- FTSE 100 closes 65 points higher
- Wall Street rallies as well
- Omnicron fears abate slightly
4.50pm: Good start to new week
The FTSE 100 index bounced back on Monday, recouping a chunk of Friday’s hefty losses as worries over the impact of Omnicron, a deadly new coronavirus (COVID-19) variant from South Africa faded somewhat.
At the close, the UK blue-chip index was 65.92 points, or 0.9% higher at 7,109.95, well above the session low of 7,044.03 but below the day’s high of 7,161.91.
The mood was also brighter on Wall Street. Around London’s close, the Dow Jones Industrials Average was up 179 points, or 0.5% at 35,079, albeit having plunged by 1,000 points on Friday. Meanwhile, the broader S&P 500 index gained 1.2% and the tech-laden Nasdaq Composite jumped 1.6%.
Chris Beauchamp, chief market analyst at IG, a global leader in online trading commented: “A more positive tone prevails across markets today, although some of the optimism in US stocks seen right after the open has been pruned back. The exception to this is in the Nasdaq, where FANG stocks have made impressive strides to the upside, as some of the old pandemic/lockdown trades come back to the fore.
“So much is yet to be determined regarding the new variant, which means the market is still in the ‘price discovery’ mode that kicked off on Friday, albeit in a much less dramatic version. The rebound today is a natural reaction to Friday’s drama, which in itself was perhaps overdone and a reflection of the half day and low volumes prevailing on Wall Street. Dip buyers are emerging across a host of sectors, and as ever it will take a while for the market to claw back all the losses suffered last week.”
Beauchamp added: “UK investors have spent the day picking up some relative bargains in global economy names like Compass, BP and BHP Group, as the risk aversion of Friday ebbs away. A less severe viral variant implies a more modest reaction from governments this time around, with a smaller hit to GDP than that seen last year. Some of Friday’s more extreme movements are thus being unwound today, although a hint of caution persists.”
4.00pm: Omnicrom worry fades
Although it is no longer sporting a triple-digit gain it has been a good day for the FTSE 100.
London’s index of heavyweight shares is up 87 points (1.2%) at 7,131.
“The harder the drop, the stronger the rebound. As is often the case after outsized, one-directional, moves in financial markets, you often see a sharp move in the opposite direction,” said Fawad Razaqzada at thinkmarkets.com.
“Investors are evidently making an assumption today that Omicron may not be as bad as had been feared on Friday, and that vaccines may still prove effective. It will take some time – possibly a couple of weeks at least – to understand this variant better, given how little is known about Omicron. So, what might happen going forward is that we will see elevated levels of volatility as investors continually take profit and buy the dips here and there, until there’s more clarity on the virus front, while also keeping a close eye on other macro developments. Therefore, expect some choppy prices action over the next few weeks,” he predicted.
The biggest riser of the day was genedrive PLC, which was up 82% to 42.25p after the diagnostics device developer said its point of care molecular test for SARS-CoV-2 detection has been submitted or CE-IVD certification under the European Communities Council Directive 98/79.
The biggest faller was Amigo Holdings PLC (LSE:AMGO), which saw its shares tank 26% to 7.9p after it warned it could go bust if it is not allowed to resume lending soon.
2.45pm: Ton-up for the Footsie
Equities continue to be the flavour of the week as worries over the Omicron variant of Covid-19 recede.
Stephane Bancel, the chief executive officer of US pharmaceuticals giant Moderna has said the company could develop a new vaccine to combat Omicron and get it approved by regulators within 60 to 90 days.
Bancel was speaking to US TV network, CNBC.
As expected, US indices have started on the front foot with the Dow Jones 219 points heavier at 35,118 and the S&P 500 49 points (1.1%) to the good at 4,643.
In Blighty, the FTSE 100 has added to the morning’s gains and reached 7,159, up 114 points (1.6%) on the day.
BT Group PLC (LSE:BT.A), up 7.1% and the subject of bid speculation, remains the best blue-chip performer but investors are also tucking into Compass Group PLC (LSE:CPG) with enthusiasm. Shares in the contract caterer, which provides the nosh at a lot of huge entertainment venues, were up 5.1%.
Other stocks benefiting from receding fears of the reintroduction of travel restrictions include FTSE 250 stalwarts Carnival PLC (LSE:CCL), the cruises operator; WH Smith PLC (LSE:SMWH), the retailer focused on transport hubs, and Cineworld Group PLC (LSE:CINE), the heavily indebted operator of cinema chains. Gains on this trio range from 8.8% to 10.1%.
1.20pm: FTSE 100 in the nervous nineties
House purchase mortgage approvals fell to 67,200 in October, from 71,900 in September, which was below the consensus forecast of 70,500.
Net consumer credit rose by GBP0.7bn, which was well above the consensus forecast of a rise of GBP0.4bn.
Households’ total liquid assets — their deposits with banks and building societies, as well as cash stored in National Savings and Investment accounts — rose by GBP6.4bn in October, down from GBP9.0bn in September.
“Households set aside into savings accounts in October the smallest sum since the pandemic began, though the emergence of the Omicron variant likely will ensure that they remain cautious over the coming months,” suggested Samuel Tombs at Pantheon Macroeconomics.
“The GBP6.4bn increase in total liquid assets was much smaller than the GBP11.9B average increase in the previous 12 months and quite close to the GBP4.8bn average increase in the two years before the pandemic. The decline in saving, however, likely reflects a combination of earlier than usual Christmas gift buying and the jump in the CPI [consumer prices index] in October, triggered primarily by the increase in the energy price cap. Meanwhile, the new Covid-19 variant likely will prompt some households to visit services venues less frequently, at least until more is known about the effectiveness of current vaccines. Accordingly, we expect households to continue to save an above-average share of their incomes at least until next Spring,” Tombs said.
“Meanwhile, house purchase mortgage approvals fell for the fifth consecutive month in October and were very close to their 2015-to-2019 average, 66.4K. Near-term indicators suggest that demand will pick up in the final months of 2021. For instance, the new buyer enquiries balance of the RICS Residential Market Survey has recovered to +10 in October, from +1 in September, while Google Trends data suggest that the number of people visiting one of the three main property websites has stabilised at nearly 15% above its pre-Covid norm. That said, mortgage rates will rise sharply over the coming months, as lenders respond to the recent jump in the wholesale funding costs. In addition, the downward pressure on households’ incomes will build as CPI inflation rises further and taxes increase in April. Accordingly, we expect mortgage approvals to merely match their 2015-to-2019 average in the first half of next year,” the economist added.
The FTSE 100 was up 95 points (1.4%) at 7,139, helped by speculation that the latest strain of Covid-19 makes an interest rate rise next month less likely.
“The Omicron variant has punctured expectations of a Christmas rate hike, with February now emerging as the frontrunner to stage the much anticipated tightening of UK monetary policy. Markets had really got ahead of themselves in so confidently predicting a 2021 rate rise, no doubt egged on by some hawkish rhetoric from the Governor of the Bank of England but it was always going to be risky for the Bank to raise rates this year, with the heightened chance of a resurgence in the pandemic over the winter months, and employment data beyond the furlough scheme only just becoming available,” suggested Laith Khalaf, the head of investment analysis at AJ Bell.
12.20pm: US markets expected to rally strongly
As in the UK this morning, US markets are on course to rally today after Friday’s COVID-19-inspired setback.
Spread betting quotes point to the Dow Jones opening at around 35,110 and the S&P 500 at 4,634 – up 211 points and 39 points respectively.
Stocks closed lower in Friday’s holiday-shortened trading session, with the Dow suffering its biggest one-day decline this year.
“Last Friday could be designated as 2021’s worst day in financial markets. Risk-off sent global stocks, oil prices, commodity currencies, and Treasury yields sharply lower, reminding investors of the dark days in early 2020,” commented Hussein Sayed, chief market strategist at Exinity Group.
“There are more questions than answers at this stage; it could turn out to be better or worse, depending on new findings. But investors today decided to downplay the worst-case scenarios and buy the dips.”
Also helping traders put risk back on is the diminishing expectation for US monetary policymakers to tighten policy, Sayed added.
“Interest rates futures are now indicating that the first US rate hike will occur in July compared to June, as of earlier last week. Now markets expect only two rate hikes for 2022, down from three before the Omicron news,” he said.
“However, these expectations could change dramatically over the coming weeks as we get to know more about the new variant.”
In the UK, the FTSE 100 is cruising at an altitude of 7,127, up 83 points (1.2%), helped – as if the laboured pun did not give it away – by investors’ enthusiasm for airline stocks such as British Airways owner International Consolidated Airlines SA, which is up 4.1% at 136.78p as new lockdown fears ease.
“Claims that the Omicron variant could have mild effects have helped elevate markets after Friday’s collapse; however, with the true impact of this variant yet to be ascertained, volatility lies ahead for markets,” suggested IG Markets’ Joshua Mahony.
Property company Hammerson (LSE:HMSO) PLC jumped 4.3% to 31.77p after it confirmed it is in discussions on terms of a possible disposal of Silverburn, its flagship destination near Glasgow, which is held in a 50/50 joint venture with CPPIB.
11.15am: Oil on the boil
Oil is on the boil, which is contributing to the Footsie’s recovery this morning.
The FTSE 100 is up 75 points (1.1%) at 7,119 and while the oil giants are far from being the best performers – Royal Dutch Shell PLC (LSE:RDSB) is up 2.7% and BP PLC (LSE:BP.) 3% firmer – but they are so heavily weighted on the index that they are probably the main driver behind the index’s gain.
Brent crude for January delivery is up US$3.28 at US$76.00 a barrel.
“Oil prices ticked up in early trading today following Friday’s sell-off on speculation that OPEC+ may pause an output increase in response to the spread of Omicron, but the mood remained cautious with little known about the new variant,” reported broker SP Angel.
“At least two cases of the new Covid strain have been found in travellers to Hong Kong; despite this, the US still intends to release oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to stem price increases (and therefore inflationary concerns) after OPEC+ producers repeatedly ignored calls for more crude yet it appears that OPEC+ is struggling to produce much more than current levels,” the broker continued.
“Production by OPEC+ was 700,000bopd [barrels of oil per day] less than planned in both September and October, according to the International Energy Agency (IEA), raising the prospect of a tight market and high oil prices for longer. In the past, smaller OPEC producers in Africa and even some larger ones in the Gulf could be expected to exceed quotas set by OPEC when they needed the extra cash, usually when oil prices were low but plunging investment in production caused by the pandemic and environmental pressure on oil majors, particularly in poorer OPEC states, means just three OPEC members – Saudi Arabia, the United Arab Emirates and Iraq – have the extra capacity in place to hike supplies relatively quickly,” SP Angel said.
10.25am: Indian summer – er … winter?
More on the speculation that is driving Johnson Matthey.
It is Tata Chemicals that is reported to be in talks to buy the unwanted battery materials business of Johnson Matthey PLC (LSE:JMAT).
The business could go for between US$500mln and US$700mln, India’s Mint newspaper reported, with Tata one of the frontrunners to buy the business.
Talks between the two companies began after JMAT announced two weeks ago, alongside a group profit warning, that it planned to exit the battery materials business because the potential returns did not justify further investment.
Elsewhere it is lockdown-affected and travel stocks that are leading the rebound, with Carnival PLC (LSE:CCL), Cineworld Group PLC (LSE:CINE), WH Smith PLC (LSE:SMWH) (which has a large business in airports), Restaurant Group, easyJet PLC and Wizz Air Holdings PLC at the top of the FTSE 350 leaderboard.
Leading fallers are precious metals miners Hochschild Mining Plc, Polymetal International plc, along with Micro Focus International PLC Abrdn PLC (LSE:ABDN), AstraZeneca, Hargreaves Lansdown PLC and J Sainsbury PLC (LSE:SBRY).
Joshua Mahony, a market analyst at IG, says: “European markets are kicking off the week on a more positive footing today, with fears around the new Omicron variant easing somewhat. Weekend commentary out of South Africa signal the potential that the new variant may have traded increased transmissibility for a less dangerous set of symptoms. The potential for a less deadly form of the virus does appear to provide some respite to the risk-off sentiment dominating Friday’s trade.
“However, the weeks ahead are fraught with danger for investors, with traders now likely to see any major updates associated with this new variant as a priority over most other economic data points. Nonetheless, while we are likely to see further knee-jerk reactions on a market level, we are only likely to gain a full picture on the risks of this variant in the coming weeks.
“The banks have been hit hard since the emergence of Omicron, with the weakness seen in USDJPY in particular highlighting the shift in expectations around monetary tightening from front runners such as the Fed and BoE. An appearance from Fed chair Powell today should cast some light on just how willing the committee is to hold off on tightening policy in the face of potential economic restrictions.
“With investors having jumped onto financials in anticipation of higher rates and margins, there is a distinct risk that this latest variant could set back the economy and thus dampen any appetite for further monetary tightening. The market pricing for a December rate hike from the Bank of England now stands at 38%, which is a significant decline from the circa 60% level seen less than a week ago.”
9.09am: Blue chip bargain hunting
The market is turning its back on Omicron – perhaps investors think it is the latest Transformers film – and snapping up blue-chip bargains.
The former is 8.7% higher on bid rumours while Johnson Matthey is 4.2% firmer on reports that it has found someone interested in buying its batteries business. Curiously, both bid interests come from India.
8.25am: A bounceback of sorts, led by BT
The FTSE 100 enjoyed a bounce-back of sorts as clawed back some 50 points of the 266 lost on Friday.
But with six new Omicron cases identified in Scotland, the social and economic threat from this new Covid mutation will likely inform sentiment across
“The global economic recovery is set for an unwelcome detour as investors assess the potential impact of the new Omicron variant,” said Richard Hunter, head of markets at Interactive Investor.
“The volatility index has spiked sharply higher, with the main indices seeing a widespread wave of selling as the nemesis of markets, uncertainty, has returned. With little known at this stage about the new variant in terms of vaccine resistance and its level of contagion, many countries have taken swift action in closing their borders in an effort to prevent another global situation.
“One such example of the potential concern has been the oil price, which fell sharply lower in anticipation of slowing demand. Some subsequent recovery is currently being seen and, although the recent losses have not been recouped, the oil price nonetheless remains ahead by 46% in the year to date.
“There may be some lessening of volatility as more detail is released, and in any event, the current malaise should delay the immediate pressure on monetary tightening as central banks assess the potential economic damage from the new strain.”
The early big mover was BT Group, up 9% after it was revealed that India’s Reliance may bid for the telco.
Remember, it is only a matter of days (December 10 to be exact) before the shackles come off for billionaire Patrick Drahi Altice, which has a 12% stake in the business.
Last week, Telecom Italia received a takeover approach from buyout giant KKR valuing its shares at just over GBP9bn. At current prices, BT is worth GBP15.3bn.
6.50 am: Rebound on the cards
After a near 4% fall in the FTSE 100, we are expecting to see a rebound of sorts on Monday.
Still, worries over the spread and potential economic impact of the newly-dubbed Omicron Covid variant look set to haunt world markets.
Asia’s main bourses, for example, struggled as cases of the mutated virus were pinpointed in clusters thousands of miles away from its source in southern Africa.
“After Friday’s ugly sell-off early indications would suggest we’re going to be in for a bumpy ride this week, as we come to the end of November and beginning of December, with today’s market open set to be a positive one despite a slide in Asia markets, as investors strive to understand what comes next,” said Michael Hewson of CMC Markets.
“We’ve always known that new variants could well be a problem, and yet over the past 12 months, there have been many reports of possible candidates that might be a concern that have come and gone without getting the sort of market reaction we saw on Friday.
“It’s also not that clear this newly renamed Omicron variant is any more deadly than the current more prevalent Delta variant, which for the most part is still causing its own fair share of problems in Europe as it is, having replaced Alpha earlier this year, without the same sort of market reaction.”
After a 13% drop on Friday, US crude futures were up 4.1%. Gold, a haven asset in times of market turmoil, was up 0.5% to just under US$1,800 an ounce.
Looking ahead, easyJet results later this week could provide some insight into the plans being made by the beleaguered airline industry in the face of renewed uncertainty.
Otherwise, as we head into December, it looks set to be a quiet week for scheduled corporate news with savings group AJ Bell, payments specialist Wise and publisher Future set to report.
Around the markets
- Pound SU$1.3336 (flat)
- Bitcoin US$57,412.40 (+0.18%)
- Gold US$1,797 (+0.5%)
- Brent crude US$75.06 (+3.22%)
6.50am: Early Markets – Asia / Australia
Shares in the Asia-Pacific region were lower on Monday as the omicron COVID-19 variant threatened to derail economic recoveries and more countries imposed travel restrictions.
China’s Shanghai Composite slipped 0.30% and Hong Kong’s Hang Seng index fell 1.20%,
The Nikkei in Japan slumped 1.63% while South Korea’s Kospi dipped 0.89%.
Australia’s S&P/ASX200 closed 0.54% lower at 7239.8 points with the travel, oil and banking sectors dragging the market down.