MARKET WRAPS
Stocks:
Weaker action in Europe bucked gains for U.S. stock futures, with investors on both sides of the pond waiting for November consumer price inflation, which is forecast to rise by the most in decades ahead of the Federal Open Market Committee meeting next week.
Investors are cautious, especially after news that Omicron spreads faster than the Delta variant, ActivTrades analyst Pierre Veyret says. They are also awaiting the U.S. inflation report at 1330 GMT, which is considered “highly important by most market operators as it could give significant hints on what the Federal Reserve may do” at next Wednesday’s policy meeting, he says.
Against the backdrop of a weaker European stock session on Friday, shares of Daimler Truck Holding rose in its market debut.
Shares of Daimler Truck Holding made their debut on Germany’s stock market at EUR28 a share, and were last changing hands at EUR30.47. The initial public offering follows a spinoff of parent Daimler, shares of which fell 15% to EUR72.96, adjusting for the split.
Berenberg analysts Adrian Yanoshik and Romain Gourvil initiated coverage on Daimler Truck with a provisional buy rating and 35 euro price target. “Daimler Truck’s margins have credible upside from a turnaround already under way in Europe. The group’s self-help gets support from price-mix momentum into a record backlog, with strong freight markets that underpin demand,” they said.
The analysts said they were keeping a buy rating on parent Daimler, with a revised 85 euro price target to incorporate the spinoff, as they expect Daimler Truck will “re-engage investor interest in Daimler.”
“We forecast underappreciated pricing durability and higher premium market growth over the next several years,” said Yanoshik and Gourvil.
Data from Germany on Friday showed prices rising 5.2% on the year, measured by national standards, confirming preliminary data and marking the highest reading since June 1992, the statistics office Destatis said.
Shares on the move: Among the biggest gainers, shares of Swedish Match climbed 6%, after U.S. Senate Democrats were said to be dropping a proposal that would have imposed vaping taxes, The Wall Street Journal reported, citing sources.
“Concerns around the potential impact of the proposed tax changes on NGPs [Next Generation Products] has weighed on the tobacco space over recent weeks and in particular Swedish Match (-21% over the last 3-months),” said Citi analysts Simon Hales and Ravi Sharma in a note to clients.
They said Swedish Match and BAT will likely see the most support from that move. BAT shares rose 1.6%
Apparel makers were under pressure, led by a 1.3% drop for LVMH Moët Hennessy Louis Vuitton.
UniCredit’s 2024 targets should support a gradual rerating of its shares, Deutsche Bank analysts said.
The Italian bank’s new strategy features significantly lower costs in all geographies, and implies a much more generous shareholder-remuneration policy from 2022 already, DB said.
Plus, the bank’s goals are based on a relatively prudent macroeconomic outlook, as it has assumed no interest-rate increases and conservative GDP growth, DB said.
UniCredit shares closed 11% higher at EUR12.80 on Thursday after the bank announced its new plan. The bank has a buy rating on the stock with a EUR17 price target.
Data in focus: Fitch Ratings’ review of Spain’s credit status later on Friday could deliver positive news for the sovereign, said Commerzbank, while Citi expects no change.
“Following the surprising upgrade of Italy last week, no positive action tonight by Fitch could be a small disappointment,” said Christoph Rieger, head of rates and credit research at the German bank.
Fitch, which has an ‘A-‘ rating on Spain with a stable outlook, still assigns the country a lower rating than S&P Global Ratings but a better rating than Moody’s Investors Service, he said.
Citi’s rates strategists, meanwhile, don’t expect a rating change for Spain. “We don’t expect Spain to be upgraded, unlike Italy last week, as agencies’ conditions–downward debt trajectory, post-pandemic consolidation and effective use of NGEU funds–are yet to be met,” Citi said.
U.K. monthly GDP rose just 0.1% month-on-month in October, a marked slowdown from the 0.6% growth seen in September, UniCredit said. Industrial production fell 0.6% on the month, construction fell 1.8%, while services output rose 0.4%, the press release shows.
“Supply bottlenecks and higher inflation, as well as tighter fiscal policy and subdued consumer confidence were likely the main drivers of the moderation in the pace of growth,” economists at UniCredit said.
Looking ahead, rising new cases of Covid-19 will likely see growth remain weak in the coming months, UniCredit forecasts. The Italian bank said the Bank of England’s Monetary Policy Committee is likely to refrain from raising the bank rate next week.
Headline inflation reached a 13-year high in November, but core CPI-ATE was more subdued and is likely to remain below Norges Bank’s target throughout 2022, Capital Economics said.
The increase in CPI-ATE–which excludes energy prices and tax changes–to 1.3% in November still left it below Norges Bank’s 2.0% target. The effects of a stronger krone are likely to keep core inflation low, potentially turning negative in early 2022, it added.
“Today’s data are unlikely to have too much of an influence on next week’s policy meeting…we think that the Norges Bank will hike rates to 0.50%.” However, the spread of Omicron and new restrictions poses downside risks to CE’s forecast of four 25 basis point rate increases in 2022, it said.
U.S. Markets:
Stock futures and bond yields rose ahead of fresh inflation data that could influence the Federal Reserve’s timeline for reducing stimulus measures.
Economists surveyed by The Wall Street Journal expect that U.S. inflation hit an almost four-decade high in November. Price pressures have been driven by strong demand and supply-chain woes related to the pandemic, as well as higher energy prices.
The Federal Reserve will hold a two-meeting meeting next week at which it may provide more details about how it plans to wind down its bond-buying program and when it plans to begin raising interest rates. Investors are waiting to see whether officials signal a faster end to stimulus than currently expected and how they characterize inflation.
“What we see is this lack of direction [in markets]: one day going up, one day going down and today what we are really looking to see are the U.S. inflation numbers,” said Frank Øland Winther, global chief strategist at Danske Bank.
In premarket trading, Oracle shares gained more than 10% after the database giant reported second-quarter results that beat estimates. Broadcom shares added more than 5% after the company posted better-than-expected results, provided strong January-quarter guidance, raised its dividend and announced a stock-repurchase program.
Forex:
The dollar is likely to get a boost if U.S. inflation data is strong, as the market expects, said UniCredit.
Strong data would add to expectations of forthcoming monetary tightening by the Fed. Attempts to weaken the dollar over the course of this week have “proved short-lived” ahead of Friday’s inflation figures, UniCredit said.
Confirmation of continuing upward pressure on prices would keep the dollar rising, and even if inflation figures aren’t as high as expected, it would unlikely hurt the dollar too much, it said.
U.S. annual CPI is forecast to rise 6.7% in November, according to a consensus in a Wall Street Journal poll.
The euro’s weakness against the dollar will persist unless the European Central Bank delivers a “hawkish surprise” with a tighter policy stance at its December 16 meeting, ING said.
A widening of eurozone-U.S. short-term rate differentials is a major driver of EUR/USD weakness so the pair may prove more sensitive to any ECB surprise, which could come through the timing of unwinding asset purchases or staff projections, ING forex strategist Francesco Pesole said.
“If, instead, we see no major surprises by the ECB, and given the Fed [December 15] meeting risks prompting another spike in U.S. short-term yields, we think EUR/USD may be set for another bad week.”
Sterling fell after data showed the U.K. economy grew by a weaker-than-anticipated 0.1% month-on-month in October. Economists polled by the WSJ expected 0.3% growth.
The data will give the BOE “further cause for hesitation” in raising interest rates at the December 16 meeting, UBS Global Wealth Management economist Dean Turner said.
The pound has been weak in recent days as investors reassess the chances of a rate rise this month but this is unjustified, he said.
“Although the Bank is likely to delay raising rates, hikes are still coming,” he said. “We expect this to drive the pound higher in the coming months, especially against the euro.”
Bonds:
In bond markets on Friday, the yield on the 10-year Treasury note ticked up to 1.518%, from 1.486% Thursday.
The Fed’s pivot toward fighting inflation likely means that it will announce an acceleration in its tapering process at next week’s FOMC meeting, putting tapering on track to conclude by March 2022, said Ellen Gaske, lead economist for G10 economies, global macroeconomic research at PGIM Fixed Income.
The accelerated tapering potentially paves the way for one interest rate rise of 25 basis points in the second quarter of 2022, another in the third quarter of 2022 and three in 2023, she said. This would bring the terminal rate to around 1.5%, slightly less than the 1.7% that Fed fund futures are pricing in, she said.
The ECB will aim to preserve a high degree of flexibility in asset purchases and not indicate too swift a tapering as it intends to reduce net asset purchases in 2022 and avoid the risk of unwarranted government bond-spread widening, Societe Generale said.
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December 10, 2021 06:29 ET (11:29 GMT)
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