UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European stocks rebounded Wednesday, with markets clawing back some losses sparked by worries over the Omicron variant and the unwinding of Federal Reserve stimulus.

The Stoxx Europe 600 rose more than 1%, led higher by shares of travel, leisure and basic-resource companies, which would all be exposed to an economic downturn in the event of renewed restrictions. Strong performers included budget airline Wizz Air, up more than 6%, Lufthansa, up 4.9%, and cruise operator Carnival, which gained 4.6%.

Winners from the stay-at-home trade fell. German food-delivery firm HelloFresh lost 4.3% and U.K.-listed takeout company Deliveroo shed 2.8%.

"European markets are on the front foot today, as markets oscillate between overwhelming fear and bouts of optimism that this recent selloff could prove the perfect pre-cursor to a Santa rally," wrote Joshua Mahony, Senior Market Analyst at IG.

One cause for concern, money managers say, is that the rapid pace of inflation could prevent the Fed and other central banks from unleashing stimulus in the event of severe disruption caused by Omicron. Jerome Powell added to those worries Tuesday when he opened the door to an interest-rate rise in the first half of 2022.

Economic News:

Eurozone manufacturing-sector growth stabilized in November, following a four-month slowdown from June's record expansion, the latest manufacturing purchasing managers index shows. The eurozone manufacturing PMI increased slightly to 58.4 in November from 58.3 in October.

"A strong headline PMI reading masks how tough business conditions are for manufacturers at the moment," said IHS Markit's chief business economist Chris Williamson. Although demand remains strong, supply chains continue to deteriorate at a worrying rate, Williamson added.

Looking ahead, rising Covid-19 infection rates cast a darkening cloud over the near-term outlook, threatening to further disrupt supply chains while diverting spending from consumer services to consumer goods again, worsening the imbalance of supply and demand.

Economic Insight:

Wages in Germany are likely to increase again next year, according to Commerzbank. However, the upcoming collective bargaining rounds will only play a minor role in the rise, as less than a third of employees will be affected by them, said Commmerzbank's deputy chief economist Ralph Solveen. It is wage increases and one-off payments agreed to earlier that will drive the wage growth.

"Collectively agreed wages are still likely to increase more slowly in 2022 than in the last two years before the pandemic, so the stronger increase represents a normalization rather than a sustained strengthening of wage growth caused by higher inflation rates," Solveen said.

U.S. Markets:

Stock futures for the major U.S. benchmarks were higher, although investors continue to struggle to assess the implications of the Omicron variant on business and economies.

"We just don't know how much more infectious it is, how severe the symptoms are and what the impact of that is," said Sebastian Mackay, a multiasset fund manager at Invesco. "What I'd assume now is this probably isn't enough to derail the recovery that's going on."

Technology stocks headed for a strong start as futures for the Nasdaq-100 added 1.3%.

Ahead of the bell in New York, Merck shares rose 4.8% after scientific advisers recommended the Food and Drug Administration authorize the company's experimental Covid-19 oral antiviral. Salesforce.com fell 7.4% after the software company's guidance for fourth-quarter earnings fell short of expectations.

For a reading on inflationary pressures, investors will parse the Institute for Supply Management's manufacturing index. Economists expect the survey to show factories experienced another month of strong new orders in November, but also rising prices and long waiting times for materials.

Forex:

Comments by Jerome Powell that the notion of 'transitory' inflation should be retired is likely to cause the dollar to strengthen into year-end, albeit dependent on how the Omicron variant of coronavirus develops, said MUFG.

"This speech from Powell certainly reflects increased concerns over inflation risks going forward and points to a faster QE taper that points to further dollar strength into year-end," said Derek Halpenny, head of research for global markets for EMEA.

For now, however, given the uncertainty over the new Covid-19 strain, investors remain unwilling to "revert completely back to pre-Omicron level of rate hike expectations."

Sterling could receive a boost if a speech by Bank of England Governor Andrew Bailey later follows Jerome Powell in acknowledging increased inflation risks, said ING, adding that Bailey "may feel emboldened" by Powell.

"Having moved to price out a December 16 BOE rate hike, investors may start to put a 15 basis points hike back into UK money market rates." Unless equities fall considerably further, which would hit the risk-sensitive pound, the theme of high inflation and monetary policy normalization should support the currency, ING said. Bailey speaks at 1400 GMT.

The Turkish lira steadied after hitting a record low earlier on renewed calls from President Recep Tayyip Erdogan to cut interest rates further.

In an interview with state broadcaster TRT that aired late Tuesday, Erdogan said he hoped rates would continue to fall until Turkey's next national election in 2023.

"Hardly anyone is likely to have betted on Erdogan taking an about-turn, " said Commerzbank analyst Antje Praefcke. It has become increasingly difficult for the central bank to perform an about-turn too, she said. That means the lira will continue to weaken, potentially at an accelerated rate.

Bonds:

Eurozone government bonds sold off, led by the periphery, pushing yields higher after Jerome Powell signaled a faster process of asset-purchase tapering.

Jerome Powell is striking a distinctively more hawkish tone, acknowledging that inflation might not be transitory and the Fed could thus consider wrapping up tapering sooner, said Christoph Rieger, head of rates and credit research at Commerzbank. "For Bunds, the spectre of a more aggressive Fed is also bad news."

J.P.Morgan expects the 10-year German Bund yield to trade in a -0.30% to -0.10% range in early 2022, and drift gradually higher to 0.10% by the end of the year.

The backdrop to rising Bund yields is the expected continued economic recovery in the eurozone. JPM expects eurozone growth to remain solidify above 4% pace until the end of 2022, before slowing to an above-trend 2% pace in 2023.

"Our working assumption is that governments can now rely on less restrictive measures than lockdowns thanks to vaccination campaigns which allowed to reduce the link between new infections and hospitalizations," said JPM strategists Aditya Chordia and Elisabeth Ferrari.

Italy and Greece are JPM's favorites for strategic overweight in eurozone peripheral government bonds for 2022, while Ireland and Belgium are its favorites in core. In their intra-eurozone positioning, JPM stays constructive in the first half of 2022, while it expects a mild widening pressure in the second half of next year.

For the 10-year Italian BTP-German yield spread, this means it would trough around 100 basis points by mid-2022 and widen back to around 120 bps by end-2022. "Nevertheless, expected tight ranges and potential European Central Bank delivery/political events warrant a tactical trading approach," JPM said.

Commodities:

Oil recovered most of Tuesday's losses, but prices are still down 11-12% over the past week, a selloff described by Goldman Sachs as overdone.

A lack of progress in Iran nuclear talks and a month-long pause from OPEC+ in its policy of easing production curbs when it meets Thursday could offset nearly half of the impact of Omicron and SPR releases, said Goldman Sachs's Damien Courvalin.

Analysts said OPEC may pause plans to pump more oil in January, or further cut output.

Gold edged higher after prices slumped following Jerome Powell's comments, but likely higher rates, a firmer dollar and strong global growth are factors why Fitch expects bullion prices to weaken in 2022.

Fitch forecasts gold averaging $1,700 a troy ounce next year. We "are now turning increasingly bearish as the balance of factors affecting the asset are now weighted to the downside. We now believe that prices are unlikely to reach once again the all-time high of $2,075 an ounce."

DOW JONES NEWSPLUS

EMEA HEADLINES

Turkish Lira Plumbs Record Low on Erdogan's Continued Calls for Rate Cuts

ISTANBUL-Turkey's currency crisis deepened after President Recep Tayyip Erdogan defended his policy of demanding lower interest rates despite rising inflation, sparking another selloff of the lira.

The currency hit record lows after Mr. Erdogan said he hoped interest rates would continue to fall until Turkey's next national election in 2023. The president holds the unconventional view that cutting interest rates is the best way to stop soaring inflation and spur economic growth, a policy most economists say is a recipe for disaster.

Blue Prism Agrees to Improved GBP1.23 Bln Offer from SS&C; Withdraws Vista Recommendation

Blue Prism Group PLC said Wednesday that it has agreed a new, higher 1.23 billion-pound ($1.64 billion) takeover by SS&C Technologies Holdings, Inc. and withdrawn its recommendation for Vista Equity Partners' offer.

Under the offer, accepting shareholders of the U.K. automation-software company will get 1,275 pence in cash for each share held, a 53% premium to the company's closing share price of 832 pence on Aug. 27, the last day before the Vista offer period.

Drax Sees 2021 Adjusted Ebitda at Top End of Expectations

Drax Group PLC on Wednesday forecast that its 2021 adjusted earnings before interest, taxes, depreciation and amortization will be around the top end of current analysts' expectations.

The current market consensus range for 2021 adjusted Ebitda is 374 million to 391 million pounds ($497.5 million-$520.1 million), the U.K. power generation company said.

Monte Dei Paschi Seeks to Restart Talks With EU as It Looks to Chart Its Future

Banca Monte dei Paschi di Siena SpA has taken steps to restart talks with the European Commission, as it tries to chart its future after the collapse of talks for it to be sold to UniCredit SpA.

The bank said late on Tuesday that it has made contact with Italy's Ministry of Economy to restart discussions with the Commission's Directorate-General for Competition.

UBS Appoints JPMorgan's Sarah Youngwood as New CFO

UBS Group AG said Wednesday that it has named Sarah Youngwood its new chief financial officer, starting May 2022.

Sarah Youngwood has been CFO of JPMorgan Chase & Co.'s consumer and community banking since 2016 and will replace Kirt Gardner at the head of the financial department of the Swiss bank after Mr. Gardner decided to step down, UBS said.

UK Retail Prices Rose in November, Set to Accelerate Further

U.K. retail prices rose year-on-year in November for the first time in two and a half years, with prices set to continue rising over the Christmas period, according to the latest report by Nielsen and the British Retail Consortium.

Overall, prices in British stores rose 0.3% in the month compared with a decline of 0.4% in October, the report said.

UK National Average House Prices Set to Continue to Rise in 2022

U.K. national average house prices are set to climb by 5% on average in 2022 but by 3% in London, according to new data from property portal Rightmove PLC.

Despite sector and regional market variations, strong buyer demand and a historically low available amount of property will continue to raise prices next year, Rightmove said Wednesday.

OPEC+ at a crossroads as oil prices post worst monthly drop since the pandemic began

Major oil producers face a difficult decision on production levels Thursday as a recovery in energy demand hit a setback with the discovery of a new variant of the coronavirus that causes COVID-19.

"This week's meeting of OPEC+ ministers is shaping up to be one of the most significant since the pandemic demand recovery began, and the key signal will be how much more oil will be added to supply to start the new year," Peter McNally, vice president and global lead at Third Bridge, told MarketWatch.

Omicron Variant Adds Urgency to Covid-19 Vaccine Talks, WTO Chief Says

WASHINGTON-The new Omicron Covid-19 variant has added urgency for the World Trade Organization to act faster on vaccines, the group's leader said Tuesday, as the variant disrupted contentious negotiations aimed at boosting vaccine supplies to poorer countries around the world.

Omicron's emergence forced the WTO to postpone a key ministerial meeting scheduled to start Tuesday in Geneva, with the agenda including discussions over vaccinating billions of people in developing countries by suspending intellectual property rights for vaccines.

GLOBAL NEWS

Derby's Take: Powell Reiterates Importance of Diversity in Boston, Dallas Fed Searches

Federal Reserve Chairman Jerome Powell reiterated Tuesday that two regional leadership openings at the central bank could be a chance to broaden the diversity of those who help set monetary policy.

Mr. Powell, who was speaking before a Senate committee, was addressing the process under way to replace the leaders of the Boston and Dallas Federal Reserve banks. The leaders of those two institutions stepped down at the end of September after it emerged they actively traded stocks and other investments, some of which are sensitive to changes in monetary policy, while helping to set central-bank policy. The officials' trading drew disapproval from Mr. Powell and others.

Credit-Card Applications Hit Pandemic High

Americans are applying for credit cards at a rate not seen since before the pandemic.

Close to 27% of U.S. consumers said in October that they had applied for a credit card in the past 12 months, according to the Federal Reserve Bank of New York. That is the highest level since 2019 and well above the record low of 16% recorded a year ago.

China's Caixin Manufacturing Gauge Slips in November on Weaker Demand

A private gauge measuring activity in China's manufacturing sector slipped in November and fell into contractionary territory, as both domestic and overseas demand waned.

The Caixin China purchasing managers index dropped to 49.9 from 50.6 in October, indicating that overall business conditions faced by Chinese manufacturers were broadly unchanged, according to data released Wednesday by Caixin Media Co. and researcher Markit. A reading below 50 indicates contraction of activity, while a result below 50 means an expansion.

BOJ Policy Board Member Sees Path Toward Higher Prices in Japan

Bank of Japan policy board member Seiji Adachi said Wednesday that he sees a greater chance that the nation's inflation rate will increase after years of flat prices.

Mr. Adachi pointed out changes in Japanese companies' price-setting behavior and improvements in their growth expectations.

Australia Economy Shrinks in Third Quarter But Rebound Already Underway

SYDNEY-Australia's economy shrank in the July-September quarter as efforts to combat the Delta variant of the Covid-19 virus forced more than half the country into strict and lengthy lockdowns.

The economy contracted by 1.9% in the third quarter from the previous quarter and grew 3.9% over the year, the Australian Bureau of Statistics said Wednesday. Economists had expected a 2.5% contraction in the third quarter.

Americans Consider China Top National-Security Threat, Survey Finds

Americans listed China as the nation's top foe and their trust in the U.S. military dropped to its lowest levels in three years, according to the first major national-security survey conducted since the U.S. withdrawal from Afghanistan.

For the first time since the Ronald Reagan Presidential Foundation and Institute began surveying Americans about national security four years ago, a majority of Americans-52%-named China as the nation posing the greatest threat to the U.S. That is up from 21 percent four years ago. Russia came in at a distant 14%-a shift from three years ago when 30% of Americans considered that country to be the biggest risk, while China came in second place at 21%.

Stricter Covid-19 Testing Requirements for Travelers to U.S. Being Considered to Curb Omicron Spread

WASHINGTON-The Biden administration is weighing stricter Covid-19 testing requirements for travelers entering the U.S., including U.S. citizens, to slow the spread of the emerging Omicron variant.

The Centers for Disease Control and Prevention said rules under consideration would require all travelers, regardless of their vaccination status, to present a negative Covid-19 test within 24 hours of boarding a plane to the U.S., rather than the 72 hours currently allowed for vaccinated travelers. Travelers could also be required to take a second test three to five days after arriving in the U.S.

Judge Temporarily Blocks Biden Vaccine Mandate

A federal judge issued a temporary nationwide block against a Biden administration mandate that millions of healthcare workers get vaccinated against Covid-19 starting next week.

In a ruling issued Tuesday in the United States District Court for the Western District of Louisiana, Judge Terry Doughty said there was no question that mandating a vaccine for healthcare workers at facilities participating in Medicare and Medicaid is something that should be done by Congress and not by a government agency. Even then the judge said it was unclear whether such a mandate would be constitutional.

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(END) Dow Jones Newswires

December 01, 2021 06:18 ET (11:18 GMT)

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