- Choppy session for European equities
- Oil and gas stocks best performers
- Miners and banks fall
- Wall Street futures tick up
- All eyes on NFPs
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UK EQUITIES: WHAT BOOSTER? (1259 GMT)
There is a sense of ‘déjà vu’ when it comes to the UK’s swift rollout of the COVID-19 vaccine booster jabs.
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Britain has again taken the lead on that front as it did, during the 2020/2021 winter, outpacing the European Union in the early days of the vaccination campaign.
Back at the time, many strategists believed UK equities would get an edge and be able to catch up with their continental peers with the British economy getting extra momentum and reopening sooner than across the Channel.
That didn’t happen and so far in 2021, the FTSE 100 is up 10.75% versus 16.80% for the pan-European STOXX 600.
The latter also enjoys a higher PE ratio of 17.1 against 14.7 for its UK counterpart.
Deutsche Bank analysts wondered in a research note today if sterling itself might not get a competitive boost from the booster campaign.
The UK, DB noted, is “amongst the best protected places in the developed world against Omicron” thanks to the successful booster program.
But that might not be enough for the British currency to thrive against its peers.
“This relative advantage would very likely be drowned out if a worsening global situation led to a further correction in global equities”, DB strategists fear.
And the pound is not only sensitive to stocks.
“Correlations show how the euro has been the dominant leg of EURGBP over recent days, partly driven by a reduction in short positioning in the common currency”, the DB strategists add.
For equities anyhow, it’s very clear UK equities didn’t get much help from the vaccine campaign.
This chart below, which begins on December 8 2020, the day the UK started its COVID-19 vaccination campaign, shows how the FTSE 100 and the STOXX 600, both converted in dollars, fared since until now.
As you can see European stocks, in blue, still have the upper hand:
EQUITIES IN 2022? BOFA OVERWEIGHT ON SPAIN, ITALY (1159 GMT)
BofA changed its outlook on European stocks lifting Spain to overweight and lowering Germany to marketweight.
“Spanish and Italian equities tend to benefit when European utilities and banks outperform, given these sectors’ high share of market cap in both countries,” BofA says in its 2022 European equity strategy report, adding it confirmed overweight on Italy.
“We expect around 10% outperformance for utilities on the back of fading Euro area PMIs and banks helped by rising bond yields, as central banks turn increasingly hawkish,” it argues.
The investment bank lowers Germany to marketweight given its expectation of fading PMIs, while it moves Switzerland to marketweight following the recent strength.
It remains underweight on the UK and France stocks, given its expectation of energy underperformance and equity market downside.
MARKETS SLOWLY TURN RED AS EUROPEAN BANKS DIVE DOWN (1105 GMT)
The buy the dip drive that was lifting European stocks at the open has gradually faded in morning trading with the STOXX 600 now flat and Wall Street futures also ticking down in the red.
Much of the drag seems to be due to European banks which have slowly but surely made their way to negative territory and are now down about 0.8%.
Lagarde spoke to Reuters this morning and it seems what the ECB’s wise owl had to say didn’t appeal much to shareholders in banking stocks.
“I see an inflation profile that looks like a hump,” Lagarde said in an interview at the Reuters Next conference. “And a hump eventually declines”, she added, stressing that it was very unlikely a rate hike would occur in 2022.
Anyhow, markets may be slightly nervous this morning but most analysts are still quite upbeat for risk assets and equities next year.
“With the earnings consensus looking reasonable and valuations supported by rock-bottom real yields, the recent correction may ultimately render opportunities for reloading risk assets as Omicron fears recede,” Generali Investments says in a research note.
(Julien Ponthus and Stefano Rebaudo)
SWEDEN STEALS THE SHOW AT THE OPEN (0820 GMT)
As was to be expected, European stocks opened in positive territory this morning.
What was less obvious was that two stocks from Sweden would steal the show.
First, Swedish drugmaker Orphan Biovitrum also known as ‘Sobi’ plunged a whopping 22% after U.S. private equity firm Advent International and Singapore’s sovereign wealth fund withdrew their bid after receiving low acceptance levels.
Sobi is the worst performing stock across the STOXX 600 but another company from Abba’s country is also the best performing one.
Evolution is rising close to 10% after announcing a buyback which seems to be music to the ears of investors.
Leaving individual stocks aside, the session has started on a clear risk-on mood with travel and leisure stocks leading the way with a 2.3% rise.
Worries about the pandemic and the Omicron variant are still here but some investors have decided that some tactical dip buying is in order.
Oil and gas and insurers are also cruising up about 1% while classic defensive plays such as healthcare and consumer staples are close to flat.
It must be noted that while it’s still very early on Wall Street, the mood there seems to be a bit more cautious with mixed futures before today’s NFPs.
OMICRON AND PAYROLLS (TGIF) (0804 GMT)
Today’s non-farm payrolls, a reliable monthly snapshot of the U.S. employment picture, almost comes as an anti-climax. A more timely indicator, weekly jobless benefits rolls released on Thursday, showed a sub-2 million figure for the first time since last March and layoffs at three-decade lows read more .
Alongside robust consumer and manufacturing data, it indicates the Federal Reserve will likely accelerate the pace of unwinding bond purchases, as its boss Jerome Powell has suggested.
It’s also already being priced by bond markets; the gap between two- and 10-year Treasury yields has narrowed the most since June this week.
Payrolls do have the capacity to surprise; a number shockingly below the 550,000 estimated by a Reuters poll of economists, would likely cause turmoil. Especially as the data won’t reflect disruptions from the latest Omicron variant of COVID.
Omicron remains a source of volatility mostly everywhere; German 10-year yields dropped at the open and are heading back to the three-month lows touched on Thursday after Europe’s biggest economy expanded COVID curbs. And China’s services sector, vulnerable to COVID outbreaks and containment measures, stumbled in November, PMIs showed.
Asia has specific worries of its own, not least over U.S.-China ties. Hong Kong tech shares (.HSTECH) dropped to a two-month low after news of China’s Didi (DIDI.N) shifting its listing from New York to Hong Kong, while fellow Asian ride-hailing app Grab fell 20% on its Nasdaq debut read more .
Finally don’t forget Chinese property problems, with deeveloper Kaisa risking an imminent default. read more
In any case, the mood may be perking up. Thursday’s Wall Street bounce gave way to a weak Asian session but European equities have opened firmer.
Key developments that should provide more direction to markets on Friday:
-U.S. FTC sues to block Nvidia deal to buy Arm read more
-ECB speakers: President Lagarde, chief economist Philip Lane
-Final services PMIs everywhere
-U.S non farm payrolls
-Emerging markets: Turkey CPI
-Fitch to review Italy credit rating
EUROPE SET TO PULL OFF WEEKLY GAINS DESPITE OMICRON (0736 GMT)
While European stocks have not yet fully recovered from last Friday’s Omicron shocker, the pan-European STOXX 600 is currently set to pull off modest weekly gains despite a grim newsflow.
In the grand scheme though, the European index currently stands at 465 points, about 3% below levels when the world was still unaware a new COVID-19 variant would trigger fresh travel restrictions.
With futures currently trading up about 0.6% this morning, dip buyers may be tempted to have a go but some may decide to wait to get a look at the U.S. job data scheduled later today.
While few analysts believe today’s NFPs could change the Fed’s new focus on inflation, some volatility after the data is likely.
Among the news investors will be carefully assessing this morning is the decision of Chinese ride-hailing giant Didi Global to delist from New York just five months after its debut and pursue a listing in Hong Kong.
Another one is U.S. competition authorities seeking to block Nvidia’s $80 billion bid for British chip technology provider Arm.
Talking about M&A, Australian biopharmaceutical giant CSL is in exclusive talks to buy Swiss drugmaker Vifor Pharma in a $7 billion deal, Australian media reported.
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