Omicron Covid-19 variant, U.S. and European data

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LONDON — European markets pulled back on Friday as renewed concerns about the omicron Covid-19 variant continue to weigh, while investors await key U.S. inflation data later in the day.

The pan-European Stoxx 600 fell 0.3% in early trade, with tech stocks shedding 0.9% to lead losses as almost all sectors and major bourses slid into the red.

The U.S. Labor Department is set to release November’s consumer price index reading on Friday afternoon in Europe. Global markets will be closely watching the reading for indications as to how the Federal Reserve may react. Estimates suggest inflation could have hit its highest year-over-year level since 1982.

Data on Thursday showed U.S. jobless claims hitting their lowest rate since 1969 last week, as 184,000 people filed new unemployment insurance claims, with the labor market continuing to tighten.

Markets have been reacting throughout the past couple of weeks to comments and research into the transmissibility and severity of the new omicron Covid variant, with a number of major economies now implementing tighter containment measures.

U.S. stock futures were little changed in early premarket trade on Friday after investors pulled back from the rebound earlier in the week and switched focus to upcoming inflation prints.

Stocks in Asia-Pacific broadly declined on Friday as investors opted for caution ahead of the data, while keeping an eye on news about the omicron variant.

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On the data front in Europe, the U.K. economy grew just 0.1% month-on-month in October, shy of expectations in a Reuters poll for a 0.4% expansion. The reading has fueled doubts over whether the Bank of England will hike interest rates at its next meeting.

British industrial output fell 0.6% in October from the previous month, again falling short of economist expectations for a 0.1% rise.

“The weaker-than-expected October GDP number will give the Bank of England further cause for hesitation ahead of the interest rate-setting meeting next week. The discovery of the omicron variant, and the announcement of new Plan B restrictions, provide a further note of caution for policymakers,” said Dean Turner, economist at UBS Global Wealth Management.

UBS does not expect new restrictions to have a material impact on the U.K. recovery, and thus Turner suggested policymakers will likely continue with their hawkish tone, highlighting the need for rate rises at some point.

“However, notwithstanding the current inflation backdrop, it is increasingly likely that the Bank of England will err on the side of caution next week and leave rates on hold,” Turner added.

Final German consumer price index inflation was confirmed at -0.2% month-on-month in November for a 5.2% annual incline.

European investors may have one eye on speeches from ECB President Christine Lagarde and other top policymakers throughout the morning.

Daimler drop

In terms of individual share price movement, German automotive giant Daimler plunged more than 16% in early trade after the spin-off of Daimler Truck, which began trading on the Frankfurt Stock Exchange on Friday.

At the top of the European blue chip index, tobacco company Swedish Match gained 6.2%.

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