Telco stocks up on Telecom Italia bid

Stocks in Europe started mildly higher, shrugging off some of the caution that we saw at the tail end of last week on lockdowns in Austria and elsewhere. Telecoms stocks rallied as KKR made a bid for Telecom Italia; BT and Vodafone led the FTSE 100 higher with help from BP and Antofagasta. Vivendi, a major shareholder in Telecom Italia, led the Stoxx 50 higher. Telecom Italia itself rallied 22% on the news. There has been a lot of speculation about a possible takeover of BT of late, so the move by KKR creates some further excitement that Altice’s Patrick Drahi could launch a bid. A no-bid clause preventing Altice offering for BT expires Dec 10^th.  More broadly, if private equity is starting to sniff around this sector then it suggests there could be value to be found in other names; it underlines just how unloved a corner of the market it has become.

Inflation remains on everyone’s minds – for now, the benign approach of the Federal Reserve and European Central Bank is keeping real yields pinned to the floor, which is supportive of risk, and both European and US stock markets continue to trade around their all-time highs. The market got a little frightened last week as European nations started to crank up their lockdown mechanisms again. This probably doesn’t amount to kind of economic impact as previous ones, even if Germany locks down its Christmas markets and so on. Meanwhile, the US has put all that nonsense behind it, so the market is not overly concerned about a winter of localised Covid restrictions. Also, consumer sentiment does not equal market sentiment when their liquidity is so ample and monetary and fiscal policy so loose.

Strong earnings from the US retailers helped the S&P 500 eke out a gain last week, whilst megacap tech lifted the Nasdaq Composite to a gain of 1.2%. In contrast, the pressure on energy/financials left the Dow nursing a loss of 1.3% for the week. Futures are pointing higher on Monday.  

Oil is a tad higher to start the week but looking cautious, with WTI holding a $76 handle as sellers remain in charge. Gold trades around $1,850 as deeply negative real rates do battle with the dollar’s strength. EURUSD is testing last week’s 16-month lows again this morning. 

This week is a holiday-curtailed one – the US stock market will be closed for Thanksgiving on Thursday, and it’s a half-day on Friday. The key focus during the week will be president Biden’s pick for the Fed chair – does he stick with Powell or opt for Brainard? Brainard could be even more dovish than Powell is, and possibly a lot tougher on bank regulation. But more importantly, does she have a strong enough commitment to climate?  

On the data front we are looking to Wednesday’s US PCE inflation, durable goods orders, Q3 GDP 2^nd reading and minutes from the last Fed meeting, which will be parsed closely for two things: a) how worried are policymakers about inflation and b) how do they view how near the US labour market is to the level at which they can start thinking about thinking about raising rates. Richard Clarida – stepping down in a couple of meetings – said on Friday that the Fed could speed up the rate at which it tapers QE. 

Also this week, we should hear from the Bank of England’s Haskel, with traders looking anything solid on whether a December rate hike is a goer or not.  We haven’t heard from Haskel since the summer. In May he said he’s not worried by inflation, and in July said there was no need to reduce stimulus in the foreseeable future – we make him a dove and his vote not required for a hike – so this needs to be considered when reading his comments. On Friday chief economist Huw Pill said he doesn’t know which way he will vote in Dec.