European stocks rose with oil stocks making gains as crude prices increase after Saudi Arabia raised its official selling price for Asian customers.
In recent days, markets have swung on conflicting signals from scientists and vaccine makers regarding the severity of the Omicron variant and how well existing vaccines may work against it. It still may be weeks before a more definitive picture forms.
Some positive news emerged over the weekend, boosting market sentiment. A small study of people hospitalized from Omicron in South Africa found a pattern of milder illness than in previous waves of Covid-19, though scientists cautioned that it was too early to say for sure.
U.S. chief medical advisor Anthony Fauci said on CNN that there didn't appear to be a "great deal of severity" to Omicron, adding the same caveat. Meantime, regulators said Sunday that the Food and Drug Administration planned to streamline authorization for revamped vaccines.
"It seems like this is not going to lead to the worst-case scenario. I wonder if we're being complacent, but the early indicators suggest we're not," said Fahad Kamal, chief investment officer at Kleinwort Hambros.
Shares on the move: Travel and shopping-center stocks were among the best performers, with Unibail-Rodamco-Westfield adding 3.2% and Ryanair up 2.4%.
Orange has a stretch of strategic uncertainty ahead after the departure of Chairman and Chief Executive Stephane Richard, Credit Suisse said, cutting its rating on the French telecommunications company to neutral from outperform.
Richard stepped down last month after being handed a one-year suspended jail sentence for his involvement in an embezzlement case. While Orange isn't immediately likely to lower either its outlook or its dividend, a new boss could mean a reset, CS said.
In the short term, a period of uncertainty will weigh on Orange until a new CEO and chairman is appointed, the Swiss bank added, cutting its target on the stock to EUR11 from EUR11.50.
Saint-Gobain's agreement to acquire U.S.-based GCP Applied Technologies for a price of $32 a share should be well-received by investors, Bryan Garnier's Eric Lemarie said.
The deal "strengthens the exposure of Saint-Gobain to construction chemical, which is usually considered as an attractive business combining growth and profitability (although we observe GCP is less performant in chemical construction than Chryso)," the analyst said.
The French construction-materials company agreed to acquire Chryso earlier this year. Overall, multiples of the GCP deal suggest it might not be cheap but it also seems compensated by synergies, Lemarie said. Shares in Saint-Gobain traded 1.2% higher.
Data in focus: German manufacturing orders dropped by 6.9% in October on the month, hit by a drop in orders for big-ticket items. Read a selection of analysts' comments here .
Fitch upgraded Italy's credit rating by one notch to 'BBB' from 'BBB-' with stable outlook in a scheduled review on Friday. The ratings firm pointed to its forecast of 6.2% GDP growth in Italy in 2021, faster than previously expected, and it expects GDP to reach its pre-pandemic level in 1Q 2022.
"The contrast of this performance with the incomplete and significantly weaker recoveries following the global financial and the eurozone debt crises highlights the success of the policy support provided since March 2020," Fitch said, referring to the EU's NextGenerationEU funds and to the European Central Bank's Pandemic Emergency Purchase Programme.
Fitch however adds that Italy's very high government debt and a record of weak economic growth pre-pandemic weigh on Italy's rating.
U.S. stock futures were mixed, as investors digested the latest news on the spread of the coronavirus and prepared for new inflation data later in the week.
Science Applications International is scheduled to report Monday ahead of the opening bell and Coupa Software and Healthequity after markets close.
Earnings from home builder Toll Brothers are planned for tomorrow and Campbell Soup and GameStop are scheduled for Wednesday. Companies including Lululemon, Costco and Oracle are expected to post earnings Thursday.
Traders were left trying to parse the implications of Friday's mixed report on jobs, which showed slowing jobs growth but a steep decline in unemployment, as they prepare for Friday's release of consumer price data.
The dollar rose as investors bet on the Federal Reserve accelerating asset purchase tapering at its next policy meeting after data showed U.S. unemployment fell sharply in November even as jobs growth slowed.
"The release of the latest non-farm payrolls report on Friday provided further evidence that the U.S. economy is continuing to recover from the initial negative Covid-19 shock," MUFG Bank currency analyst Lee Hardman said.
"The developments support the Fed's plans to speed up tightening and are encouraging a stronger U.S. dollar." The Fed holds its next meeting on December 14-15.
The euro could remain at weaker levels for the remainder of the year unless the ECB's policies become less accommodative, ING said. Noting that the ECB's trade-weighted euro has fallen just over 5% this year, ING analysts said: "A dovish ECB plus Europe's greater exposure to the global manufacturing cycle, along with vaccine hesitancy, have all contributed to the euro's poor performance."
The only help the euro may receive before year-end is if the ECB turns "less dovish," the analysts said. EUR/USD could trade in a 1.1180-1.1280 range before the ECB and Federal Reserve policy decisions on Dec. 16 and Dec. 15, respectively, they said.
Sterling could weaken against the dollar if the Fed accelerates its tapering of asset purchases and the Bank of England delays raising interest rates this month, MUFG Bank said.
In that case "the timing of the gap between the first Fed and BOE and rate hikes could be a lot shorter than expected and keeps risks tilted to the downside for [GBP/USD] in the near-term," MUFG's Lee Hardman said.
Fed policymakers have signalled a faster withdrawal of asset purchases at the December 14-15 meeting despite the emergence of the Omicron coronavirus variant, while BOE policymaker Michael Saunders on Friday said there could be advantages to assessing the variant's impact before raising rates.
Bitcoin and other cryptocurrencies including ether and Solana edged up from weekend lows. Bitcoin traded at around $48,400, nearly 10% down on its level at 5 p.m. ET Friday, but up from Saturday's low of $42,000.
Bitcoin's price action in the past couple of weeks help rule out the idea that the cryptocurrency is a safe haven and a hedge against inflation, Swissquote Bank analyst Ipek Ozkardeskaya said. "Bitcoin is a very high-risk asset, and it is not a proven hedge against inflation," she said.
HSBC expects German Bunds to rally next year, bringing the 10-year yield down to -0.50% by the end of 2022, said strategist Chris Attfield. Bund yields may be slow to fall in the first half of 2022, however, as headline inflation is likely to remain high. This creates a more neutral short-term outlook, he said.
"Unless the European Central Bank terminal rate is significantly positive, we do not think Bund valuations greater than zero are sustainable," he said. HSBC expects early rate rise expectations to be priced out in 2022, causing renewed curve steepening.
The ECB's QE purchase volumes in 2022 will likely affect the extent to which maturity extension, or terming out, in the eurozone's government bond space continues, Barclays's rates strategists said.
Barclays expects governments to heavily frontload long-end government bond supply in 1Q 2022, "as issuers take advantage of the final months of support for the eurozone government bond market from notable PEPP [Pandemic Emergency Purchase Programme] net purchases."
If the ECB allows its monthly QE pace to fall sharply after 1Q 2022, "we think the terming out theme could start to lose momentum, at least to some extent," Barclays said.
Italian government bonds, or BTPs, outperformed their eurozone peers in early trade Monday after Fitch Ratings upgraded the country to BBB from BBB- with a stable outlook on Friday.
The 10-year BTP yield was trading 3.5 basis points lower at 0.899%, according to Tradeweb. "The rating upgrade provides tailwind for BTPs and the Eurogroup should add to the positive tone for spreads," said Commerzbank's rates strategist Rainer Guntermann.
Other 10-year eurozone government bond yields were trading lower across the board.
Oil prices rose after Saudi Arabia raised its official selling prices for crude sold to Asia and the U.S. over the weekend. Higher premiums can be viewed as a sign of robust demand, according to analysts at Commerzbank, supporting last week's decision by the Organization of the Petroleum Exporting Countries and their allies to raise oil production by 400,000 barrels a day in January in spite of concerns related to the Omicron variant.
Prices are also supported by slimming prospects of an imminent rise in Iranian oil exports following indirect talks between the U.S. and Iran last week.
Comex gold futures ticked slightly lower as they navigate between a slide in U.S. bond yields and speculation over the Fed's bond-buying program trajectory. According to analysts at Commerzbank, "all in all, the U.S. labour market is continuing to recover" and their economists still expect the Fed to step up the pace of tapering at its meeting next week.
As for base metals, they were off to a weak start for the week due to concerns related to the Omicron variant and a strong U.S. dollar, the German bank said.
German Manufacturing Orders Dropped in October
German manufacturing orders fell in October, missing expectations of an increase amid continuing supply chain disruptions that is curtailing factory activity.
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