Europe
Markets in Europe have seen a modest rebound after the bloodbath from Friday, with today’s recovery needing to be set into the context of the falls seen last week. The FTSE100 has outperformed, helped by a rebound in the oil price, while the DAX recovery has faded as the day has gone on, largely due to Germany’s problems getting to grips with the Delta variant, with the Omicron variant the least of its problems.
As a result of last week’s declines investor confidence has taken a knock, and while the main focus has been primarily on the surge of Delta cases, the prospect of an even more infectious Omicron variant hasn’t been received well, with today’s rebound being a cautious one at best.
With scientists and health professionals saying they need more time to assess the seriousness of this variant, the next few days are likely to be choppy ones for those sectors most exposed to further restrictions.
Travel and leisure stocks initially saw a strong showing in the morning session, however the bulk of these gains have largely disappeared, melting away quicker than last night’s snowfall, with IAG shares struggling to hang onto their early gains.
It seems likely that markets are less worried about the prospect of a new variant, than they are about respective government’s reactions to it, which have been much more aggressive than previously.
It is perhaps this concern, that having been behind the curve a year ago and then being forced to cancel Christmas plans at the last minute, that is behind this new aggressive approach, and that in going hard now, governments can give themselves wriggle room to allow a relaxation closer to the Christmas holiday period.
The fear is that travel bans, newly mandated mask wearing in shops and public transport have tended to be a slippery slope. One thing is certain is that further restrictions being imposed over the Christmas period, on populations that are for the most part double-jabbed, and well on the way to being triple jabbed, will be hugely unpopular, and more than likely get ignored, and it is this that is behind the more aggressive approach.
For now, it would appear that initial indications are that while the Omicron variant might be more infectious, it appears to manifest itself in a milder infection. If true this could present a problem for governments in terms of restrictions. Certain types of common cold are also coronaviruses, and are also very infectious, yet no-one is suggesting that we have lockdowns for that. If Omicron is similarly benign what will governments do then?
BT Group saw some early gains on reports that India’s Reliance group may be mulling a bid, a report that was subsequently denied, however there have also been reports that private equity is looking to acquire Openreach.
This is the latest in a long line of speculative reports into BT’s crown jewels, and while they may be a perfectly logical rationale for the splitting away of that business, its not immediately obvious why BT would consider doing such a thing when it is so reliant on Openreach to achieve its long-term growth goals. This isn’t the first time that an Openreach sale or selling a stake in it has been mooted and, in all honesty, it’s getting a bit boring, and for management it is a huge distraction to the job in hand, of rolling out its (FTTP) rollout network, which in November reached 6m premises.
The underperformance in the BT share price has already seen a £2bn investment from Altice back in June, which many have suggested could be a prelude to a takeover bid sometime in the next few months. While Altice President Patrick Drahi said that he wasn’t interested in making a bid in the short term, that certainly doesn’t preclude him getting more involved if he feels certain things could be done differently, or more effectively. Perhaps BT should get on with offloading its BT Sport unit, with streaming service DAZN said to be in the frame, so it is able to focus on the job in hand, as well as helping to boost its share price.
Also seeing some decent gains we’ve seen BP and Shell rebound on the back of the recovery in the oil price.
Johnson Matthey is also higher on the back of reports it has found a buyer for its battery business in the form of India’s Tata Chemicals.
US
US markets have seen a decent rebound after Friday’s half day sell-off, which was a pretty mild one, when compared to the falls seen in the European trading session.
Pending home sales for October saw a rise of 7.5%, beating expectations of a rise of 1%.
BioNTech shares are higher after the company reported it is working on a new adapted covid-19 vaccine, based on the new variant. Moderna has also seen its shares follow suit, while Pfizer has continued to make new record highs.
Twitter shares have popped higher after it was reported that Jack Dorsey would be stepping down as CEO of the business. He has previously been accused of being a part time CEO, he also runs Square, which helps explain today’s share price reaction. The hope is that new CEO Parag Agrawal will be able to devote 100% of his energy to stop the bleeding in the share price, from this year’s peaks at $80.
FX
The US dollar is enjoying a modest rebound after Friday’s sharp falls as sentiment stabilises after the big falls at the end of last week. That means the gains seen in the euro in particular have started to ebb away despite German CPI hitting 6%, and Spanish CPI hitting its highest levels in 30 years, driven up by higher food and energy costs.
Commodities
Crude oil prices have rebounded after Friday’s big plunge, largely on the basis that Friday’s 13% fall was overdone. There’s a lot to be said for this given that even without the extra restrictions, the outlook for demand isn’t likely to deteriorate that much given that the weather is likely to get colder, and with gas prices set to remain high, demand for oil is likely to remain robust.
Gold prices are feeling the drag from a stronger US dollar and a recovery in yields, remaining below the $1,800 level, after Friday’s brief spike to $1,815.
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