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MARKET WRAPS

Stocks:

Stocks in Europe continued to rally Tuesday as investors bet that the impact of the Omicron variant of Covid-19 would be milder than previously thought.

Hopes that the new strain will have a less pronounced impact on travel and consumer confidence have bolstered stocks this week. Scientists and vaccine makers are still assessing the severity of Omicron and how well existing vaccines may work against it. Lower trading volumes in the lead-up to the holidays are likely to cause exaggerated moves in either direction, analysts said.

Further good news on the virus came as GlaxoSmithKline said that new preclinical studies demonstrated that its sotrovimab antibody retains activity the variant.

"We're in this period where investors are grappling for any news they can find and that, coupled with low liquidity, is leading to some big moves," said Hugh Gimber, a strategist at J.P. Morgan Asset Management.

China's efforts to inject liquidity into the financial system has also helped reassured investors that the slowdown in the world's second-largest economy will be managed, Mr. Gimber said.

Shares on the Move:

SSE shares were down 0.3% after activist fund Elliott renewed its attack on the energy group. Following Elliott's letter to SSE calling for the company to separate the renewables and the networks businesses, RBC Capital Markets said it agrees with most points being made by Elliott, although a change of course from SSE management could be some way away.

Elliott, one of the largest SSE shareholders, said the group has potential for a 2,100 pence share price, implying GBP5 billion upside from current levels. However, RBC values the FTSE 100 energy company at 1,800 pence.

"Hence we see less upside to our valuation on the renewables side and see plenty of attractive alternatives for investors to gain exposure to this there [notably RWE and Enel]," RBC said.

Economic News:

German industrial output increased 2.8% in October on month, beating forecasts due to a rebound in auto production. Manufacturing could make a positive contribution to economic growth in the fourth quarter, partially offsetting the pandemic-related slump in services, analysts said.

Economic Insight:

November appears to have been another good month for retailers in the U.K., said Pantheon Macroeconomics' chief eurozone economist Claus Vistesen. Year-on-year growth in total sales values increased to 5% in November from 1.3% in October. However, Vistesen said the pick-up in growth in total sales primarily reflected the impact of the lockdown a year ago.

The fourth quarter is likely to end on a bad note for retailers, Vistesen said. Shoppers probably have purchased Christmas gifts earlier than usual this year due to concerns about product availability. In addition, Omicron already has had an impact on consumers' willingness to visit shops, and to a larger extent hospitality venues.

U.S. Markets:

Stock futures pointed to a second day of gains, as markets continued to take the view expressed by Dr. Anthony Fauci that early indications about Omicron are that it's less dangerous than the delta variant.

More concerning to traders, however, is Russia's buildup of troops along the border of Ukraine. President Biden is due to hold a video call on Tuesday with Russian President Vladimir Putin.

On the corporate front, Intel shares surged in premarket trade on a plan to list shares in its Mobileye self-driving-car unit.

Forex:

EUR/USD was flat even as the dollar weakened on reduced safe-haven demand after early hospital data from South Africa suggested Omicron could result in less severe illness than previous waves.

ING said the euro's role as a funding currency limits its scope to rise versus the dollar as investors return to risky assets following an easing of concerns about Omicron, said ING.

"With the eurozone growth outlook already partly compromised by restrictions in Germany and other eurozone countries, and the European Central Bank sticking to a broadly dovish tone, the euro may be facing more pressure regardless of Omicron-related sentiment," said ING, adding EUR/USD could re-test 1.1200 this week.

The Bank of England is likely to hold off on raising interest rates at its Dec. 16 meeting but that won't have a material impact on sterling, said Commerzbank.

"The current coronavirus situation and the uncertainty in this context make a rate hike in December seem increasingly unlikely," said Commerzbank currency analyst You-Na Park-Heger. However, this is largely priced in by the market so sterling could stabilize at current levels for now, she said.

Bonds:

Trend reversal in German Bund yields isn't in sight yet, said DZ Bank's analyst Sophia Oertmann, adding that the recent drop in Bund yields is due to worries about the Omicron coronavirus variant.

"After concerns about persistently high inflation rates dominated market activity for a long time, Corona-related economic worries, which were recently reinforced by the Omicron variant, drove yields of the EMU [eurozone] core segment southwards at the beginning of November," she said.

As a result, safe-haven government bonds, such as German Bunds and Dutch DSLs in longer maturities are trading at rather expensive levels.

Morgan Stanley Wealth Management estimates the 10-year Treasury yield will rise to 2.1% by December 2022, given forecasts for strong growth, receding but above-normal inflation and the Fed's patience over interest-rate hikes.

It attributes most of the expected upward move to 10-year real yields resetting to -0.30% from -1.06%, as inflation breakeven rates have likely peaked.

Commodities:

Crude futures rose more than 2% in Europe as fears over the impact of the Omicron variant eased and as Iranian oil seems unlikely to reach the market any time soon.

According to Commerzbank, prices are continuing their recovery after an almost 5% rebound on Monday, with Omicron appearing to be less severe than the previously dominant variant. "If this is confirmed, the effects on oil demand are likely to be far less severe than suggested by the dramatic collapse in price."

As far as Iran goes, Commerzbank said it expect U.S. sanctions to remain in place still for quite a while after last week's talks.

Gold gained ground as the dollar weakened. Oanda said the precious metal may consolidate in a $1,750-$1,800 trading range on growing optimism over Omicron.

DOW JONES NEWSPLUS

EMEA HEADLINES

Glaxo Says Its Covid-19 Antibody Drug Works Against Omicron

GlaxoSmithKline PLC and Vir Biotechnology Inc. said their Covid-19 antibody treatment retained effectiveness against the Omicron variant in laboratory studies, even as early data suggests that similar treatments work less well against the highly mutated strain.

The results provide hope that at least one monoclonal antibody therapy-a form of treatment that has proven useful in blunting severe disease-will remain effective against Omicron, which has been detected in dozens of countries including the U.S. since it was identified by scientists in South Africa two weeks ago.

German Economic Expectations Declined in December

Economic expectations in Germany dropped in December due to the worsening of the health situation, the ZEW economic research institute said Tuesday.

The measure of economic expectations fell to 29.9 in December from 31.7 in November. Economists polled by The Wall Street Journal forecast this component at 25.0 points.

German Industrial Production Rebounded in October, Beating Forecasts

German industrial production rose in October, although supply-chain bottlenecks continue.

Total industrial output--comprising production in manufacturing, energy and construction--increased 2.8% on month in October in calendar-adjusted terms, statistics office Destatis said Tuesday. Economists polled by The Wall Street Journal had forecast a 1.0% increase.

Eurozone Economy Grew Strongly in 3Q, Confirming Second Estimate

The eurozone economy expanded at a strong pace in the third quarter, almost fully recovering the gap from the Covid-19-induced recession, but growth is expected to slow sharply in the months ahead as the boost from the reopening fades.

The eurozone's gross domestic product expanded by 2.2% from July to September compared with the prior three-month period, according to the final GDP release of the European Union's statistics agency, confirming the second estimate released on Nov. 16.

Stellantis Aims for EUR20 Bln in Additional E-Vehicle Revenue by 2030

Stellantis NV said Tuesday that it is targeting around 20 billion euros ($22.57 billion) in additional annual revenue by 2030 through a rollout of new e-vehicle platforms.

The car maker said it would target EUR4 billion in incremental annual sales by 2026, generated by software-enabled products and subscriptions, rising to EUR20 billion by the end of the decade.

Elliott Calls on SSE to Restore Investor Confidence

Elliott Advisors (UK) Ltd., one of the largest shareholders in SSE PLC, on Tuesday called for the board to restore investor confidence and continued its push for the energy company to spin off its renewables division.

The Elliott Management Corp. subsidiary, which has been pushing for the separation of SSE's renewables business from the rest of the company, said in a letter to Chairman John Manzoni that it was challenging the energy company to provide a plan to address investor concerns around its corporate governance, its ability to fund growth in the long term, and its "persistent undervaluation."

ABB Boosts Growth Targets But Flags Enduring Supply-Chain Concerns

ABB Ltd. on Tuesday updated its targets ahead of its capital markets day, raising its earnings expectations but flagging supply-chain issues that will persist into 2022.

The Swiss engineering company increased its growth target to 4%-7% through the economic cycle, alongside honing its outlook for operational earnings before interest, taxes and amortization to at least 15% as from 2023.

British American Tobacco Backs 2021 Revenue Growth Guidance

British American Tobacco PLC backed its revenue growth guidance on Tuesday, and said that it recognizes the value of a share buyback.

The tobacco company said it continues to expect revenue growth for 2021 to be above 5% at constant currency as it is benefiting from strong new-category revenue growth. New categories will contribute to profit growth for the first time as their losses start to reduce, it said.

Babcock International Swung to 1H Pretax Profit

Babcock International Group PLC on Tuesday reported a swing to pretax profit for the first half of its fiscal 2022 as it recovered from coronavirus-related effects.

The U.K. engineering company, a major contractor for the U.K. government, said that for the six months ended Sept. 30, pretax profit was 58.8 million pounds ($78 million) compared with a loss of GBP811.6 million for the first half of fiscal 2021.

Ashtead Posts Improved 2Q Profit, Sees Full-Year Performance Ahead of Views

Ashtead Group PLC on Tuesday reported a higher profit for the second quarter of its fiscal year, and said it expects full-year performance to be ahead of its previous expectations.

The U.K. equipment rental company made a pretax profit of $474 million for the three months ended Oct. 31, up from $405 million a year earlier.

Europe Tops China in Spawning $1 Billion Tech Startups

BRUSSELS-Europe has overtaken China in creating billion-dollar tech startups, according to a new analysis that points to Europe's rising status in the field and the effect of Beijing's crackdown on capitalist entrepreneurialism.

Over the past year, China has reined in its most successful and freewheeling tech giants, including Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Didi Global Inc., casting a chill across the whole sector. Europe, meanwhile, has attracted further investment in its expanding tech industry, particularly from U.S. funds.

VW's CEO Likely to Survive Latest Clash With Labor

BERLIN-Volkswagen AG CEO Herbert Diess is likely to survive his latest clash with labor representatives over the pace of the company's transformation to an electric-vehicle maker after weeks of negotiations produced a compromise that would strip the outspoken executive of some of his duties, people familiar with the talks said Monday.

Mr. Diess has been under fire for weeks since warning the company's board of directors in the fall that unless VW greatly accelerated its shift to electric vehicles it could lose up to 30,000 jobs at its main operations in Wolfsburg, Germany, around half of the workforce at the plant.

Saudi Aramco Sells Stake in Natural-Gas Pipeline Business

Saudi Aramco agreed to sell a 49% stake in its natural-gas pipeline business to a consortium led by BlackRock Inc. and Saudi-backed Hassana Investment Co. for $15.5 billion-the state-owned oil giant's latest move to pull cash out of its vast energy infrastructure.

The deal follows a pattern used when Aramco agreed to sell a similar sized stake in its oil pipeline network in April for $12.4 billion to a group led by EIG Global Energy Partners. Aramco, officially called the Saudi Arabian Oil Co., said Monday it had formed a new subsidiary, Aramco Gas Pipelines Co., that will lease usage rights in Aramco's gas-pipelines network. It agreed to sell 49% of the new company to the consortium led by BlackRock unit BlackRock Real Assets and Hassana. Hassana is the asset-management arm of Saudi Arabia's General Organization for Social Insurance.

Budweiser Tries to Make Beer Stocks Fashionable Again

Budweiser's new boss thinks beer has as bright a future as liquor. Shareholders aren't swallowing it yet.

Michel Doukeris, who took over as chief executive of Anheuser Busch InBev in July, set out his strategy for the world's biggest brewer at an investor day Monday. He plans to grow earnings before interest, taxes, depreciation and amortization by 4% to 8% a year "over the medium term."

MTIP, a Swiss Healthtech Investor, Raises $250 Million for Its Second Fund

Swiss healthtech private-equity firm MTIP AG has collected $250 million for its second investment fund, with the goal of backing companies at the nexus of two expanding industry sectors.

Based in Basel, the firm said it closed the fund above its $225 million target. The first fund-a "proof of concept" vehicle-collected $65 million in 2016, according to Christoph Kausch, managing partner of the firm.

U.K. Retail Sales Rose in November on Black Friday Boost

Retail sales in the U.K. rose in November compared with the year before, according to the latest report by KPMG and the British Retail Consortium.

British retail sales between Oct. 31 and Nov. 27 rose 5.0% compared with the same period a year before, the report found. This was well above growth of 0.9% noted in November 2020, and exceeds the three-month average growth rate of 2.2%.

GLOBAL NEWS

China's Exports Stay Strong as Surplus Contracts in November

BEIJING-China's exports beat market expectations in November, though the growth rate decelerated from October due to a higher base compared with the same period a year earlier.

Outbound shipments rose 22% from a year earlier in November, slowing from a 27% increase in October, the General Administration of Customs said Tuesday. The result surpassed the 16.1% growth rate expected by economists polled by The Wall Street Journal.

RBA Says Omicron Won't Derail Economic Recovery

SYDNEY-The Reserve Bank of Australia left its official cash rate steady at 0.10% at its monthly policy meeting Tuesday, indicating it will be some time before the required conditions for an increase will be in place and addressing concerns about the Omicron variant of the Covid-19 virus.

"The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery," RBA Gov. Philip Lowe said in a statement. "The economy is expected to return to its pre-Delta path in the first half of 2022."

U.S. Weighs New Rules for All-Cash Real-Estate Deals

The real-estate sector faces the possibility of stepped-up regulatory scrutiny comparable to the controls affecting banks, as part of a U.S. push to fight money laundering and corruption.

The Treasury Department's Financial Crimes Enforcement Network, an anti-money-laundering enforcer, said Monday that it was seeking public comment on its plan to apply more scrutiny to all-cash real-estate transactions.

Balmy Forecasts Send Natural Gas Prices Plunging

The threat of sky-high heating bills is melting away.

Unusually warm weather pushed U.S. natural gas futures down 11.5% on Monday to $3.657 per million British thermal units. That is down more than 40% from October's peak, erasing a run-up that stoked fears of exorbitant heating bills biting into household budgets and manufacturers' balance sheets already stressed by broad inflation.

CIA Chief Says Intelligence Agencies Haven't Concluded Russia Will Invade Ukraine

WASHINGTON-U. S. intelligence agencies haven't concluded that Russian President Vladimir Putin will invade Ukraine, but he has assembled military forces that "could act in a very sweeping way" and may see an opportunity to move this winter, CIA Director William Burns said Monday.

"I would never underestimate President Putin's risk appetite on Ukraine, " Mr. Burns said at The Wall Street Journal's CEO Council Summit. He noted remarks Mr. Putin has made that Moscow should have significant influence over Ukraine, a neighbor.

Biden to Warn Putin Off Invasion of Ukraine

WASHINGTON-President Biden spoke Monday with European allies ahead of a call with Vladimir Putin in which he will warn the Russian president not to invade Ukraine, officials said.

Mr. Biden "will make clear that there will be very real costs should Russia choose to proceed, but he will also make clear that there is an effective way forward with respect to diplomacy," a senior administration official said about the call with Mr. Putin scheduled for Tuesday.

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(END) Dow Jones Newswires

December 07, 2021 06:05 ET (11:05 GMT)

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