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Stocks dip, oil slides and havens shine as growth nerves nag

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November 18, 2021

By Tom Westbrook

SYDNEY (Reuters) – Stock markets stalled on Thursday and safe havens such as government bonds, gold and the yen were supported in Asia, as a hint of uneasiness crept in over the outlook for interest rates and growth, particularly outside of the United States.

Oil prices skidded to a six-week low on concern about a supply overhang and the prospect of China and the United States dipping into their fuel reserves, with Brent futures last at $80, about 8% off last month’s three-year high. [O/R]

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Japan’s Nikkei fell 0.1%. [.T] MSCI’s broadest index of Asian shares outside Japan dropped 0.5%, dragged mostly by weakness in Hong Kong tech stocks.

S&P 500 futures were up 0.1% after the index eased a little bit on Wednesday. European futures were flat after scaling a record peak a day earlier. [.EU][.N]

“We do seem to have stalled somewhat as we head into the year end,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners in Sydney.

“Investors perhaps are just taking a bit of pause,” she said, in the wake of a strong U.S. results season, but as inflation and China’s slowdown loom as macroeconomic headwinds.

The mood was softest in Hong Kong where concern over the earnings outlook weighed on tech and a 5% drop in heavyweight Alibaba, due to report later in the day, dragged the Hang Seng 1.3% lower. [.HK]

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Ant Group and SoftBank-backed payments firm Paytm also copped a drubbing on debut in India, with shares falling 21% below the listing price in their first session.

Meanwhile, safe-haven assets hung on to most of Wednesday’s decent gains. The yen, which posted its sharpest one-day slump in three months a day ago, hovered at 114.18 per dollar. Gold sat steady at $1,866 an ounce. [GOL/]

Benchmark 10-year Treasury yields also held at 1.5906% after falling about 5.5 basis points on Wednesday. [US/]

The day ahead is quiet on the calendar, with appearances from central bankers in the United States and Europe and U.S. jobless claims data the highlights.

BIG DOLLAR

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Against the backdrop of apparent caution is a surging U.S. dollar, as U.S. data has turned surprisingly strong just as doubts have arisen over the outlook for other major economies.

On Wednesday, figures showed a jump in building permits and the backlog of house construction rose to a 15-year high – underscoring strong demand on the heels of a better-than-expected retail sales report on Tuesday.

By contrast, Europe is grappling with a wave of COVID-19 cases and fresh restrictions to curb it, while the central bank is pushing back on pressure to raise rates.

The euro has recovered from a trip below $1.13 on Wednesday but remains shaky at $1.1317 and is braced for its worst month on the dollar since June when the Federal Reserve surprised investors with a hawkish shift in tone. [FRX/]

In emerging markets, Turkey is in near crisis and the lira flirting with a collapse through 11 per dollar as the central bank is poised to cut rates at 1100 GMT even as inflation hovers near 20%.

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Currency traders are also assessing a sharp downdraft in the Aussie/yen cross, often a barometer of sentiment. It fell through its 200-day moving average on Tuesday and has lost almost 4% in a dozen sessions.

“You’ve got the perfect storm there for bears,” said Matt Simpson, senior analyst at brokerage City Index. “Fundamentally and technically Aussie/yen looks pretty good with lower oil prices.”

Copper, another barometer of growth expectations because of its range of industrial and construction uses, was also down about 2% at a five-week low in Shanghai. [MET/L]

(Reporting by Tom Westbrook in Sydney; Editing by Shri Navaratnam and Sam Holmes)

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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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