European stocks were flat Friday while oil prices continued to rise after OPEC and a group of Russia-led oil producers agreed to continue pumping more crude.
Investors are grappling with the unclear impact of Omicron for the global economy. The variant has triggered fresh restrictions around the world, throwing up new obstacles to overseas travel just as it was starting to bounce back from last year's Covid-19 measures. Scientists are trying to gauge how effective current vaccines will be against the variant.
"What we see now this week since we had the Omicron news is extremely high volatility and extreme nervousness in markets," said Carsten Brzeski, ING Groep's global head of macro research. He expects this to continue until more is known about Omicron.
Brent crude futures, the benchmark in global oil markets rose after OPEC and a group of Russia-led oil producers agreed Thursday to continue pumping more crude, betting that pent-up demand in a post-lockdown world would outweigh any hit to economic activity from the recent Covid-19 permutations. But the group said its session would remain open, a technical move that would allow it to reconvene quickly and change course if the Covid-19 situation changes dramatically.
Shares on the move:
Allianz's new midterm targets are a positive surprise, Jefferies said.
The German insurer is now targeting up to 7% annual growth in earnings per share from 5% previously, implying operating-capital generation of a total of EUR12 billion, Jefferies noted.
Meanwhile, a new dividend policy targeting a 5% increase on the previous year's level is also good news, Jefferies said.
"Having expected Allianz to largely reiterate the previous plans' targets, today's announcement has positively surprised in a number of material ways," said the bank, which has a buy rating and a EUR250 target on the stock.
Shares in Swedish Orphan Biovitrium fell sharply after Advent International Corporation and Aurora Investment Pte Ltd withdrew their offer to acquire the Swedish drugmaker for nearly $8 billion.
The two private-equity firms had offered 235 Swedish Krona ($26.0) a share to acquire Swedish Orphan Biovitrium, also known as Sobi. They said that about 87.3% of Sobi's shares were tendered in the offer, which was below a set threshold of 90%.
The offer was made through Agnafit Bidco, which represented the two investors.
Shares in Sobi were down 23% in opening trade.
Data in focus:
Having slowed since peaking in July, economic growth across the eurozone reaccelerated in November, according to the latest purchasing managers indexes.
The eurozone composite PMI rose to 55.4 in November from 54.2 in October, indicating a solid and accelerated rate of economic expansion.
But the improvement in economic growth signaled by the eurozone PMI looks likely to be short-lived, IHS Markit's chief business economist Chris Williamson said.
"Not only did demand growth weaken, but firms' expectations of future growth also sank lower as worries about the pandemic intensified again," Williamson said.
Prices have continued their rise, with rates of inflation in both companies' costs and average selling prices for goods and services hitting new highs in November, IHS Markit said.
Germany's services firms recorded another moderate rise in business activity in November following a similar result in October, with the sector's growth having slowed notably since the third quarter, IHS Markit said.
The services purchasing managers index rose to 52.7 in November from 52.4 in October. But the survey's forward-looking indicators gave reason for concern, IHS Markit's economics associate director Phil Smith said.
"Inflows of new work and business confidence were already in decline in November thanks to the fourth wave of coronavirus, and now the Omicron variant brings added uncertainty and a risk of tighter virus containment measures," Smith said.
U.K. services activity continued to recover in November, supported by a fast increase in new business, according to IHS Markit's survey of purchasing managers in the sector. The service PMI stood at 58.5 in November, down slightly from October's 59.1.
Export sales were a key factor supporting growth in November, with looser travel restrictions contributing to a steep upturn in new business, the report said.
"The overall speed of recovery looks to have accelerated in comparison to the third quarter of 2021," IHS Markit's Associate Director for Economic Indices Tim Moore said. However, the majority of survey responses were received prior to the news of the Omicron coronavirus variant, which has the potential to derail near-term growth prospects, he said.
U.S. stock futures fell, as investors awaited November jobs data, at the end of a volatile week driven by headlines over the omicron coronavirus variant and hawkish comments from Federal Reserve Chair Jerome Powell.
Investors are awaiting data at 8:30 a.m. ET on how many jobs U.S. employers added in November. Employers say they are eager to hire from a depleted pool of workers, leading to increased bargaining power and rising wages for many employees.
A strong rebound in the labor market could impact the Federal Reserve's timeline for paring back some of its monetary policy support that has supported asset prices.
"After a week of mixed macro news, some stronger news would be good for the market," Mr. Brzeski said.
The dollar could receive a further boost from U.S. nonfarm payrolls data, particularly after Federal Reserve Chair Jerome Powell said earlier this week that inflation no longer looks transitory, ING said.
Strong data would add to the view that the Fed could remove monetary stimulus more quickly, it said.
"Any sharper than expected drop in the unemployment rate (3.8% has been suggested as a metric for full employment and the start of tightening) or sharper rise in average hourly earnings (e.g. more than 0.4% month-on-month) could drive the dollar higher today."
The consensus in a WSJ poll is for nonfarm payrolls to rise by 573,000 and an unemployment rate of 4.5%.
The Turkish lira fell after ratings agency Fitch downgraded the country's outlook to "negative" from "stable" and following data that showed inflation accelerated.
Fitch said premature interest rate cuts and the prospect of further easing have weakened domestic confidence, reflected in the lira's sharp depreciation and rising inflation, which create risks to macroeconomic and financial stability and could re-ignite external financing pressures.
Data on Friday showed consumer prices jumped 21.31% year-on-year in November after rising 19.89% in October.
With no signs President Recep Tayyip Erdogan will permit large rate rises, the lira will struggle to recover and inflation will remain very high through most of the next six-to-nine months, Capital Economics economist Jason Tuvey said.
An overvalued pound could weaken against the Canadian dollar in 2022 on comparisons between the Bank of England and Bank of Canada's credibility, RBC Capital Markets said.
"GBP failed to benefit from a sharp rise in policy rate expectations in late-2021 in a way that suggests markets are starting to question the credibility of U.K. policy," RBC analysts said.
That's consistent with long-term breakeven inflation rates rising to more than 1% above the BOE's target, compared to Canada where breakevens are close to the BOC's target, they said.
The BOE could deliver fewer interest rate rises than expected and deemed necessary, whereas RBC has "high degree of confidence" in the BOC's policy tightening cycle, they said.
Within a year, the monetary policy environment changed from "QE infinity" and "lower interest rates for longer" to one characterized by a global, generalized and rapid rise in interest rates, said Gergely Majoros, member of Carmignac's investment committee.
With this backdrop, Carmignac remains "very cautious" on core sovereign bonds and very selective in corporate bonds, while it sees value niches in emerging-market bonds and equity markets, he said.
Majoros said that in an environment where inflation should persist longer, Carmignac's risk management focuses on an active management of duration exposure, cash and short-term instruments which are the most suited in episodes of volatility, and the USD given its safe-haven status and dynamics.
Pimco maintains a positive view on spread securities from the eurozone periphery, especially Italy, while focusing on receiving adequate compensation for policy uncertainty, Konstantin Veit, portfolio manager and head of European rates, said.
Given the euro area's unique institutional structure and uneven macroeconomic conditions, Pimco expects yields in the region to remain relatively more anchored than elsewhere in the world, and Pimco therefore is positioned rather independently from benchmark indexes with a view to overall duration, he said.
"While starting valuations offer limited room for spread tightening and the macroeconomic outlook remains highly risky, a less crisis-prone euro area generally bodes well for risky assets," he said.
German Bunds will close 2021 at expensive levels versus Citi's fair value estimate, rates strategist Jamie Searle said.. "Bunds are ending 2021 rich to our fair value of -0.15% [for the 10-year Bund yield] making us bearish, at least into 1Q, with Omicron the clear risk to the view," he said.
Citi expects the European Central Bank to be less forceful on asset purchases, but persistent on policy rates.
This likely means that core euro yields are anchored, while eurozone spreads are volatile, Searle said.
Citi's base case is that 10-year Bund yields will stay negative for all of 2022, albeit with a drift higher, especially in 1Q, subject to Omicron developments.
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