Aurelia Butler

NEW YORK (Reuters) – Profit growth for U.S. corporations is expected to slow next year after a gangbuster 2021, with rising inflation and a rapidly spreading COVID-19 variant adding to uncertainty as investors try to justify stock prices trading near record highs.The S&P 500 is on track to rise about 24% this year, and the index’s price-to-earnings ratio sits well above its long-term average, raising worries the market may be overbought.S&P 500 earnings are seen up about 8% in 2022 after an estimated 50% jump this year, when companies rebounded from lockdowns and recession in the early stages of the pandemic, according to IBES data from Refinitiv.Wall Street’s 2022 consensus estimates have changed little in recent weeks even as stock indexes have lost ground amid worries over how quickly the Omicron variant is spreading.”We are moving into an environment where we’re likely to go from seeing multiple expansion to multiple compression,” said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas, referring to a company’s earnings rising but its share price not following suit, leaving investors with little reward.The forward price-to-earnings ratio for the S&P 500 is at 21.5, compared with its long-term average of 15.5, according to Refinitiv DataStream.A key factor helping to support valuations has been ultra low interest rates, which is likely to change now that the Federal Reserve is becoming more hawkish with inflation worries rising, Phipps said.Rising interest rates increase borrowing costs for businesses and consumers, while higher rates also can depress stock multiples, especially for technology and other growth stocks.The tightening labor market and strengthening economy pushed the Fed last week to announce that it would end its pandemic-era bond purchases in March. That could open the door for three quarter-percentage-point interest rate increases by the end of 2022.Fed policymakers also forecast that inflation would run at 2.6% next year, above the 2.2% they projected in September.At the same time, companies are still battling supply disruptions due to the pandemic, which appears to be entering a new, heightened phase as Omicron cases surge across the globe.The possibility of faster spread and renewed restrictions loomed large in some countries ahead of the holidays. Since the start of the month, U.S. COVID cases have risen 50%, according to a Reuters tally.”You do have a lot of things that can go wrong,” said Christopher Harvey, head of U.S. equity strategy at Wells Fargo (NYSE:WFC) Securities, which sees increased chances for a roughly 10% market decline by next summer.U.S. companies this year managed to keep profit margins up because they have cut costs and passed along high prices to customers.It is unclear, however, how much the latest risks will change 2022 earnings estimates and results.Estimated 2022 S&P 500 earnings growth was at 8.3% as of Friday, compared with 8.0% at the start of December, according to Refinitiv data.”Earnings estimates are actually going up in December, so Omicron is not even factored into the estimates at this point,” said Nick Raich, CEO of independent research firm The Earnings Scout. More

LONDON (Reuters) – Britain’s economy grew more slowly than previously thought in the July-September period, before the Omicron variant of the coronavirus posed a further threat to the recovery later in the year, official data showed on Wednesday.Gross domestic product in the world’s fifth-biggest economy increased by 1.1% in the third quarter, weaker than a preliminary estimate of growth of 1.3%.That was slower than the economy’s 5.4% bounce-back in the second quarter when many coronavirus restrictions were lifted, the Office for National Statistics said.Investors are braced for a slowdown in growth in the fourth quarter of 2021 due to a rise in COVI9-cases caused by Omicron which has hurt Britain’s hospitality and leisure sector and hit retailers.”Our revised figures show UK GDP recovered a little slower in the third quarter, with much weaker performances from health and hairdressers across the quarter, and the energy sector contracting more in September, than we previously estimated,” ONS Director of Economic Statistics Darren Morgan said.”However, stronger data for 2020 means the economy was closer to pre-pandemic levels in the third quarter,” he said.The level of GDP was 1.5% below where it was at the end of 2019, revised up from the previous estimate of 2.1% below its pre-pandemic level.Business investment fell by 2.5% in the third quarter from the previous three months and was nearly 12% below its pre-pandemic level.The Bank of England is hoping for a revival of business investment to help improve Britain’s longer-term growth prospects.Britain balance of payments deficit widened to 24.4 billion pounds to as goods exports fell, goods imports grew and foreign companies received more income from their investments in the United Kingdom. Economists polled by Reuters had expected a smaller deficit of 15.6 billion pounds. More

ANKARA (Reuters) -Measures to protect Turkish lira bank deposits from depreciation amid a currency crisis have achieved their goal, President Tayyip Erdogan said on Wednesday, as the lira steadied following a volatile rebound from record lows this week.The lira was 0.6% weaker at 12.48 to the dollar at 1122 GMT after strengthening sharply on Monday and Tuesday, although the currency is still about 40% down so far this year after aggressive monetary easing engineered by the president.Before Erdogan announced the government’s plan on Monday to protect lira deposits from further depreciation, the currency had slumped to a record low of 18.40 to the dollar. Afterwards, it rallied aggressively in turbulent trading.The new measures shift the burden of a weakened currency to the Treasury and encourage Turks to hold lira deposits, after many Turks shifted savings to dollars.”The programme we announced to bring the exchange rate to a reasonable level within free-market economy rules has achieved its goal,” Erdogan told lawmakers from his ruling AK Party, as he again defended his push for lower interest rates.”Some came out yesterday, making statements along the lines of ‘now is the perfect time to buy forex, this (currency crash)will continue from where it left off’. Their brains have been watered down,” he added.More than half of savings held by Turks are in foreign currencies and gold, central bank data shows, with confidence in the lira eroding after years of depreciation and bruised central bank credibility.RISING COSTThe government’s commitment to cover depositors’ losses in case of a further lira depreciation means any weakening could stoke inflation and drive up the budget deficit, bankers and analyst say.JPMorgan (NYSE:JPM) said the deficit would climb by 1% of gross domestic product over six months if the lira weakened by 12%The central bank said on Tuesday it would support the conversion of foreign currency deposit accounts into lira. Under pressure from Erdogan, the central bank has cut rates by 500 basis points since September. The president has pledged to continue with his low-rates policy, while opposition parties have called for immediate elections over the currency meltdown.The government hailed Monday’s rebound in the lira a policy win, but economists say Erdogan’s low-rate model is reckless and see inflation hitting 30% next year from more than 21% now.The central bank has said it intervened directly in markets five times this month to support lira. It said on Wednesday it sold $844 million in its first intervention on Dec. 1.Erdogan said on Wednesday he would not let citizens “be crushed” by rising inflation and interest rates, repeating that he would not reverse his policy.”We know what we are doing, why we are doing it, how we will do it, where we are heading and where we will reach,” he said.With the lira’s crash, the number of cryptocurrency trades in Turkey surged back above one million from near 500,000, data shared with Reuters showed. More

Investing.com — Fresh data emerges that Omicron is less severe than all previous dominant strains of Covid-19 – but its high transmissibility still threatens to take millions of workers away from their jobs in the coming weeks. The U.S. will give its latest estimate for GDP in the third quarter. Existing home sales and consumer confidence data are also due, as are earnings from Carmax and Paychex (NASDAQ:PAYX). Stocks are settling into a holding pattern ahead of the holiday season, and even European energy markets are cooling off (a bit). Here’s what you need to know in financial markets on Wednesday, 22nd December.1. Omicron cheerFresh evidence is expected to show that the Omicron variant of Covid-19 is not as dangerous as the strains that have dominated the first two years of the pandemic.According to Politico, the U.K. Health Security Agency will say later Wednesday that its data confirm that Omicron causes less severe illness than Delta, the variant that was dominant in the country until this month. However, it’s also expected to warn that high case numbers could still lead to a sharp rise in hospitalizations in due course – something that has failed to materialize yet, either in the U.K. or in South Africa, where it was first detected.The U.K. has reduced the length of time that people will be required to self-isolate from 10 days to 7, in anticipation of a wave of absenteeism driven by high transmission.2. GDP revision, existing home sales data dueSome of the last major U.S. economic data before the holiday period are due at 8:30 AM ET (1330 GMT), with the latest revision to third-quarter gross domestic product figures.  Previous readings indicate that the economy slowed sharply in the quarter to an annualized growth rate of only 2.1% from 6.7% in the second quarter.Data on mortgage applications and existing home sales are also due, as is the Conference Board’s Consumer Confidence index for December.3. Stocks set to open mixed as holiday mood sets in. Carmax, Paychex eyedU.S. stock markets are settling into pre-holiday trading mode after a sharp burst of bargain-hunting on Tuesday.By 6:20 AM ET (1120 GMT), Dow Jones futures were  up 51 points, or 0.1%, while S&P 500 futures were up less than 0.1% and Nasdaq 100 futures were down by less than 0.1%.The three major indices had posted gains of between 1.6% and 2.4% on Tuesday on confidence that the Omicron variant of Covid-19 won’t cause major economic disruption and may even herald the beginning of the end of the pandemic.Stocks likely to be in focus later include Carmax and Paychex, both of which report earnings early, as well as Voya Financial (NYSE:VOYA), on news of its inclusion into the S&P 500. Also in focus will be Apple (NASDAQ:AAPL) after the company was given a AAA credit rating for the first time.4. Temporary reprieve for European energy marketsEurope’s energy markets cooled off a little but remained at eye-wateringly high levels on a combination of zero incremental gas flows from Russia and low availability of nuclear power in France. Germany is also due to close one of its remaining nuclear plants at the start of 2022.Baseload power futures for February in France touched 1,000 euros a megawatt-hour on Tuesday, while baseload German futures for the whole of 2022 closed above 315 euros/MWh. Benchmark Dutch gas prices hit 180 euros/MWh and have only eased to around 175 euros on Wednesday.Such price increases threaten to keep European inflation levels well above acceptable levels for longer than the European Central Bank and Bank of England currently expect. A study published on Tuesday suggested U.K. households alone face an 18 billion pound hit to disposable income from higher energy bills.5. Oil supported by API inventory draw, Libya turmoil; EIA data eyedCrude oil prices edged higher as a bigger-than-expected drop in U.S. inventories, as reported by the American Petroleum Institute, reassured the market of sustained solid demand in the world’s biggest consumer.The U.S. government’s data are due out at 10:30 AM ET, as usual.Also supporting was the prospect of political instability in Libya, which postponed elections scheduled for the weekend amid ongoing friction between various rival factions. The country’s biggest oilfield El Sharara, which produces around 300,000 barrels a day, was shut in earlier this week.By 6:30 AM ET, U.S. crude futures were up 0.3% at $71.33, while Brent futures were up 0.1% at $74.08 a barrel. More

The ECB last week took another step in rolling back crisis-era stimulus, saying it would end emergency bond purchases in March but temporarily double the pace of its longer-running Asset Purchase Programme (APP) to ease the transition.”We can reduce or suspend the APP purchases that are still outstanding, and if that happens then it is a price signal to the markets because we have established that only after the suspension or cessation of the purchases will interest rates be increased,” Holzmann told a news conference.”In an extreme case it would be possible … to suspend the purchases in a data-driven way this year and even so to speak for the interest-rate increase to take place at the end of this year or the beginning of next year, roughly at the same time as the third interest-rate increase in the United States.”We are always slightly later,” Holzmann added, apparently using “this year” to mean 2022.Holzmann is the governor of Austria’s central bank.Thursday’s ECB measures were supported by a majority of policymakers but conservative central bank chiefs from Germany, Austria and Belgium – frequent opponents of the ECB’s easy money policies – objected. The ECB raised its inflation projections across the board and now sees inflation at 3.2% next year, well above target, before a drop to 1.8% in both 2023 and 2024. Several policymakers questioned those projections, arguing that the bank is underestimating the risk of price growth holding above the 2% target.”Normally if we say we do not need any more (bond) purchases because our inflation expectation is close to or above 2% in 2023 and 2024, then that would definitely be a strong signal that the interest rate will be increased in the following or the following two quarters,” Holzmann said. More