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.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
December 07, 2021 06:05 ET (11:05 GMT)
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