EMEA Morning Briefing: Optimistic mood to boost European equities



To watch:

Germany Retail trade, Labor market statistics; France Provisional CPI; UK money and credit, BOE effective interest rates, manufacturing PMI; presidential election in Italy; OPEC + meeting; no major company update is expected

Opening call:

New records on Wall Street should help European stocks continue their advance on Tuesday. In Asia, equities were mostly higher, along with the dollar, oil and gold, while Treasury yields were flat after hitting their highest levels since November to start 2022.


European stocks are expected to continue their positive start to the year with further gains likely on Tuesday, following the rise in US stocks in the first session of 2022.

Apple briefly touched a market cap of $ 3 trillion on Monday, which was enough to push the Dow Jones Industrial Average and the S&P 500 to new highs, with returning traders betting Omicron won’t change the policy. central bank in the coming months.

“With an underlying omicron and the ubiquitous omigone theme, European trade is expected to start positively today,” wrote Jeffrey Halley, senior market analyst, Asia Pacific, OANDA.


The dollar continued to advance in Asia, as the currency’s strength was bolstered by two stories, according to Silicon Valley Bank’s Minh Trang: It’s a bit of a safety game after the Omicron variant headlines and that the US economy remains strong, which will allow the Federal Reserve to raise rates.

Bannockburn Global Forex said the dollar is expected to strengthen further in the near term on rate hike expectations before declining in the second half of 2022. The market has built in nearly 75 basis points of rate hikes in 2022 and sees an increase two-thirds. likelihood of an increase in March, Bannockburn quarterback Marc Chandler said. The risk is “on the upside” for inflation in January and February, which will support rate hike expectations.

“We suspect that the dollar high is not yet in place and expect a more sustained pullback in the second half of the year as the economy [we anticipate] slows towards the trend. ”

For some on Wall Street, it’s not just about how soon the Fed might raise rates, but whether the central bank might raise its currently near zero target by more than the usual quarter of a percentage point.

BMO Capital Markets said a 50 basis point rate hike could happen if data on inflation expectations really starts to rise. With expectations already turning to the possibility of a rate hike in March, BMO said that “the most compelling scenario for a 50 basis point hike is where the Fed waits and sees if inflation turns around. calm in April / May and is wrong; leave the FOMC decidedly. behind the curve “, and needing to catch up with a more aggressive tightening.

The yen weakened against most G-10 currencies as risk appetite improved following gains in equity markets in the United States and most of Asia.

IG said sentiment could be based on Wall Street optimism, although market participants have generally been more cautious in taking more risk in Asia, noting developments such as the resurgence of Covid-19. According to a press report, the Chinese city of Zhengzhou, in Henan province, entered partial containment from today after some cases of Covid-19 were detected on Monday.

The British pound continued to retreat against the dollar after recent gains which saw it hit a seven-week high of $ 1.3551 on Friday.

However, Jefferies sees the possibility of the pound sterling rising again due to diminishing concerns over Covid-19 and the prospect of increased interest rates from the Bank of England. GBP / USD is well positioned to break above the resistance of the 100-day moving average chart, currently at 1.3564, Jefferies said.

“The UK has done a great job of trying to stay open and there are early indications that Omicron may be peaking.” If this is true, it could “give new momentum” to the sterling’s rise in recent weeks and could put more pressure on the BOE to hike rates again on February 3.

Obligations :

U.S. government bond yields remained unchanged in Asia after hitting their highest level since November on Monday, with returning traders betting that the Omicron Covid-19 variant will not change central bank policy in the months to come.

“There is still a lot of uncertainty, but it looks like investors are looking at the Omicron variant and thinking about Fed rate hikes,” said Gennadiy Goldberg, senior US rates strategist at TD Securities.

Investors will be watching the jobs figures ahead on Friday, expecting December to show strong job creation, although perhaps dampened by the Omicron spread towards the end of the month. Peter Cardillo of Spartan has said that historically the direction of the markets in the first trading week of the year “generally sets the tone for the performance of the current market”.

A correction in the US stock market and rising bond prices are on this year’s list of legendary Blackstone investor Byron Wien’s 10 surprises.

Wien and Joe Zidle, chief investment strategist at Blackstone’s private wealth management solutions group, said they expected strong earnings to conflict with rising interest rates, which would prevent the S&P 500 from advancing this year. The duo also foresees a correction which is approaching but does not exceed 20%.

Wien and Zidle said they expected the Fed to complete its cut and raise rates four times in 2022, and that the bond market will respond to rising inflation and the Fed’s cut, the yield on 10-year treasury bills reaching 2.75%.


Oil extended its gains in Asia as investors waited for the OPEC + meeting later today.

Benchmark crude has tested the $ 80 grip in the last few days of trading in 2021, but has so far failed to return to that level, the OCBC said. However, the recovery in oil is expected to continue in 2022 due to the recovery in Asian demand and continued inventory strain globally.

OPEC is unlikely to “change from the scenario” and increase production by the expected 400,000 barrels per day, Phil Flynn, senior market analyst at The Price Futures Group said Monday.

The reaction to the first speeches about production outside of OPEC is “rather subdued and oil prices are rising after falling sharply as the New Year holidays approach, where we have seen prices drop on a very light volume.” , said Flynn. The market appeared to rise “on a risk mode and on reports of threats to global supply.”

Libya is reported to expect its oil production to drop an additional 200,000 barrels a day as crews work on a damaged pipeline – two weeks after media said militias shut down the largest OPEC member’s field, causing production to drop 350,000 barrels per day, says Flynn.

“It is becoming a bigger problem because OPEC is planning [a supply] deficit over the next two quarters, “he said.” This should be very favorable to prices, especially if [Libyan output] I can’t put it back online soon. ”


Gold edged higher on a likely technical adjustment, after prices stabilized at a nearly two-week low on Monday following the rise in equities and Treasury rates.

Phillip Futures said from a technical analysis perspective, the February benchmark gold contract was unable to gain strength after breaking through resistance at the $ 1,830 level. With no evolving fundamentals in the market, gold should continue to build a solid foundation before rising based on safe-haven demand, Phillip Futures said.

Copper prices fell almost 1% as the commodity continued its fluctuating trade trend in recent weeks. While any tightening of US monetary policies would dampen inflation and lower copper prices, low inventory levels around the world will prevent any substantial weakness and support prices, Guangzhou Futures said.

The brokerage therefore expects trading to be limited to a range and said further price weakness could emerge in the coming weeks as Chinese demand eases ahead of the Spring Festival holiday.

Fitch Solutions said copper prices are expected to fall, but not as much as expected. It raised its copper price forecast for 2022 to $ 9,200 per tonne from its previous estimate of $ 8,000 per tonne, maintaining its bearish outlook as fundamentals weaken in the coming months.

Fitch believes tight copper stocks at both the London Metal Exchange and the Shanghai Futures Exchange would decline, while consumption should remain stable. However, falling copper prices are expected to be limited by higher “green demand” as the renewable energy sector expands.

Iron ore prices were higher for the first session of the year on the Dalian Commodity Exchange. The recovery is likely due to rising expectations for higher steel production in the coming months as production restrictions ease in the new year, Huatai Futures said.

The brokerage said a bullish steel market with good demand and high prices should support the purchase of iron ore, while restocking demand ahead of the Spring Festival would provide a boost. additional.



Chinese manufacturing sector rebounded in December, according to Caixin PMI

A private gauge measuring activity in China’s manufacturing sector rebounded in December, ending a two-month contraction and reaching the highest level since June, as output remained strong and inflation in input costs has faded.

The Caixin China purchasing managers index rose to 50.9 from 49.9 in November, according to data released Tuesday by Caixin Media Co. and researcher Markit. A reading below 50 indicates contraction, while a reading above this indicates expansion.


Covid-19 cases hit new records in US

Covid-19 infections continued to mount well above previous peaks across the United States, as students returned to classrooms while some workers stayed home after contracting or being exposed to virus.

(MORE FOLLOWING) Dow Jones Newswires

January 04, 2022 00:45 ET (05:45 GMT)

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