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EUROPEAN MIDDAY BRIEFING - Stocks Rise Ahead of -2-

12/16/2021 | 06:33am EDT

The central bank raised its inflation forecasts for 2021 and 2022 but said the longer-term inflation forecast is virtually unchanged from September.

The bank highlighted an uncertain economic outlook due to the emergence of the Omicron variant of Covid-19, while noting that the vulnerability of mortgage and real-estate markets has increased further.

Bonds:

What probably wasn't quite so expected at the Fed meeting was the outlook of their rate projections for next year, said Charles Hepworth, investment director at GAM Investments.

Hepworth refers to the fact that the majority of Fed officials looked for three interest-rate rises in 2022 with two even looking for four rises, he says. "So on balance slightly more hawkish than the market had priced in, although the clear caveat is that interest-rate policy will be firmly tied to the concept of maximum employment," he added.

The Fed's December meeting "rubberstamped the hawkish shift" made by Chair Jerome Powell two weeks ago and completed the turnaround in the Fed's inflation narrative, BNP Paribas Markets 360 said, expecting the liftoff in June.

While the inflation projections and the 2022 dots were on the hawkish side of expectations, the Fed's confidence in the strength and sustainability of the recovery in spite of the Omicron virus variant came as a reassurance, chief global economist Luigi Speranza said.

"If the Fed is right, then the expected tightening should not materially dent the economy," but if Omicron proves to be a bigger headwind than the Fed thinks, the Fed will probably need to become more cautious, he said.

Commodities:

Oil prices rose, with DNB Markets' Helge Andre Martinsen citing rising equity markets and upbeat U.S. oil inventory stats released on Wednesday, which showed record high levels of U.S. oil demand.

In the Energy Information Administration's weekly stock data, crude inventories fell by 4.6 million barrels versus consensus expectations of a 1.7 million barrel drop.

Gasoline and distillate stocks also fell contrary to expectations. Those stats also showed more robust oil demand than the American Petroleum Institute's figures released Tuesday.

Gold prices rose as the dollar gained in the wake of the Fed's meeting. The Fed projected three rate hikes next year, joining a move among central banks to begin tightening monetary policy as economies strengthen.

That trend will likely see gold prices fall to $1,500 an ounce by the end of 2022, said Georgette Boele, senior FX and precious-metals strategist at ABN Amro.

Higher interest rates tend to weigh on gold prices, while also pushing up bond yields--another negative for gold--she said.

EMEA HEADLINES

Covid-19 Surge Slows European Recovery, but Supply Problems Ease

Rising Covid-19 infection rates and greater caution resulting from the uncertain threat of a new variant have weakened Europe's economic recovery, but there are signs the supply blockages that have hobbled factories over recent months are easing.

Even before the existence of the Omicron variant was confirmed in late November, infection rates in Germany and other parts of Europe were on the rise, prompting a fresh wave of government restrictions and consumer hesitancy. Signs that Omicron can spread more rapidly than the currently dominant Delta virus have only added to those headwinds.

Turkey's Currency Crisis Escalates Ahead of Possible Rate Cut

Turkey's currency crisis deepened in the lead-up to a central bank meeting Thursday, when officials might bow to pressure to resume interest-rate cuts despite soaring inflation.

Previous rate cuts demanded by Turkish President Recep Tayyip Erdogan have triggered a collapse in the Turkish lira in recent months. The currency has lost 40% of its value against the dollar since September, making it one of the worst performing investments in the world.

Norges Bank Lifts Key Rate to 0.50%, Still Sees March Hike

Norway's central bank on Thursday lifted its key policy rate to 0.50% from 0.25%, as expected, and said a further hike is likely in March.

In September, Norges Bank became the first major western central bank to raise interest rates since the onset of the Covid-19 pandemic, when it lifted its key rate to 0.25% from zero while suggesting a further raise would come in December.

Eurozone Economic Growth Slows in December Due to Covid-19 Surge in Cases, PMIs Show

The pace of eurozone economic growth slowed in December as rising COVID-19 infection rates hit the service sector activity, offsetting improved manufacturing growth, the latest flash purchasing managers indexes showed.

IHS Markit's eurozone composite PMI dropped to 53.4 in December from 55.4 in November, according to the flash reading. This indicates an easing in the rate of output growth to the lowest level since March.

EDF Shuts Down Nuclear Reactors on Safety Concerns; Revises 2021 Target

Shares in Electrice de France SA fell sharply in opening trade Thursday after the French energy major revised its full-year earnings expectations amid unplanned safety-related nuclear outages.

At 0815 GMT, shares were trading 8.2% lower at EUR10.90.

Novartis to Buy Back Up to $15 Bln of Its Shares

Novartis AG said Thursday that it will use the proceeds from the recent sale of its stake in Roche Holding AG to buy back up to $15 billion of its shares by the end of 2023.

The Swiss pharmaceutical company said it is confident in its growth prospects. Its pipeline has up to 20 assets with significant sales potential, and sales are expected to increase at a compound annual growth rate of 4% or more through 2026, the company said.

Telecom Italia Lowers 2021 Outlook Again

Telecom Italia SpA said late on Wednesday that it expects adjusted earnings for 2021 to decline, and made downward adjustments to its outlook for the year for the second time in as many months.

The Italian telecommunications company said earnings before interest, taxes, depreciation and amortization after leases this year is expected to be higher than 5.4 billion euros ($6.10 billion). This compares with EUR6.25 billion in 2020.

Qantas to Order Jets from Airbus, Omicron Hits Demand for International Flights

Australia's biggest airline, Qantas Airways Ltd., said it plans to order dozens of new jets from Airbus SE over the next decade, though the emergence of the Omicron variant of the coronavirus has hurt demand for international flights in the near term.

Qantas said it had selected the Airbus A320neo and A220 planes to renew the airline's existing domestic narrowbody fleet. It said the jets would arrive starting in the first half of fiscal 2024 and would be spread over the following 10-plus years, replacing aging Boeing 737s and 717s.

Pearson Appoints Nonexecutive Chairman-Designate, Deputy Chairman-Designate; Backs 2021 View

Pearson PLC said Thursday that it has appointed a new nonexecutive chairman-designate and a new deputy chairman-designate, and that it remains on track to deliver adjusted operating profit for 2021 in line with market expectations.

The FTSE 100 education company said Omid Kordestani has been appointed as a nonexecutive director and nonexecutive chairman-designate, joining the board from March 1, and will succeed Sidney Taurel as nonexecutive chairman upon the conclusion of the AGM in April 2022. Mr. Kordestani most recently spent five years as the executive chairman of Twitter Inc. and continues to sit on its board.

Volvo, Daimler Truck, Traton Plan European Charging Network JV

Truck makers Volvo AB, Daimler Truck Holding AG, and Traton SE have agreed to create a joint venture to install and operate a public charging network for battery electric, heavy-duty long-haul trucks and coaches across Europe, they said in a joint statement Thursday.

The parties are together committing to invest 500 million euros ($563.4 million) and plan to install and operate at least 1,700 high-performance green energy charging points on and close to highways as well as at logistic and destination points within five years.

ECB's Bond-Buying Plan Set to Drive Southern European Spreads -- Market Insight

The European Central Bank is set to remain dovish at its policy meeting on Thursday but eurozone spreads suggest the market is anticipating some tapering of monetary support.

The big question facing the ECB is whether to go ahead with the planned stoppage of its Pandemic Emergency Purchase Programme in March next year, which supported markets with EUR1.85 trillion in bond-buying. Consensus forecasts suggest PEPP will be withdrawn but analysts at Investec suggest the ECB could choose to ramp up its Asset Purchase Plan to compensate and provide support to markets, therefore balancing the opinions of hawks and the doves on its governing council.

Bank of England Not Likely to Be Moved by Inflation Figure -- Market Insight

A 10-year high in U.K. consumer inflation and a public warning from the IMF to avoid "inaction bias" are set to test the resolve of the Bank of England but having surprised the markets by holding rates last month, policymakers are unlikely to swing into action now.

Consumer prices rose 5.1% in November compared with a year earlier, slightly beating expectations from a WSJ poll of 4.9%. However, analysts at NatWest Markets note that even before the emergence of the Omicron coronavirus variant, the BoE had only signaled it expected to need to hike rates to around 0.75% by the end of 2022. They expect a first hike in February.

GLOBAL NEWS

Jobless Claims Likely Remained Near Decades Low, Economists Say

New applications for unemployment benefits likely edged higher last week but stayed very low, reflecting an unusually tight labor market as the economy continued to recover.

(MORE TO FOLLOW) Dow Jones Newswires

12-16-21 0632ET

Stocks mentioned in the article
ChangeLast1st jan.
AB VOLVO 0.59% 166.5 Delayed Quote.-21.05%
AIRBUS SE 1.97% 104.76 Real-time Quote.-8.56%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) -0.53% 0.5628 Delayed Quote.5.16%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.29% 0.66349 Delayed Quote.3.86%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.27% 0.70841 Delayed Quote.-2.40%
BNP PARIBAS 0.37% 51.87 Real-time Quote.-14.96%
BRITISH POUND / EURO (GBP/EUR) 0.81% 1.17794 Delayed Quote.-1.13%
BRITISH POUND / US DOLLAR (GBP/USD) 0.29% 1.25755 Delayed Quote.-7.11%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) -0.23% 0.620386 Delayed Quote.6.38%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.58% 0.730775 Delayed Quote.5.14%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.05% 0.78013 Delayed Quote.-1.14%
DAIMLER TRUCK HOLDING AG 0.76% 27.995 Delayed Quote.-13.95%
ELECTRICITÉ DE FRANCE 2.79% 8.478 Real-time Quote.-16.49%
EURO / BRITISH POUND (EUR/GBP) -0.80% 0.84883 Delayed Quote.1.18%
EURO / TURKISH LIRA (EUR/TRY) 1.08% 17.46026 Delayed Quote.12.49%
EURO / US DOLLAR (EUR/USD) -0.53% 1.06753 Delayed Quote.-6.03%
FTSE 100 0.51% 7522.75 Delayed Quote.1.35%
GOLD -0.73% 1853.64 Delayed Quote.1.35%
INDIAN RUPEE / BRITISH POUND (INR/GBP) -0.33% 0.010257 Delayed Quote.3.26%
INDIAN RUPEE / EURO (INR/EUR) 0.45% 0.012075 Delayed Quote.2.28%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.06% 0.0129 Delayed Quote.-3.95%
INVESTEC GROUP 0.38% 97.01 End-of-day quote.10.81%
LONDON BRENT OIL 0.23% 114.24 Delayed Quote.45.50%
MERCEDES-BENZ GROUP AG 0.46% 64 Delayed Quote.-5.74%
NATWEST GROUP PLC 1.20% 219.1 Delayed Quote.-4.08%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.48% 0.64762 Delayed Quote.-5.73%
NOVARTIS AG 0.16% 87.82 Delayed Quote.9.22%
PEARSON PLC 0.26% 757.4 Delayed Quote.23.19%
QANTAS AIRWAYS LIMITED -0.56% 5.35 Delayed Quote.7.39%
ROCHE HOLDING AG 0.47% 333 Delayed Quote.-12.57%
S&P GSCI PRECIOUS METALS INDEX -1.00% 2404.91 Real-time Quote.1.56%
SUCCEED CO., LTD. 0.00% 1120 Delayed Quote.-17.89%
THE BOEING COMPANY 2.23% 122.06 Delayed Quote.-38.37%
TRATON SE 3.49% 16.59 Delayed Quote.-27.60%
TWITTER, INC. 3.91% 37.16 Delayed Quote.-17.26%
US DOLLAR / BRITISH POUND (USD/GBP) -0.27% 0.795229 Delayed Quote.7.65%
US DOLLAR / EURO (USD/EUR) 0.55% 0.936724 Delayed Quote.6.42%
US DOLLAR / TURKISH LIRA (USD/TRY) 1.52% 16.3549 Delayed Quote.19.61%
WTI 0.19% 110.686 Delayed Quote.45.58%
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