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Daily Wrap Up 1 December 2021

1 Dec 2021 04:48 PM

Risk-on sentiment circulates

Traders have shrugged off the fears surrounding the omicron strain of the coronavirus and they are snapping up relatively cheap stocks today. We haven’t heard the last of the omicron variant, but early reports suggest the symptoms are mild and therefore the possibility of lockdowns being reintroduced seems very slim, hence why the DAX is almost up 2.3% and the FTSE 100 is 1.3% higher. Over on Wall Street, the mood is upbeat too as the S&P 500 is up 1.8%. Stock market on both side of the Atlantic are far from retesting the peaks they posted in November, but they are comfortably off their recent lows. In contrast to yesterday, long haul airlines like Air France, Lufthansa and IAG are posting strong gains. UK domestic transport companies like National Express, Go-Ahead Group and FirstGroup are enjoying decent gains. When you take into account which stocks are outperforming, it is clear that dealers are not concerned about Covid-19 hampering the economy.

Judging by the latest economic data from Europe and the US, the economic recovery seems to be going well. Of the eurozone economies, the Italian manufacturing PMI report was the strongest as the reading was 62.8, while the French update was the weakest at 55.9 – which is still a healthy level of activity. Britain’s manufacturing reading was 58.1, a three-month high. The US ISM manufacturing report ticked up from 60.8 to 61.1. The internals of the announcement were solid too as the employment and the new orders metrics were 53.3 and 61.5 respectively – both showed improvements on the month. There was an unexpected dip in the prices reading as it fell to 82.4, from 85.7, but considering that inflation is posing a problem, it is no bad thing that prices have cooled. The US ADP employment reading for November was 534,000, marginally topping the 525,000 consensus estimate. It is the third month in a row that more than 500,000 jobs have been added so that bodes well for the US labour market, and it helps set the tone for Friday’s US non-farm payrolls report. Despite the well-received US data, the US dollar is essentially flat on the day. Commodity currencies like the Australian dollar and the Canadian dollar are performing well thanks to the rebound in metals and energies, which ties-in with the wider risk-on sentiment.

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