MARKET WRAPS
Stocks:
European stocks wavered Friday as investors fretted over the prospect of renewed lockdowns as Covid-19 cases surged in parts of the continent.
The German state of Saxony declared it would go into a partial lockdown for two or three weeks starting Monday, closing bars, restaurants and clubs and canceling all large events. Other badly hit German states are considering similar measures and may announce them in the coming days.
Germany’s health minister Jens Georg Spahn reportedly told a news conference on Friday that lockdowns could not be ruled out in his country. “We are now in a situation–even if this produces a news alert–where we can’t rule anything out.”
In Austria, the government announced Friday it would Austria impose a nationwide lockdown and introduce compulsory vaccination From Feb 1. Chancellor Alexander Schallenberg said those who continue to be unvaccinated will face fines or imprisonment, national broadcaster ORF reported.
“Austrian plans for a 20-day lockdown from Monday has sparked a risk-off move, with energy, travel and restaurant names all losing ground,” wrote Joshua Mahony, Senior Market Analyst at IG.
Shares on the move:
Arkema shares traded 1.9% higher after the chemicals group said it’s targeting battery sales of at Least EUR1 billion by 2030. Deutsche Bank said the company’s ability to deliver strong growth in a volatile macro environment is partly driven by its shift from cyclical activities toward higher-value and more sustainable specialty products.
According to analysts at Deutsche, Arkema has reported positive earnings surprises in the past 29 quarters, showing resilience and solid cash flow in spite of shortages and supply-chain disruptions. “In 2024, Arkema should become a pure specialty materials play with around 70% of sales exposed to three high value growth platforms: adhesives, high performance polymers and coatings.”
—
Centrica rose 0.9% following a report claiming the U.K. owner of British Gas was nearing a deal to sell its share of exploration-and-production business Spirit Energy to private-equity backed Norwegian energy company Sval Energi. Centrica, which holds a 69% stake in Spirit, and Sval declined to comment, Reuters reported.
RBC Capital Markets said it isn’t clear what the $400 million price tag relates to and could be just for the Norwegian assets within Spirit, rather than the full U.K. and Norwegian portfolio. “Despite the fact that $400 million therefore looks light versus our GBP450 million valuation for Centrica’s share of Spirit, we still think this newsflow will be positively received,” RBC analyst John Musk said.
—
Kingfisher shares fell 4.6% with Interactive Investor descibing the DIY retailer’s third-quarter as steady rather than “blow-out.” Kingfisher’s quarterly like-for-like sales were down 2.4% year-over-year, but topped forecasts nearer to a fall of 3% and were up 15% on a two-year pre-pandemic comparison.
“Overall, and less favorably, vaccinations and increased travel opportunities going into 2022 could see DIY spending sacrificed in favor of holiday plans,” said Interactive analyst Keith Bowman. “Broader product-supply challenges and rising raw-material costs are worth remembering, with around 25% of its cost of goods sold coming from Asia.”
Jefferies said the update confirmed ongoing upward pressures on short-term profit. “Inevitably the long list of unknowns ahead of next year translates into no changes to mid-term estimates.”
—
Societe Generale stock gained 0.8% but it looks cheap after the bank posted strong third-quarter results, which triggered upgrades to consensus EPS forecasts, said Jefferies.
Part of the third-quarter momentum was due to temporary effects, but consensus expectations should continue to be revised upward, said Jefferies, which added its its EPS forecasts for 2022 and 2023 are still 13% and 21% above consensus views, respectively, and the possibility of provision write-backs and M&A–with LeasePlan or ING France–provides further upside.
Jefferies has kept a buy recommendation on SocGen but raised its price target to EUR42 from EUR38 previously.
Economic news:
The 0.8% on-month rise in U.K. retail sales volumes in October appears to reflect consumers purchasing Christmas gifts earlier than usual due to warnings about product availability, rather than a sustainable improvement, said Pantheon Macroeconomics. Retail sales are likely to fall back in November and struggle over the next months as households’ real disposable income will be squeezed by inflation, Pantheon’s chief U.K. economist Samuel Tombs said.
“Households still can spend more over the coming quarters, despite their incomes falling, if they reduce their saving rate from its current above-average level. But weak consumer confidence suggests households will continue to be cautious.”
Economic Insight:
Several eurozone governments have tightened coronavirus rules lately and more measures are on the cards, but Capital Economics said the economic fallout from the new measures should be fairly small overall. Nevertheless, the restrictions will dampen the recovery to some extent, and households are already limiting their own activities even if not required to do so by law.
“While we think the direct impact on activity this winter will be small, new restrictions will be an extra headwind when the economy is struggling with supply shortages,” Capital Economics’ chief Europe economist Andrew Kenningham said. Capital Economics expects eurozone GDP growth to slow sharply in the fourth quarter, to just more than 0.5% quarter-on-quarter.
U.S. Markets:
Stock futures rose, pointing to an extension of the gains that have sent major indexes to fresh records.
Stocks have traded choppily this week, buffeted by continued concerns about inflation. Strong earnings reports, and retail sales data that showed consumers are still spending, has boosted market sentiment, investors say. The S&P 500 is on track to close up for the week.
Earnings season is ongoing, with retailers Foot Locker and Buckle set to report Friday ahead of the opening bell. Shares of fashion e-commerce company Farfetch sank more than 20% in out-of-hours trading after it reported revenue that missed Wall Street’s estimates. Financial software firm Intuit climbed 9% after it raised its full-year guidance.
“Earnings have been very well supported. There are no real signs of stress on the margin or cost side. Some of the bottlenecks, supply-chain issues are easing,” said Georgina Taylor, a multiasset fund manager at Invesco.
Forex:
The dollar was steady in European trading after its recent rise to 16-month highs, but it could still be set for big swings ahead of next week’s Thanksgiving holiday and it might yet vault to new peaks, UniCredit said.
“Most recent price action appears to hint that seesawing–even with large intraday swings–is likely to continue in the coming days ahead of Thanksgiving and the expected decision on the Fed chair. It’s still too early to imagine that the USD rally has definitively peaked and that the other currencies have definitively bottomed out.”
CBA said currency markets are likely to trade in a narrow range Friday with a lack of any policy-relevant economic data.
Although there’s a risk that broad and rising underlying inflation in the U.S. could spur the FOMC to quicken the pace of its tapering, a faster taper seems to be a low probability at this stage, CBA added.
UBS said the dollar could benefit from the Fed’s declining asset purchases, the scaling back of fiscal stimulus and slowing global growth in 2022. It expects currencies exposed to tightening monetary policies to appreciate, compared with those bound to looser policies.
In an inflationary environment, currency diversification can lower the risk of longer-term wealth erosion, said UBS. “Very high rates of inflation have historically tended to be local phenomena.”
Bitcoin extended its fall into a fifth day. The cryptocurrency traded at around $56,300, 2.2% down from its level at 5 p.m. ET on Thursday and more than 18% below the record high hit on Nov. 10.
Bonds:
Sovereign bonds globally don’t look as overpriced as they did a few months ago as the economic recovery continues but yields will edge higher, according to Santander Asset Management’s expectations. Inflation-linked bonds continue to be an attractive asset to gauge.
Santander AM maintains a positive outlook for equities versus Bunds, seeing the economic climate remaining robust and the Covid-19 pandemic less of a worry.
The asset manager sticks to its underweight position in European fixed income but it sees the room for a near-term yield rise as contained.
“Markets have now priced in a lot of bad news [on inflation] and it would take a further marked deterioration in the inflation outlook for yields to push noticeably higher in the immediate term.”
As the European recovery continues, bond yields will edge higher, but bonds don’t look as overpriced as they did a few months ago.
Citi said Eurozone peripheral government bond yield spreads might come under pressue next year as the European Central Bank shifts away from asset purchases as a policy tool.
“This could mean markets looking for a new equilibrium for [eurozone government bond] spreads in the regime of less ECB buying and still elevated supply.”
Citi expects the 10-year Italian BTP-German Bund yield spread to widen to 150 basis points and stay around that level for much of 2022.
Political uncertainty related to the election of a new president, possibly coinciding with the French elections, mean near-term uncertainty for Italian spreads. However Citi said “we believe the political backdrop has changed from what we saw over recent years, with most political parties more mainstream and anti-euro/EU sentiment at an ebb.”
Moody’s may deliver positive ratings news to Greece later Friday in a possible move to catch up with other agencies that have had positive rating announcements, said Commerzbank.
(MORE TO FOLLOW) Dow Jones Newswires
November 19, 2021 06:02 ET (11:02 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
