FTSE100 recovers its Omicron losses

Europe

European markets have picked up where they left off yesterday, with the FTSE100 back above 7,300, and back at the levels it was trading at prior to US Thanksgiving, when it closed at 7,301.

The DAX has also had another solid session despite a poor ZEW survey for December which slipped back into negative territory.

This week’s mood is in stark contrast to the hope and fear that bedevilled sentiment last week, as evidence continues to grow that Omicron, while more transmissible, doesn’t appear to be as virulent when it comes to hospitalisations. The milder nature of the symptoms appears to be encouraging investors to look past, the uncertainty of the past week or so, and focus more on the global recovery story.

The basic resource sector has been leading the gains in the London market, after the latest China trade numbers showed a big pickup in commodity demand, with iron ore imports hitting a 16-month high, led by Anglo American and BHP.

On the company reports front, it’s been a decent quarter for Ferguson posting a 26.6% rise in revenue to $6.8bn, boosting operating profits to $739m, a rise of 64.2%. Now free of its UK business, Wolseley, which it span off, the company says its expectations for the full year have increased, with Q2 continuing in the same vein as Q1 in terms of revenue growth.

Industrial equipment rental company Ashtead has reported a decent set of H1 numbers, with revenues rising 18% to $3.88bn, helping to boost profits before tax to $890m, a rise of 38%. The company also upgraded its full year forecasts and boosted the dividend by 28% to 12.5c a share, helping the company cement its position as the best performing FTSE100 company year to date.

Informa shares have taken a leap to the upside after the company announced plans at its Capital Markets day to sell its Informa Intelligence division, and invest the proceeds in its Markets and Knowledge Services, and Digital division, as well as returning £1bn to shareholders 

It’s not been a great year for the British American Tobacco share price, despite the business upgrading its constant currency revenue growth to above 5%, above the previous guidance of 3% to 5%, back in June.

The upgrade was driven by optimism over rising demand for alternatives, across all its ranges, and its markets. This has been borne out by the growth in its Vuse product which in September became the number one global vaping brand by market share. Today the company reiterated its 5% guidance, as it continued to benefit from the transition to new category products and remained on track to deliver £1.5bn of savings by the end of 2022.

US

US markets have picked up where they left off yesterday, jumping sharply higher as concerns over the severity of the Omicron variant diminish. The Nasdaq and Russell 2000 appear to be leading the charge higher, in the wake of the recent comments from Dr Anthony Fauci that most early cases have seen mild infections. 

On the companies front Intel is an early gainer after announcing that it was planning to spin off its self-driving unit Mobileye as an IPO in 2022, which is expected to be valued at around $50bn.

Apple shares have hit a new record high, after Morgan Stanley said it expects the company to benefit from virtual reality products and vehicles in 2022. 

We’re also seeing some decent gains in banks with Goldman Sachs leading the way despite a flattening yield curve as short-term rates rise faster than longer term rates, with the US 2 year yield hitting its highest level since March 2020.

FX

The Australian dollar has continued to make gains after today’s decision by the Reserve Bank of Australia to keep rates unchanged. While no changes in policy were forecast the central bank was expected to give a more optimistic outlook for the Australian economy after last week’s GDP numbers came in better than expected. It also wasn’t a surprise that the bank gave itself more flexibility in the area of future rate rises. It was never remotely credible that the RBA would commit itself to not raising rates before 2023. Today’s tweak to its guidance helps to address that.  

The pound has underperformed despite a decent retail sales report from the British Retail Consortium for November, which showed that consumers started their Christmas shopping early over concern over shipping delays, rather than wait for last minute Christmas bargains like in previous years. Spending on credit cards was also higher during the month and showing little effect from recent concerns around the Omicron variant.

Commodities

Crude oil prices have continued to push higher, after yesterday’s big gains, with the latest China trade numbers seeing a big increase in domestic demand for energy, not only crude oil, but coal as well.