MARKET WRAPS
Stocks:
European stocks rose modestly Thursday, boosted by gains for travel and leisure stocks, as evidence grows that Omicron is less dangerous than previous coronavirus variants. This has eased concerns about potential disruption to the economy from renewed restrictions, said analysts.
In the U.K., the FTSE 100 index slightly underperformed its European peers following falls in pharmaceutical stocks and heavyweight mining companies.
Read Barrons.com on why European luxury goods stocks were back in fashion in 2021.
Economic Insight:
Omicron poses a major downside risk to Berenberg's economic outlook for the U.K. and the eurozone in early 2022. Even if Omicron is less lethal than earlier variants and booster shots reduce the medical risks further, a rapid spread of the virus variant could still overburden health systems, economists at Berenberg warned.
If the U.K. and major parts of the eurozone had to impose Dutch-style lockdowns throughout January, real GDP may decline in both regions in the first quarter by around 1% quarter-on-quarter instead of expanding slightly, as Berenberg currently expects.
---
The shortage of materials in German manufacturing has again become even more severe in December, with 81.9% of companies complaining about bottlenecks and problems procuring intermediate products and raw materials, according to an Ifo Institute survey. In November, the figure was 74.4%.
"German manufacturing faces a paradox: Order books are full, but the shortage of materials means companies can't ramp up production accordingly," said Ifo's head of surveys Klaus Wohlrabe. The number of companies with procurement problems has increased in almost all industries, he added.
---
German import prices rose 24.7% on year in November, marking the highest increase since October 1974, said Destatis, with energy imports 159.5% more expensive than in November 2020. This increase was driven by a 270.9% rise in the price of natural gas and a 100.4% increase in the price of crude oil.
Import prices, excluding crude oil and mineral-oil products, increased by 20.8%. Export prices rose 9.9% in November compared with the previous year. Compared with the previous month, German import prices rose 3.0% in November and export prices increased 0.8%, Destatis said.
Manufacturers of electrical equipment are particularly hard hit at 94%, followed by the automotive industry at 93% and manufacturers of machinery and equipment at 91%, according to Ifo's data.
U.S. Markets:
Stock futures crept higher ahead of fresh inflation and consumer-spending data that are set to continue shaping monetary policy into next year.
The Commerce Department is slated to release fresh figures on consumer spending and a key measure of inflation. Economists estimate that core inflation, which excludes often volatile food and energy prices, rose at the fastest annual pace in almost four decades in November. U.S. consumer spending likely increased in November, boosted by job gains and rising wages, high levels of household saving and inflationary pressures.
Strong inflation data earlier in December helped prompt the Federal Reserve to accelerate a winding down of its pandemic-era stimulus. Brisk demand for goods, disrupted supply chains, temporary shortages and a rebound in travel have pushed inflation higher. Investors and central bankers are worried that the Omicron variant could add additional pressure to inflation.
"Inflation is center stage for a lot of people," said Andrew Cole, head of multiasset in London at Pictet Asset Management. "Inflation is widely expected to peak, if not in the first quarter, the first half of next year. You might have to wait until the second half of next year for central banks to relax."
Fresh U.S. jobless claims data are also due later. Economists expect first-time applications for unemployment benefits, a proxy for layoffs, to remain exceptionally low in the week ended Dec. 18, as employers try to hold on to workers.
In premarket trading, shares of Novavax gained 5.3% after it said its two-dose Covid-19 vaccine demonstrated "strong immune responses" against Omicron and other variants.
Forex:
A recent jump in natural gas prices could hurt the euro relative to the dollar, said MUFG currency analyst Lee Hardman. "Recent price action has reinforced our view that the energy price shock will hit the European economies harder than the U.S. and further boosts the relative appeal of the dollar heading into early next year."
He said the price of natural gas in the Netherlands has increased by a further 80% this month, with similar price action evident in the U.K. By contrast, U.S. natural gas prices are around 40% below peak levels in early October.
Bonds:
Despite inflation, central banks will exercise extreme caution before taking their foot off the accelerator, said J.P.Morgan Asset Management, referring to central banks' exit from asset purchases.
"Monetary policy tightening will be gradual, announced well in advance and only in response to strong economic activity," said chief EMEA market strategist Karen Ward and global market strategist Tilmann Galler.
"In other words, there will be strong 'management' of interest rates in all parts of the government bond yield curve," they added.
Commodities:
If major new restrictions are reintroduced in response to the spread of Omicron, oil prices are likely to fall sharply, causing headline inflation in most economies to decline, said Capital Economics' group chief economist Neil Shearing.
"This hit to energy prices means that the initial effect of a major Omicron wave is likely to be disinflationary rather than inflationary," said Shearing. However, it's possible it could also exacerbate underlying price pressures, and thus medium-term inflation, if the hit to supply outweighs the hit to demand, the economist said.
Supply is already failing to keep pace with demand in many countries, and would presumably be curtailed by further new restrictions, he said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Ryanair Widens FY 2022 Net Loss Guidance, Cuts December Traffic Forecasts
Ryanair Holdings PLC said Wednesday that it has widened its expected net loss for fiscal 2022 and cut its December passenger forecasts, due to the Omicron coronavirus variant and government restrictions weakening bookings.
The low-cost carrier said it has lowered its net loss guidance for the year ending March 31 to be in the range of 250 million euros to 450 million euros ($282.2 million-$507.9 million), from a previous range of net losses of EUR100 million to EUR200 million. It noted that guidance is sensitive to coronavirus news, whether positive or negative.
Holcim to Buy US Roofing Company in $1.35 Bln Deal
Holcim Ltd. said Thursday that it has signed an agreement to acquire Malarkey Roofing Products in a deal valued at $1.35 billion.
The Swiss building-materials maker said the deal will position it as a full roofing provider and help its goal of reaching sales of $4 billion from its roofing solutions by 2025.
Flutter Entertainment to Buy Sisal for GBP1.62 Bln
Flutter Entertainment PLC said Thursday that it has acquired the Italian online gaming operator Sisal from CVC Capital Partners Fund VI for 1.62 billion pounds ($2.16 billion).
The Dublin-based gambling group said it expects the deal to be financially enhancing to adjusted earnings in the first year after the acquisition.
Gas Price Surge Will Keep Eurozone Inflation Higher in 2022 -- Analysis
This year's surge in natural gas prices means that eurozone headline inflation will be higher in 2022 than previously expected, even if oil prices decline, economists say.
The jump in gas prices could push inflation in the single-currency bloc up to one percentage point higher next year than it would otherwise have been, Capital Economics says.
Philips Says DreamStation VOC Test Results Point to No Long-Term Health Consequences
Koninklijke Philips NV said Thursday that test results of the volatile organic compounds emissions of the first-generation DreamStation devices show that exposure to the VOC's identified so far isn't anticipated to result in long-term health consequences for patients.
The Dutch health-technology group said that its overall guidance for physicians and patients in June's recall notification was unchanged at this time.
AstraZeneca Says Covid-19 Booster Shot Was Effective Against Omicron in Study
AstraZeneca PLC said Thursday that its Covid-19 vaccine significantly increased levels of antibodies against the Omicron variant as a third-dose booster shot in a study.
The pharmaceutical company said antibody levels against Omicron following a third dose of its vaccine were broadly similar to antibody levels against the Delta variant achieved after two doses.
Two Studies Show Much Lower Risk of Hospitalization With Omicron
LONDON-New data from Scotland and South Africa suggest people infected with the Omicron variant of coronavirus are at markedly lower risk of hospitalization than those who contracted earlier versions of the virus, promising signs that immunity as a result of vaccination or prior infection remains effective at warding off severe illness with the fast-spreading strain.
The findings begin to fill in unknowns around the severity of the disease caused by Omicron, a major variable critical to health authorities around the world as they gauge how to react to the new variant.
GLOBAL NEWS
Covid-19 Marches Toward Endemic Status in U.S. as Omicron Spreads
The Omicron variant's aggressive advance is the latest twist in the course of a disease that public-health experts say is on a path toward becoming endemic in the U.S.
(MORE TO FOLLOW) Dow Jones Newswires
12-23-21 0558ET
