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Asian stocks mixed ahead of U.S. inflation test

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November 9, 2021

By Julie Zhu

HONG KONG (Reuters) -Asian shares were mixed and U.S. treasury yields slipped on Tuesday as markets, boosted by the weekend passage of a long-delayed $1 trillion U.S. infrastructure bill, awaited the release of inflation data from the United States.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%. Japan’s Nikkei stock index slid 0.68% while Australian shares were down 0.24% as losses in the financial sector offset early gains among heavyweight mining stocks.

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Elsewhere in Asia, China’s blue-chip CSI300 index lost 0.2% as lingering worries about the real estate sector’s liquidity woes weighed on property stocks. Hong Kong’s Hang Seng index was down 0.11%.

The highest-ranking members of the Chinese Communist Party have gathered in Beijing since Monday and are set to green-light another term for President Xi Jinping.

Meanwhile, a think-tank of China’s state council held a meeting with real estate developers and banks on Monday, with developers urging state companies to help private firms improve liquidity.

“The sentiment of the entire market is relatively low today. More investors are taking a wait-and-see approach amid and ahead of major events, waiting for more policy direction,” said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management.

European share markets were set for a softer open, with pan-region Euro Stoxx 50 futures down 0.41%, German DAX futures off 0.31% while FTSE futures dropped 0.39%. U.S. stock futures, the S&P 500 e-minis, were down 0.22%.

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On Monday, Wall Street’s benchmark S&P 500 index and the Nasdaq extended their run of all-time closing highs to eight straight sessions, while the blue-chip Dow notched its second consecutive record closing high.

A 4.9% decline in Tesla Inc shares however weighed on the S&P 500. Tesla fell after Chief Executive Elon Musk’s Twitter poll on whether he should sell about 10% of his stock in the electric automaker. The poll garnered more than 3.5 million votes, with 57.9% voting “Yes”.

World shares also rose on Monday after hitting a record high last week as relatively dovish central bank messages and strong U.S. labour data on Friday added to optimism generated by a healthy earnings season on both sides of the Atlantic.

But a tight U.S. labour market and the dislocation in global supply chains could result in a high reading for consumer prices on Wednesday. Strong inflation likely would rekindle talk of Federal Reserve raising interest rates earlier than expected.

“Although Chair Powell maintains the Fed can be patient with regards to rate hikes, with measures of underlying inflation and wages intensifying and broadening, the clock is ticking on how long the it can hold that line,” ANZ analysts said in a note.

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U.S. Treasury yields dipped after Randal Quarles, who served as the U.S. Federal Reserve’s vice chair for supervision and most powerful bank regulator until last month, announced Monday he will step down as a bank governor at year’s end.

The yield on benchmark 10-year Treasury notes touched 1.4741% compared with its U.S. close of 1.497% on Monday. The two-year yield fell to 0.4148% compared with a U.S. close of 0.449%.

The dollar index, which tracks the greenback against a basket of six currencies, was down at 93.919.

Oil prices remained steady as the passage of the U.S. infrastructure bill and China’s export growth supported the outlook for energy demand.

Saudi Arabia’s state-owned producer Aramco also raised the official selling price for its crude.

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U.S. crude dipped less than 0.1% to $81.86 a barrel. Brent crude stood at $83.31 per barrel.

Gold was slightly lower. Spot gold was traded at $1,823.1742 per ounce. [GOL/]

(Editing by Lincoln Feast)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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