European markets rose on Friday morning after a positive handover from Asia in the wake of a solid recovery on Wall Street on Thursday. Not huge gains on the main bourses but tentative, in the region of 0.15-0.3 per cent. The omicron variant is still the driving force with news flow around its spread and seriousness creating elevated near-term volatility. It’s a bit of a catchup to the US session we are seeing in Europe this morning after a soft close. US futures pointing to a flat open after yesterday’s bounce. Fed watchers have the nonfarms today to look forward to but it’s all about inflation now.
Investors are coming back into some oversold names, suggesting they are seeing some buying opportunities if omicron is not as bad as feared. The S&P 500 finished 1.4 per cent higher to recover the 50-day moving average – the area where the market has solidly found support all year. Reopening stocks led the way with big gains for the likes of Delta Airlines (0QZ4), Wynn Resorts (WYNN), Carnival (0EV1) and Norwegian Cruises (0UC3), suggesting investors thought some of the moves against stocks tied to travel were overdone this week. Banks and energy stocks were strong, helping the Dow to outperform with a 1.8 per cent gain for the day. Not much movement in rates – 10s steady just under 1.5 per cent, 2s nudging higher to flatten the curve. All in all investors not diving in with both feet to buy this dip but prepared to stick their toes in the water whenever it looks warm enough – ie, oversold enough. Risky game right as this remains a market willing to chop up both bulls and bears.
Basic resources lagged in early trade in London with the miners at the bottom, whilst some oversold travel stocks bounced with IAG (IAG) at the top of the FTSE 100, EasyJet (EJ) also up. Oil stocks also rose as spot crude prices staged a big fightback in the wake of the OPEC+ decision to press on with raising output by 400k bpd. Oil prices seemed to stabilise as the cartel indicated it could swiftly change policy if there were to be a major hit to fuel demand from the variant. WTI firmly rejected the $62.50 area and now trades around $68.50, yet to recover the Wednesday high around $69.50, the previous 23.6 per cent level. Failure to test the August lows could suggest the flush is done and could allow for some consolidation around the $68-71 range.
App-alling: Deliveroo (ROO) fell 5 per cent in early trade, perhaps on Kynikos Associates founder Jim Chanos revealing a short position in DoorDash (DASH), pointing to flawed business models. The argument from Chanos: ‘If you can’t make money as a food delivery firm during the pandemic – then when can you?’, could just as well apply to ROO. Chanos also said he was shorting DraftKings (0A40). Also Thursday saw Asian ‘super-app’ Grab fall 21 per cent on its Nasdaq debut after merging with a special purpose acquisition company. Meanwhile Chinese ride-hailing app Didi Global (DIDI) is to delist its shares in New York and move to Hong Kong following a crackdown by both US and Chinese authorities.
Today’s data sheet focuses on the US nonfarm payrolls report; however the Fed’s recent hawkish pivot and acknowledgment of inflation risks means the labour market is not the key to guessing monetary policy going forward. Cleveland Fed president Loretta Mester said: “If it turns out to be a bad variant it could exacerbate the upward price pressures we’ve seen from the supply-chain problems.” The comment underlines the sentiment that has emerged in recent weeks from policymakers that the Fed is not about to be more accommodative, even in the short-term, in response to the omicron variant.
Neil Wilson is the Chief Market Analyst at markets.com
