MARKET WRAPS

Stocks:

European stocks fell more than 1% Tuesday, as downbeat comments on coronavirus variants from vaccine manufacturer Moderna unsettled investors. Oil- and travel-related stocks were among the biggest fallers.

"It only took one comment from the boss of drug firm Moderna to derail markets once again. Stephane Bancel said he believed existing vaccines would struggle with the Omicron variant, leading to a renewed selloff in shares and oil," AJ Bell investment director Russ Mould said. "Markets hate uncertainty and this is precisely what we have now."

Shares on the move:

Air France-KLM shares were down 4%, with other stocks in the sector also weaker. HSBC has downgraded the Franco-Dutch airline to reduce from hold on the back of the Omicron news.

The bank said Air France-KLM has a large amount of debt and was planning to further restructure its balance sheet before the emergence of Omicron, which could make a recapitalization more dilutive than it would have been otherwise.

"In practical terms, we believe there is a risk that the balance sheet restructuring could be more dilutive than we previously anticipated" due to a more depressed trading environment, HSBC said.

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Schneider Electric stock rose 1.1% and Berenberg said the company's new medium-term forecasts, issued ahead of its capital markets day, are bullish.

Targets to 2024 guide for organic-revenue growth of 5%-8% on average, ahead of company-compiled consensus forecasting 5.4% and 4.9% for FY 2022 and FY 2023, respectively, Berenberg said. Longer-term ambitions are for organic-revenue growth of 5% across the economic cycle, though something closer to around 3% is priced in, according to Berenberg.

Since the company delivered on its 2019 objectives 18 months ahead of schedule, estimates shouldn't need to move much higher for shares to perform, the bank added. Berenberg has kept its buy rating on the stock, with a EUR175 target price.

Market Insight:

Markets are set to face increased volatility in 2022, even as central banks will probably approach the tapering of asset purchases and changes to interest rates in a controlled and prudent manner, said Christel Rendu de Lint, deputy head of investment at Vontobel.

"Indeed, taking a controlled and prudent approach to bond purchases and interest rates will play a central role in ensuring that the economy has a soft landing without an abrupt end to growth," she said. For central banks, this will be a "tightrope act." The Federal Reserve, which has a dual mandate of price stability and maximum sustainable employment, is probably the best-positioned among central banks to perform this balancing act, she said.

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In the favorable scenario in which existing vaccines are effective against the new Omicron variant, the travel recovery in Europe should only be delayed by a quarter due to the renewed restrictions put in place to fight the more contagious Covid-19 strain, HSBC has forecast.

"The current outlook for aviation stocks will likely be shaped by the effectiveness of vaccines against the new Omicron variant." Less favorable scenarios on vaccines effectiveness could mean that recovery could be delayed by up to one full year, HSBC said.

Economic News:

Eurozone inflation rose by 4.9% year-on-year in November, driven mainly by higher energy prices, even when all components saw marked accelerations, said Oxford Economics.

There isn't much the European Central Bank can do about higher energy prices and supply bottlenecks in the short-term, but the latest data will add to the debate on the appropriate level of policy support, said Oxford Economics' economist Katharina Koenz.

Oxford Economics still expects energy and goods price pressures to ease next year thanks to supply constraints fading. Therefore, the economic research group sticks to its view that inflation will slow meaningfully over the course of 2022.

Germany's labor-market recovery continued in the fourth quarter, consistent with the headline business survey data, and despite clear evidence that GDP growth is now slowing sharply, Pantheon Macroeconomics' senior Europe economist Melanie Debono said.

Jobless claims fell by 34,000 on month after declining by 40,000 in October. The fall in jobless claims is positive, especially given softening leading labor market indicators, Debono added. The smoothed trend in claims is now weakening, however, and Debono says she doubts jobless claims will continue to fall by 35,000 to 40,000 per month through the rest of the fourth quarter.

Pantheon forecasts a slowdown in the pace of decline in jobless claims, to between 15,000 to 20,000 a month.

U.S. Markets:

Stock futures fell and investors sheltered in government bonds after drugmakers raised concerns that Covid-19 vaccines won't work as well against the new Omicron strain.

Investors awaited testimony from Jerome Powell for clues on how the new variant might impact the outlook for inflation and interest-rate rises. Powell is expected to say that the new strain could intensify the supply-chain issues that have fueled a spike in inflation.

Should the Omicron strain prompt fresh lockdowns it would put the central bank in a difficult position by worsening inflation and strengthening calls for rate rises just as the economy and markets take a hit, said Seema Shah, chief strategist at Principal Global Investors.

"We had been starting to see this glimmer of hope that some of the supply-side constraints were starting to ease," she said. "If we go back into fear mode you would be looking at those supply-side bottlenecks being exacerbated."

Also in focus will be data on house prices and consumer confidence. Earnings from Salesforce.com and Hewlett Packard Enterprise are due after markets close.

Forex:

Swings in market sentiment related to the Omicron coronavirus variant are likely to be the main driver of the euro Tuesday, ING said.

"A popular funding currency before the Omicron-induced correction, it is likely that we need to see some confidence being re-built into risk trades to see the EUR depreciate across the board," ING forex strategist Francesco Pesole said. The low-yielding euro is used to fund the purchase of more risky currencies with higher yields in so-called carry trades.

The dollar was lower, particularly against the euro, yen and Swiss franc, as market sentiment was jolted by renewed concern about the Omicron variant. The buck's fall was exacerbated by Jerome Powell's comments that the variant could exacerbate inflation uncertainty and slow labor-market progress.

"Omicron fears have prompted market participants to scale back expectations for tighter Fed policy, which is also helping to trigger the correction lower in U.S. yields and USD/JPY," said MUFG currency analyst Lee Hardman.

ING said Omicron poses a threat to the pound's outlook. "A worsening of the virus situation globally and specifically in the U.K. may not only put upward pressure on EUR/GBP due to the pound's higher sensitivity to risk sentiment but may also mean markets could increasingly price out a December [interest] rate hike by the Bank of England."

While it's too early to draw conclusions on that, a "choppy risk environment" may lift EUR/GBP on Tuesday, ING forex strategist Francesco Pesole said.

Bonds:

Eurozone 10-year government bond yields were lower as the market shifted into a risk-off mood.

"Relief sentiment faded on sobering vaccine news," Michael Leister, head of interest rates strategy at Commerzbank, said.

Deutsche Bank said the 10-year German Bund yield is set to turn into positive territory for the first time in years in 2022, forecasting the end-2022 level at 0.20%.

Long-term Treasury yields should continue to be driven by the continuing recovery in economic indicators, particularly on the labor side, Deutsche added.

Ulrich Stephan, chief investment strategist for private and corporate clients sees the yield on the 10-year Treasury yield at 2% by the end of 2022, but he doesn't rule out an overshooting of that level in the first half of the year.

Commodities:

Oil fell sharply in Europe, with prices now around flat for the week so far after volatility Friday and Monday over the feared effects of the Omicron coronavirus variant.

However "it is still too early to sensibly assess the risk that Omicron poses and this uncertainty is likely to add further volatility to the oil market," said ING's Warren Patterson. "The uncertainty of this latest variant will also make the job of OPEC+ more difficult."

OPEC's preliminary meetings have been delayed to later in the week, and with the full meeting going ahead Thursday "we would not rule out the group pausing its supply increases over January," Patterson said.

Copper prices also fell, with ING saying that while the severity of Omicron remains a big uncertainty, it casts a shadow over demand growth in the near future and further complicates the supply chain.

DOW JONES NEWSPLUS

EMEA HEADLINES

EasyJet FY 2021 Pretax Loss Narrowed, Revenue Fell Due to Covid-19

EasyJet PLC said Tuesday that its fiscal 2021 pretax loss narrowed, beating market expectations on the back of reduced costs and that it expects to recover further in the new year, though revenue fell.

The U.K. budget airline said that for the year ended Sept. 30, its pretax loss was 1.04 billion pounds ($1.38 billion) compared with a loss of GBP1.27 billion for fiscal 2020, and consensus of a loss of GBP1.13 billion based on the forecasts of seven analysts taken from FactSet. EasyJet said its restructuring of its cost base led to line-by-line cost savings in every area of its business, with further cost savings under way.

Volvo Cars 3Q Net Profit Fell; Backs Full-Year Guidance

Volvo Cars AB on Tuesday reported a drop in third-quarter net profit as semiconductor shortages and Covid-19 outbreaks in Southeast Asia led to temporary production halts, though the auto maker backed full-year guidance amid strong demand.

In its first quarterly report since listing on Nasdaq Stockholm, Volvo Cars said third-quarter production was approximately 50,000 cars lower than a year earlier, while preliminary figures for November show sales volumes of about 52,000 cars, down on the year due to lower production and build-up of in-transit inventory.

SAS 4Q Net Loss Narrowed as Demand Continued to Increase

Scandinavian airline SAS AB said Tuesday that its fiscal fourth-quarter net loss narrowed as customer demand and ticket sales continued to increase, but cautioned that uncertainties over the development of the Covid-19 pandemic remain.

For the quarter ended Oct. 31, the carrier posted a net loss of 744 million kronor ($81.7 million) compared with a loss of SEK2.57 billion a year earlier, as revenue rose 90% to SEK5.76 billion.

Schneider Electric Sets Targets for 2022-24

Schneider Electric SE on Tuesday set targets for the 2022-24 period ahead of the start of its capital markets day.

The French energy-management and automation specialist said it will target 5%-8% organic revenue growth on average for the period, and that it expects to have free cash flow of about 4 billion euros ($4.52 billion) by 2024.

Inditex Appoints Founder's Daughter as Chairwoman

Industria de Diseno Textil SA on Tuesday said Marta Ortega Perez, the daughter of the Spanish fashion group's founder, is set to become its chairwoman.

Ms. Ortega will succeed Pablo Isla Alvarez, executive chairman since 2011, who will resign his position effective March 31, 2022, the company said. Ms. Ortega's father, Amancio Ortega, founded the La Coruna-based company, which owns fashion brands including Zara and Pull & Bear.

U.S., Allies Weigh Response to Russian Military Buildup Around Ukraine

RIGA, Latvia-NATO foreign ministers are meeting here Tuesday to calibrate a response to Russia's military buildup around Ukraine, seeking to deter the Kremlin from any potential assault while making clear the limits of its support.

Concern over the Russian buildup has risen in recent weeks. The U.S. has briefed allies that Moscow could launch a new military operation in Ukraine, following its seizing of Crimea and covert invasion of its neighbor's east in 2014. Russia, which wants to draw the former Soviet republic back into its orbit, says it has no plans to invade and can move troops as it wishes on its sovereign territory.

Iran Doubles Down on Demands as Nuclear Talks Resume

VIENNA-Iran made many demands as it resumed talks Monday with the U.S. and other world powers aimed at salvaging the 2015 nuclear deal, doubling down on its position before negotiations first started in the spring and raising doubts over an early breakthrough.

The talks, taking place in the Austrian capital amid a strict coronavirus lockdown, are intended to agree on the steps Iran and the U.S. will take to return into compliance with the 2015 deal, which lifted most international sanctions on Tehran in exchange for strict but temporary restrictions on Iran's nuclear work.

Omicron Variant Drives Rise in Covid-19 Hospitalizations in South Africa Hot Spot

JOHANNESBURG-The emergence of the Omicron variant of the coronavirus in South Africa has driven a sharp increase in Covid-19 hospitalizations in the country's hot-spot province over the past two weeks, although fewer patients are being treated for severe disease than in previous surges, the country's National Institute for Communicable Diseases said.

There has also been an unusually high number of hospitalizations of children under 2 years old around the capital, Pretoria, where cases started rising first, although some of these may be precautionary, the institute said.

Turkey's Lira Crisis Exposes Reliance on Imported Energy

Turkey's currency crisis has exposed a key weakness in its economy: a near total dependence on imported energy to keep households warm and factories humming.

Turkey is surrounded by some of the world's richest reserves of fossil fuels, in the Middle East and Central Asia, but produces little oil, gas or coal of its own. The country imports 93% of the oil and 99% of the gas it consumes, a vulnerability when energy prices in dollars climb and the lira slides.

GLOBAL NEWS

Covid-19 Variant Omicron Threatens U.S., Global Economies

The global economy could suffer a modest blow from the Omicron variant of Covid-19, though the scale of damage will hinge on the potency of the strain itself, economists say.

Tourism spending will likely weaken, and perhaps so too will restaurant spending and shopping at stores. But compared with the initial wave of Covid-19 in March 2020 and the Delta variant this summer, Omicron's threat to economies will likely be less severe, economists say, in part because each new virus strain has had a diminished economic impact.

Gas Prices Pressure Drivers' Finances

Rachel Gould spends $50 on gas taking her two special-needs children on the three-hour trip from her home in Central Illinois to a hospital in St. Louis. That is roughly a 60% increase from the same time last year.

"You have to have gas and have to pay for it either way you look at it," said Mrs. Gould, who drives a Dodge Caravan that gets 23 miles to the gallon.

America's Power Plants Are Low on Coal

A lump of coal would be a welcome gift for many U.S. utilities.

Coal piles at power plants have dwindled to their lowest point since the 1970s, and the race to build up inventories ahead of heating season has sent domestic thermal coal prices to their highest levels in more than a decade.

New Omicron Variant Exacerbates Inflation Uncertainty, Powell Says

The new Omicron coronavirus variant risks intensifying supply-chain disruptions that have fueled a surge in inflation this year, Federal Reserve Chairman Jerome Powell said in testimony released Monday afternoon.

Mr. Powell is set to appear before the Senate Banking Committee alongside Treasury Secretary Janet Yellen on Tuesday morning.

China Manufacturing Gauge Shows Rebound in November

BEIJING-An official gauge of China's manufacturing unexpectedly rebounded to expansion in November, ending a two-month contraction resulting from a power crunch.

The official manufacturing purchasing managers index rose to 50.1 in November from October's 49.2, the National Bureau of Statistics said Tuesday.

FDA Moving to Authorize Pfizer-BioNTech Booster for 16-, 17-Year-Olds

The Food and Drug Administration could authorize Covid-19 boosters from Pfizer Inc. and BioNTech SE for use in 16- and 17-year olds as soon as next week as concerns rise over a new, possibly more transmissible variant, according to a person familiar with the planning.

The agency is planning to move rapidly to take action on a request by the companies to authorize boosters for 16- and-17 year olds, according to a person familiar with the matter. So far, only people 18 years and older are eligible for boosters.

Omicron Crept Into Australia After Strict Border Rules Were Eased

Two days before Australia tightened border controls in response to the new Omicron variant of Covid-19, a woman arrived in Sydney on a one-stop flight from southern Africa and visited several shops before heading up the coast.

Health officials in New South Wales, the country's most populous state, said the woman was infected with the Omicron variant of Covid-19. They are now racing to map her movements and identify contacts in an effort to prevent the virus from spreading in the community.

Pentagon to Investigate 2019 Syria Airstrike That Killed Women and Children

WASHINGTON-Defense Secretary Lloyd Austin has ordered an investigation into a 2019 U.S. strike in Syria that killed dozens of people, including women and children, but that wasn't publicly acknowledged by the military until this year, the Defense Department said Monday.

Gen. Michael X. Garrett, who is in charge of Army Forces Command, will lead the inquiry and will look at the number of civilians killed, whether the U.S. complied with the laws of war in launching the attack, how the military records such events, and whether anyone should be held accountable for the deaths, Pentagon spokesman John Kirby said.

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(END) Dow Jones Newswires

November 30, 2021 06:18 ET (11:18 GMT)

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