of the slightly higher inflation rate in Germany at the end of last year, Pantheon Macroeconomics said.

Pantheon said core inflation will decelerate sharply in January because of base effects. This will show up primarily in core goods as base effects from the temporary VAT cut in the second half of 2020 drop out of the data, Pantheon Macroeconomics' chief eurozone economist Claus Vistesen said.

Pantheon is also penciling in a decline in the rate of services inflation. "They will both rebound quickly towards the end of the first quarter, though, lifting core inflation significantly through 2Q and 3Q, " Vistesen said.

German consumers and companies should prepare for further price increases, the Ifo Institute said. In December, the Ifo price expectations fell only slightly to 44.6 points from their all-time high of 44.9 in November. For these price expectations, the Ifo Institute asks companies about their plans for price increases in the next three months.

"Such increases will filter down to consumer prices," said Timo Wollmershaeuser, head of Ifo economic forecasts. Inflation will decline in 2022, but slowly, he said.

In the coming months, monthly rates will still exceed 4% and will approach the 2% mark only gradually toward the end of 2022, according to Ifo's estimates. Ifo expects a rate of inflation of 3.5% for the year as a whole.

U.S. Markets:

U.S. stocks were poised for muted opening moves following Tuesday's selloff, and government-bond yields extended their advance, as investors prepare for central banks globally to raise interest rates.

Companies due to report earnings before the opening bell in New York include Morgan Stanley, Bank of America and U.S. Bancorp, and household names UnitedHealth Group and Procter & Gamble. United Airlines and Alcoa are set to post results after markets close.

Investors will get a glimpse of the health of the U.S. housing market at 8:30 a.m. ET. Construction of new homes is forecast to have slowed in December as builders contended with shortages of materials and workers.


Firm energy prices are contributing to ramped-up monetary policy tightening expectations including for the Fed and this should lift the dollar, ING said. Energy prices rise as crude supply increases in December failed to live up to what was agreed by OPEC+, ING analysts said.

Higher energy prices may linger and delay any easing of inflation, they said. "This environment is seeing the scale of expected tightening cycles increase around the world, including in the U.S.

"The market now expects the Fed's terminal rate, the level at which rates stop rising, will reach 1.80%, compared to last week's bets of 1.60%, the analysts say. ING expects the DXY dollar index to rise to around 96.40-96.50, from 95.6140 currently.

Sterling was little moved even after data showed U.K. inflation accelerated to its highest level in almost 30 years in December. The data bolsters the case for the BOE to raise interest rates further, Silicon Valley Bank's Sam Cooper said.

"Sterling is largely unchanged post-release as today's data is only confirming current market expectations that inflation needs to be addressed in the coming months."

U.K. consumer prices rose 5.4% year-on-year in December --the highest since March 1992--following a 5.1% increase in November, leaving it well above the BOE's 2% target.


Investors kept selling government bonds, pushing up yields. Yields on benchmark 10-year Treasury notes rose to 1.893%, compared with 1.866% Tuesday, which was their highest level since January 2020. Yields on interest rate-sensitive two-year notes rose to 1.063% from 1.038% Tuesday.

Europe's most closely watched government bond yield turned positive for the first time since 2019. The yield on 10-year German bonds rose to 0.008% after trading in negative territory for over 30 months. Ten-year U.K. yields, meanwhile, rose to their highest level since March 2019 after data showed inflation in the country hitting a 30-year high.

The 10-year German Bund yield turns positive on Wednesday for the first time since May 2019, driven in particular by the trend in the U.S. Treasury market, Elmar Voelker, senior fixed-income analyst at LBBW, said.

"It had already become apparent that a rebound of the 10-year Bund yield above zero would not be too long in coming," he said. Downward pressure on bond prices and corresponding upward pressure on yields is currently coming primarily from the U.S. where there are increasing signs that the Fed is likely to herald the turnaround in key interest rates in just a few weeks, Voelker added.

High inflation rates and monetary policy turnaround by the Fed and other major central banks are pushing bond yields higher almost everywhere in the world, said Christian Kopf, head of fixed income portfolio management at Union Investment.

"The eurozone is no exception," he said, after the 10-year German Bund yield turned positive for the first time since May 2019. "But here [in the eurozone] the rise in yields has been flatter and slower than in other parts of the world," he said.

He expects the rise to remain flatter and slower because inflation in the eurozone is still relatively moderate, especially compared with the U.S., and also because the European Central Bank is much more cautious than its counterparts in tightening monetary policy.


Oil prices extended gains after the International Energy Agency, in its monthly report, raised its forecasts for global oil demand growth in 2021 and 2022. Prices had been tracking lower ahead of the report's release and had fallen as low as $87.63 a barrel.

The IEA said that 2022 should be the year that oil demand returns to pre-pandemic levels. Its latest forecast reaffirmed the view that the Omicron variant of Covid-19 had a minimal impact on demand.

The agency noted that the variant's rapid spread but limited severity could prove positive for demand by increasing global resistance to the virus without provoking strict lockdowns.

Gold prices rose after U.K. inflation data showed prices rose at the fastest rate in 30 years in December. Gains are likely capped by expectations that high inflation will be followed by policy tightening from global central banks, said Rupert Rowling, an analyst at Kinesis Money.

"A high inflation environment should prove positive for gold... However, with central banks across the world expected to increase interest rates to tackle inflationary pressures, this presents a headwind," he said.

Base metals prices also rose supported by a weaker dollar.

Divisions within the Democratic Republic of Congo's ruling party will add headwinds to policymaking in the world's No.1 producer of cobalt, a key ingredient in electric vehicle batteries, said Fitch Solutions.

This week's resignation of the first vice-president of Congo's national assembly, Jean-Marc Kabund, is another indicator of worsening instability in a country that produces a third of the world's cobalt, which could add pressure on the global battery supply chain.

"Due to the already tight nature of the global battery supply chain, any disruption to cobalt production in the DRC will have a noticeable impact on battery supplies globally," the firm said.

"The latest events point to continued instability between the cabinet and parliament over the next few quarters."



German Benchmark Bond Yield Turns Positive for First Time Since 2019

Europe's most closely watched government bond yield turned positive for the first time since 2019, part of a broad readjustment by investors to rising inflation and the global economic rebound from the pandemic.

The yield on the 10-year German bund rose as high as 0.021% on Wednesday after trading in negative territory for over 30 months. It then eased down to 0.010%. Bund yields had been as low as minus 0.841% in March 2020.


UK Inflation Accelerated to a Three-Decade High in December

Consumer prices in the U.K. rose at their quickest pace in almost three decades in the year through December on supply-chain disruptions and higher energy costs.

The consumer price index--which measures what consumers pay for goods and services--increased 5.4% on the year in December, up from a 5.1% rise in November, the Office for National Statistics said Wednesday. December's annual inflation rate is the highest since March 1992.


Oil Demand to Exceed Pre-Covid Levels in 2022, IEA Says

Global oil demand will exceed pre-pandemic levels this year thanks to growing Covid-19 immunization rates and as recent virus waves haven't proved severe enough to warrant a return to strict lockdown measures, the International Energy Agency said Wednesday.

In its monthly oil market report, the IEA hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day. The Paris-based agency also raised its demand growth forecasts for 2021 by 200,000 barrels a day to 5.5 million barrels a day.


Richemont Shares Surge as 3Q Sales Promise Higher FY 2022 Earnings

Compagnie Financiere Richemont SA shares climbed in early trade Wednesday after the Swiss luxury-goods group posted consensus-defying quarterly sales, heralding higher full-year earnings.

At 0827 GMT, shares were trading 7% higher at CHF143.40, making the group one of the biggest winners on the Stoxx 600 index of Europe's biggest companies.


ASML Holding 4Q Net Profit, Sales Rose on Year

ASML Holding NV on Wednesday reported increased sales and net profit for the fourth quarter of 2021, but warned that sales for first quarter of 2022 will be lower due to the delayed recognition of shipments.

The Dutch semiconductor-equipment maker said the recognition of around 2 billion euros ($2.27 billion) of first-quarter shipments will be delayed into later quarters as it is introducing a fast-shipment process amid high demand.


Burberry Upgrades FY 2022 Guidance on 3Q Sales Acceleration

Burberry Group PLC said Wednesday that retail revenue and comparable store sales rose in the third quarter of fiscal 2022 as it benefited from strong growth in Mainland China and the Americas, driven by new and younger customers.

The British luxury-goods company left its medium-term guidance--for the three-year period ending in fiscal 2024--for high single-digit topline growth unchanged and said it currently expects to close the financial year with adjusted operating profit growth in the region of 35% when compared with the previous year.


BHP Metallurgical Coal Operations Disrupted by Australia Covid-19 Surge

BHP Group Ltd. said a surge in Covid-19 cases in Australia is causing a shortage of workers at its coal pits that will likely constrain how much steelmaking coal the world's No. 1 miner can produce in its fiscal year.

BHP, which in eastern Australia runs the world's biggest metallurgical coal export operations in joint venture with Mitsubishi Corp., on Wednesday reported an 8% fall in first-half production of the commodity, to 17.7 million metric tons. That prompted the miner to downgrade its full-year production forecast to 38 million-41 million tons, from a prior 39 million-44 million ton estimate.


Pearson Expects Increased 2021 Sales, Adj Operating Profit

Pearson PLC said Wednesday that it expects to report increased sales and adjusted operating profit for 2021.

The FTSE 100 education company said group sales are expected to be 8% higher on year, as sales at its assessment-and-qualifications division--its largest business--were up 18%.


Antofagasta Expects Higher Costs in 2022; 2021 Output in Line With Guidance

Antofagasta PLC on Wednesday warned that its operational costs will jump this year, and reported that production for 2021 was in line with its guidance.

The Chile-based copper-mining company forecast net cash costs of $1.55 a pound for 2022. This would be up from $1.20 a pound last year, reflecting lower production and increased input costs, especially sulphuric acid.



Sony Braces for Microsoft's 'Pay-to-Win' Strategy

Microsoft is flashing its wallet to bulk up in games. That adds up to a fearsome boss battle for Sony, Microsoft's rival in videogame consoles.


Bitcoin Sags in 2022 Under Weight of Stock Selloff and Fed Policy

The Federal Reserve is casting a shadow over cryptocurrencies.

Like stocks, cryptocurrencies have extended a selloff to start the year because of expectations that the central bank will raise interest rates as early as March.


Big Tech and Foes Spar Over Bill to Curb Market Power of Dominant Internet Platforms

WASHINGTON-Big technology companies and their critics are ramping up lobbying efforts in Congress this week as a key Senate panel takes up legislation that seeks to blunt the market power of dominant tech platforms.

The antitrust legislation, set to be considered by the Senate Judiciary Committee Thursday, would bar dominant online platforms such as Inc.'s e-commerce site and Alphabet Inc.'s Google search engine from preferring their own goods and services over other companies.


China Notifies Firms of Tougher Investment Rules for Big Tech

SINGAPORE-China has notified some companies of new rules that require the country's biggest internet firms to seek approval for investment deals, a mechanism that is likely to curb domestic technology giants from growing even bigger through acquisitions, according to people familiar with the issue.

The country's top internet regulator, the Cyberspace Administration of China, recently established a new mechanism that requires internet companies to obtain formal approval for investment deals if they have 100 million users or more or have posted revenue in the previous year of at least 10 billion yuan, equivalent to $1.57 billion, the people said.


Oil Demand to Exceed Pre-Covid Levels in 2022, IEA Says

Global oil demand will exceed pre-pandemic levels this year thanks to growing Covid-19 immunization rates and as recent virus waves haven't proved severe enough to warrant a return to strict lockdown measures, the International Energy Agency said Wednesday.

In its monthly oil market report, the IEA hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day. The Paris-based agency also raised its demand growth forecasts for 2021 by 200,000 barrels a day to 5.5 million barrels a day.


China Detains Prominent Activists as Olympics Near, Citing State Security

TAIPEI-Chinese authorities have detained two prominent human-rights activists, quietly intensifying a crackdown on dissent weeks before Beijing hosts the most politicized Winter Olympics in recent memory.

Free-speech advocate Yang Maodong was formally detained in the southern city of Guangzhou on suspicion of inciting subversion on Jan. 12, two days after his wife died of cancer in the U.S., according to his sister.


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(END) Dow Jones Newswires

January 19, 2022 06:52 ET (11:52 GMT)

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