- Choppy session for European equities
- Best performing oil and gas stocks
- Miners and banks fall
- Wall Street futures soar
- All eyes on NFPs
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BRITISH EQUITIES: WHAT TO BOOSTER? (1259 GMT)
There is a feeling of ‘déjà vu’ when it comes to the rapid rollout in the UK of COVID-19 vaccine booster shots.
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Britain has again taken the lead on this front as it did, during the winter of 2020/2021, overtaking the European Union at the start of the vaccination campaign.
At the time, many strategists believed UK stocks would have an advantage and be able to catch up with their continental peers as the UK economy gained new momentum and reopened earlier than across the Channel.
This has not happened and so far in 2021 the FTSE 100 is up 10.75% versus 16.80% for the pan-European STOXX 600.
The latter also benefits from a higher PE ratio of 17.1 against 14.7 for its British counterpart.
Deutsche Bank analysts today wondered in a research note whether the pound itself could get a competitive boost from the stimulus campaign.
The UK, noted DB, is “among the best protected places in the developed world against Omicron” thanks to the successful recall program.
But that might not be enough for the UK currency to thrive against its peers.
“This relative advantage would very likely be drowned if a worsening of the global situation led to a further correction in global equities,” fear the strategists of DB.
And the pound isn’t just action sensitive.
“The correlations show how the euro has been the dominant leg of the EURGBP in recent days, in part due to a reduction in short positions in the common currency,” add DB strategists.
For stocks anyway, it’s very clear that UK stocks haven’t benefited much from the vaccination campaign.
This graph below, which begins on December 8, 2020, the day the UK began its COVID-19 vaccination campaign, shows how the FTSE 100 and STOXX 600, both converted to dollars, fared behaved since until now.
As you can see, European equities, in blue, still have the upper hand:
ACTIONS IN 2022? OVERWEIGHT BOFA OVER SPAIN, ITALY (1159 GMT)
BofA changed its outlook on European equities, moving Spain to overweight and back Germany to market weight.
“Spanish and Italian stocks tend to benefit when European utilities and banks outperform, given the high share of market capitalization of these sectors in both countries,” BofA says in its 2022 European Equity Strategy Report, adding that ‘he confirmed the overweighting of Italy.
“We forecast an outperformance of around 10% for utilities thanks to the fading of euro area PMIs and banks aided by rising bond yields, as central banks become increasingly hawkish,” says he does.
The investment bank is reducing Germany to market weight given its forecast for declining PMIs, while it shifts Switzerland to market weight following recent strength.
It remains underweight British and French equities, given its expectations of energy underperformance and declining equity markets.
MARKETS SLOWLY TURN RED AS EUROPEAN BANKS DIVE (1105 GMT)
The downside buying that lifted European stocks at the open gradually faded into morning trading, with the STOXX 600 now flat and Wall Street futures falling into the red as well.
Much of the drag appears to be due to European banks which have slowly but steadily made their way into negative territory and are now down around 0.8%.
Lagarde spoke to Reuters this morning and it looks like what the wise owl from the ECB had to say didn’t go over well with shareholders of banking stocks.
“I see an inflation profile that looks like a bump,” Lagarde said in an interview with Reuters Next. “And a bump ends up going down,” she added, stressing that a rate hike was highly unlikely to happen in 2022.
Either way, markets may be slightly nervous this morning, but most analysts are still fairly bullish on risk assets and stocks next year.
“With consensus on earnings looking reasonable and valuations supported by real yields at bottom, the recent correction could ultimately create opportunities to reload risky assets as Omicron fears fade away,” Generali Investments says in a research note.
(Julien Ponthus and Stefano Rebaudo)
SWEDEN STEALS THE SHOW AT THE OPEN (0820 GMT)
As expected, European stocks opened in positive territory this morning.
What was less obvious was that two Swedish stocks would steal the show.
First, Swedish drugmaker Orphan Biovitrum, also known as “Sobi,” plunged 22% after US private equity firm Advent International and the Singapore sovereign wealth fund withdrew their offer after receiving low levels of acceptance.
Sobi is the worst performing stock in the STOXX 600, but another company in Abba’s country is also the best performing.
The trend climbs by nearly 10% after the announcement of a takeover which seems to be music to the ears of investors.
Leaving individual stocks aside, the session started in a clear risk-focused mood with travel and leisure stocks leading the way up 2.3%.
Concerns about the pandemic and the Omicron variant are still there, but some investors have decided that a tactical downside buy is in order.
Oil, gas and insurers are also up around 1%, while classic defensive games such as healthcare and consumer staples are almost flat.
It should be noted that although it is still very early on Wall Street, the mood there seems to be a little more cautious with mixed futures ahead of today’s NFPs.
OMICRON AND PAYROLL (TGIF) (0804 GMT)
Today’s non-farm payrolls, a reliable monthly snapshot of the US employment situation, comes in almost like an anti-climax. A more timely indicator, the weekly unemployment benefit lists released on Thursday, showed a figure below 2 million for the first time since last March and layoffs at their lowest level in three decades.
Along with strong data on consumption and the manufacturing sector, this indicates that the Federal Reserve will likely step up the pace of the unwinding of bond purchases, as its boss Jerome Powell has suggested.
It is also already assessed by the bond markets; the spread between two- and ten-year Treasury bill yields narrowed the smallest since June of this week.
Payrolls have the ability to surprise; a number shockingly lower than the 550,000 estimated by a poll of Reuters economists, would likely cause unrest. Especially since the data will not reflect the disruptions of the latest Omicron variant of COVID.
Omicron remains a source of volatility almost everywhere; German 10-year yields fell on the open and are back to their affected three-month lows on Thursday after Europe’s largest economy extended COVID brakes. And China’s service sector, vulnerable to COVID outbreaks and containment measures, stumbled in November, PMIs showed.
Asia has its own concerns, especially over relations between the United States and China. Hong Kong tech stocks (.HSTECH) fell to their lowest level in two months after Chinese company Didi (DIDI.N) moved its listing from New York to Hong Kong, while the Asian rideshare app Grab fell 20% on his Nasdaq debut. Read more .
Finally, don’t forget about Chinese real estate issues, with developer Kaisa facing imminent default. Read more
Either way, the mood may be on the rise. Thursday’s Wall Street rebound gave way to a weak Asian session, but European stocks opened more firmly.
Key developments that should provide more direction to the markets on Friday:
-US FTC sues to block Nvidia deal to buy Arm read more
– ECB speakers: President Lagarde, Chief Economist Philip Lane
-PMI end services everywhere
-Non-farm results in the United States
– Emerging markets: Turkey IPC
-Fitch to review Italy’s credit rating
EUROPE WILL EXPECT WEEKLY EARNINGS DESPITE OMICRON (07:36 GMT)
While European stocks have yet to fully recover from last Friday’s Omicron shock, the pan-European STOXX 600 is currently expected to post modest weekly gains despite a grim news feed.
In the grand scheme however, the European index currently sits at 465 points, around 3% below levels when the world was still unaware that a new variant of COVID-19 would trigger new travel restrictions.
With futures currently up around 0.6% this morning, falling buyers might be tempted to give it a try, but some might decide to wait to see more forecasted US employment data. late in the day.
While few analysts believe today’s NFPs could change the Fed’s new stance on inflation, some volatility after the data is likely.
Among the news that investors will be carefully weighing this morning is the decision by Chinese rideshare giant Didi Global to delist from New York City just five months after its debut and continue listing in Hong Kong.
US competition authorities are also seeking to block Nvidia’s $ 80 billion bid for UK chip technology provider Arm.
Speaking of mergers and acquisitions, Australian biopharmaceutical giant CSL is in exclusive talks to buy Swiss drug maker Vifor Pharma in a $ 7 billion deal, Australian media reported.
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