Mixed open for European equities after strong Wall Street rally

Morning Note

I paraphrase a line from the excellent cartoonist Bob Moran to note there are people out there who are now absolutely certain that the government has been relentlessly lying to them for 20 months, and yet still do exactly as they are bid. There is a ‘market’ theme to this: the seriousness of omicron does not necessarily correspond to the responses of both government and the public to the perceived risk. As my friend Helen Thomas of BlondeMoney explains in our forthcoming Markets.com 2022 preview – The Year of the Fringe; new variants – whatever form they take – means the velocity of people will remain impaired, which has long-term consequences for the economy and, therefore, stocks. Hoping for the best but preparing for the worst will see consumers modify their behaviour and businesses adjust their operations even without mandated restrictions, she writes. Governments will continue to dangle various threats in front of their populaces to keep them in line. Europe has already entered a ‘papers please’ world; let’s pray that during the season of goodwill to all (yes, even the unvaccinated!), we can find a way to simply exist without fear of or from our neighbours.

 

It’s been a cautious start to trade in Europe this morning after a solid rally in the previous session has led markets to pause for breath. After 1.5% gain for the FTSE 100 and a 2.8% gain for the DAX, it’s hardly surprising we are seeing a bit of restraint in early trade – London and Paris were mildly higher, Frankfurt mildly lower. Into the first half hour of trade though the wheels were starting to turn a little more in the right direction with the DAX going green and the FTSE advancing 0.5% to within a few points of its post-pandemic high at 7,400 where there is a fair bit of resistance.  

 

US markets rose for the best day since March and the best two-day gain for the S&P 500 since May – the market apparently happy to discount any omicron fears. Tech stocks led the way, with a 3% gain for the Nasdaq, and a 2% rally for the S&P 500 to leave it within 1% of its all-time high. Momentum was bid after being oversold – ARRK enjoying a 5% rally, whilst Tesla added 4%. 

 

Too optimistic? Stock markets seem to have decided that omicron won’t be that bad for the global economy. A negative headline can change the mood quickly. Pfizer suggests omicron reduces antibody protection for people who have received its vaccine. Real-world South African data indicates it’s a lot less severe. On the whole, rotation magic can keep the wheels turning in the right direction and dip buyers are still aplenty. Covid has not stopped the market from reaching all-time highs – be that US, European or Global shares. The FTSE 100 remains the laggard here due to its prehistoric makeup, but that can change next year as we look for banks and energy to do well.

 

After the Reserve Bank of Australia shifted its forward guidance to open the door to an earlier rate hike, it’s the turn of the Bank of Canada. A very positive jobs report last week and signs of strong growth and rising inflation suggest the central bank will not veer from its slightly more hawkish messaging. Today is the moment to set its stall out for a rate hike early next year. Also on tap today are the JOLTS job openings in the US, crude oil inventories and a US 10yr bond auction. API figures showed a draw of 3m barrels last week, with the market consensus for today’s EIA data for a draw of 1.5m barrels.