MARKET WRAPS
Watch For:
Eurozone Germany, France, U.K., Italy Services PMI; Eurozone
Retail Sales; Italy Economic Outlook, Industrial Production; U.K.
Official Reserves; U.S. Employment Report; updates from Allianz,
Phoenix Group, Finnair
Opening Call:
A rally on Wall Street should help European stocks recover some
of Thursday's deep losses. In Asia, most stocks, the dollar, oil
and gold all advanced, while Treasury yields dipped.
Equities:
European shares should rebound on Friday after U.S. stocks
finished higher, with the Dow posting its largest one-day point
gain since early November.
U.S equities rose across the board, with the S&P 500 and Dow
more than recouping Wednesday's losses, as a tumultuous week for
markets continued, driven by uncertainty about the potential impact
of Omicron on public health and the economy.
"You have a demand disruption story on one hand-Omicron-and a
monetary tightening issue with the Fed, so people are trying to
figure out which way is up," said Austin Graff, co-chief investment
officer and portfolio manager of the TrueShares Low Volatility
Equity Income ETF, who is bullish on energy and financials
companies.
Asian benchmarks were mostly higher on Friday, mirroring Wall
Street's broad rally.
Stocks to Watch: Rio Tinto should get rising benefits from its
relatively green aluminum footprint, according to Citi. Markets are
starting to pay attention to the carbon cost of producing aluminum,
which Rio Tinto has slashed by mostly using hydropower, Citi
added.
Hydro-powered Canadian smelters account for one third of Rio
Tinto's aluminum production, emitting less than 4 tons of carbon
dioxide per ton of aluminum versus an industry average of 11.5 tons
of CO2.
"We believe Rio has a competitive advantage with a high
proportion of hydro-powered, low-carbon ali smelters versus largely
coal-fired peers," Citi said. That's good for Rio Tinto because
aluminum is its second biggest moneyspinner, after iron ore.
Forex:
The dollar remained firm against other major currencies ahead of
the November U.S. jobs data. Any clear signs of strength in the
labor market may raise expectations for the Fed's potential rate
increases and boost the greenback further.
"Markets are really trying to get a better handle on how Omicron
and the Fed will impact the dollar," said Oanda senior market
analyst Edward Moya. He said leveraged funds continue to buy the
dollar, with the Fed possibly delivering three rate hikes next
year.
Problems in Europe make the dollar more attractive, and
investors await an inflation report Dec. 10 that could pave the way
for "faster tapering of asset purchases by the Fed."
"This is going to be a fascinating end of the year, you have a
lot of investors that are getting nervous and taking profits. If
there's a risk-off tone you could see a rise in the dollar."
The outcome of research into the threat posed by Omicron will be
key in determining the Norwegian krone's outlook, said Commerzbank.
If the new Covid-19 variant doesn't entail any higher risk than
previous ones, the Norges Bank is likely to stick to its plan to
raise interest rates at the Dec. 16 meeting, which would be
positive for the krone, said Commerzbank senior currency analyst
Antje Praefcke.
"Otherwise, it might postpone the rate hike, lowering the rate
path, which would weigh on NOK." In the meantime, elevated
uncertainty means the krone will struggle to make significant
gains, she said.
Bonds:
Treasury yields eased back slightly early Friday. Most Treasury
yields advanced Thursday, with the two-year yield posting its
biggest one-day gain since Nov. 22, as investors assessed the
U.S.'s second confirmed case of Omicron and the likely impact on
the economy.
However, long-end rates failed to keep up with the rise in
shorter-end yields, causing the spread between 2- and 10-year rates
to shrink below 83 basis points, the narrowest since Jan. 4.
Meanwhile, the gap between 5- and 30-year yields tightened to a
level not seen since March 9, 2020.
"Higher daily volatility has scrambled technical signals for
benchmark interest rates," Jim Vogel, executive vice president at
FHN Financial, wrote in a note. "The effective range for 10s
heading into payrolls is 1.40-1.55%; the potential for moves in
that band is 5bp in any given hour." Meanwhile, "the range for the
5-yr is also 15bp, from 1.13%-1.28%."
Energy:
Oil extended gains in Asia after OPEC+ agreed to rollover
existing policy to boost output in January.
Goldman Sachs views the outcome as consistent with OPEC's past
decisions to ramp up oil supply in an uncertain demand environment
and thinks traders should see current prices as an opportunity to
position themselves for a structural bull market. However, it said
more information on the virulence of Omicron will be needed for oil
prices to start recovering.
"I expected a pause because of the uncertainty and their
decision in the past to err on the side of caution," said UBS's
Giovanni Staunovo, "but like everyone else, they don't know the
impact of Omicron and it might be prudent not to alter the course."
But, he cited OPEC's statement of being ready to change course
pending pandemic developments.
Metals:
Gold managed to claw back some losses in Asian trade, but prices
may remain rangebound as there is almost no sign that investors are
flocking to it as a shelter from virus volatility, said Jeffrey
Halley, a senior market analyst with Oanda.
Gold settled at a more than 7-week low on Thursday and while
most traders and investors believe Omicron "won't cause
catastrophic damage to the global economy, they prefer stocks over
safe havens," said Chintan Karnani, director of research at
Insignia Consultants. "Technical traders are also not buying as
short term technicals are bearish."
Copper prices were slightly lower, extending this week's
range-bound training pattern. The commodity's weakness Friday
follows more confirmed infections of the new Covid-19 strain in the
U.S., said Huatai Securities.
It reckons that current macroeconomic conditions, with inflation
concerns rising and high uncertainty over Omicron's potential
impact, would likely not help copper prices in the near term.
TODAY'S TOP HEADLINES
China Service Sector Growth Curbed by Covid Outbreaks in
November, PMI Data Show
A private gauge of China's service sector fell in November,
moving in line with the official index as the latest wave of
coronavirus outbreaks hurt demand and disrupted operations at
service companies.
The Caixin China Services purchasing managers index dropped to
52.1 in November from 53.8 in October, Caixin Media Co. and
research firm IHS Markit said Friday. The reading remained above
the 50-mark separating expansion from contraction.
Fed's Bostic Wants to Accelerate Pace of Bond Buying Taper
Federal Reserve Bank of Atlanta President Raphael Bostic said
Thursday he would like to get the Federal Reserve in position to
raise its short-term interest rate target next year if inflation
pressures don't retreat from currently high levels.
To get there, the Fed should accelerate the pace of its
drawdown, or tapering, of its monthly purchases of Treasury and
mortgage bonds, he said.
Senate Approves Spending Bill Averting Government Shutdown
WASHINGTON-Congress passed a short-term extension of government
funding and sent the legislation to President Biden's desk,
averting a partial shutdown after resolving a standoff over vaccine
rules.
Top Republicans and Democrats reached an agreement on the
spending plan Thursday morning to extend funding through Feb. 18,
then quickly maneuvered the legislation through both the House and
Senate before the expiration of current funding at 12:01 a.m.
Saturday. The legislation also includes $7 billion for assisting
evacuees from Afghanistan.
Elon Musk's Tesla Share-Selling Spree Tops $10 Billion
Elon Musk has now unloaded more than $10 billion in Tesla Inc.
stock as the billionaire's share-selling spree involving his
holdings in the electric-vehicle maker stretched into a second
month.
Mr. Musk on Thursday sold more than 934,000 Tesla shares valued
at just over $1 billion, according to regulatory filings. The sales
came as Mr. Musk exercised more than 2.1 million vested Tesla stock
options.
Chinese Developer Kaisa Fails to Agree on Bond Swap
Chinese property developer Kaisa Group Holdings Ltd. failed to
persuade bondholders to agree to a $400 million debt swap and
warned it might not be able to repay creditors when the bonds it
was trying to exchange mature next week.
Shenzhen-based Kaisa is one of the Chinese property sector's
biggest offshore borrowers, after China Evergrande Group, with
about $10.9 billion of dollar bonds outstanding as of the end of
June. In 2015, it became one of the first Chinese developers to
default abroad.
Write to paul.larkins@dowjones.com
Expected Major Events for Friday
00:01/UK: Nov BRC-Sensormatic IQ Footfall Monitor
01:01/IRL: Nov Ireland Services PMI
07:00/TUR: Nov PPI
07:00/TUR: Nov CPI
07:00/ROM: Oct Retail trade
07:45/FRA: Oct Industrial production index
08:00/HUN: Oct Retail Sales
08:00/SVK: Oct Internal trade, incl Wholesale & Retail
08:00/SVK: 3Q GDP
08:00/SVK: 3Q Average monthly wage of employees
08:00/SVK: 3Q Labour Force Sample Survey: Employment &
unemployment
08:15/SPN: Nov Spain Services PMI
08:45/ITA: Nov Italy Services PMI
08:50/FRA: Nov France Services PMI
08:55/GER: Nov Germany Services PMI
09:00/EU: Nov Eurozone Services PMI
09:30/UK: Nov CIPS / Markit Services PMI
09:30/UK: Nov UK Official Reserves
09:30/UK: 3Q Bank of England external business stats
10:00/CYP: Nov Registered Unemployed
10:00/EU: Oct Retail trade
11:00/IRL: Nov Irish Live Register latest monthly figures
11:00/IRL: 3Q GDP
11:00/IRL: 3Q Balance of Payments
All times in GMT. Powered by Kantar Media and Dow Jones.
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This article is a text version of a Wall Street Journal
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(END) Dow Jones Newswires
December 03, 2021 00:35 ET (05:35 GMT)
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