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LIVE MARKETS Wanna say goodbye to transitory inflation? Bet on banks

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  • European shares extend gains, up 1.1%
  • Omicron, Fed remain in focus
  • Volatility drops from 1-year high
  • Nasdaq futures bounce back

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WANNA SAY GOODBYE TO TRANSITORY INFLATION? BET ON BANKS (1102 GMT)

Now that even Powell has called time on the transitory inflation narrative, investors may look with greater confidence about investing in banks stocks, the most prominent victim of ultra accommodative monetary policies.

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"The direction of travel for interest rates and correspondingly well correlated banks' share prices is up," says Deutsche Bank analyst Benjamin Goy.

The sector is cheap and even though it has recovered with an 29+% bounce year to date, there's room for further gains ahead, he believes, even though it's unlikely to be plain sailing.

"While the destination might be clear, detours and delays can be possible as highlighted by last week's Omicron sell-off," he writes.

"Nevertheless, at c.8x earnings the sector is anyway not priced for imminent interest rate hikes in our view, pointing to upside in case of delivery of interest rate hikes - the key theme for the sector in 2022," he adds.

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(Danilo Masoni)

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STOXX KICKS OFF DECEMBER ABOVE 7-WEEK LOWS (0903 GMT)

European shares started the final month of the year on a positive footing with a broad-based bounce lifting the STOXX 600 by 0.7% after Omicron worries and hawkish Powell comments sent the pan-regional benchmark to near seven-week lows.

Battered travel and leisure stocks (.SXTP) led the recovery in early trading even as the United States tightened travel rules. Miners, oil, banks and autos were also well bid.

Luxury giant LVMH and defensives like Nestle eased, and stay-at-home plays like Hellofresh also dipped, as volatility (.V2TX) fell from an over one year high hit on Tuesday.

Here's your opening snapshot:

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(Danilo Masoni)

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TRANSITORY, YOU ARE TOAST (0754 GMT)

If there was a word of the year for financial markets, then "transitory" would be a leading contender. Yet, as 2021 approaches its final stretch, its time too may be over.

Speaking to U.S. lawmakers on Tuesday, Federal Reserve chief Jerome Powell said it was probably time to "retire" the term used by many central banks to describe a short-term inflation surge.

Instead, Powell said a strong economy, stalled workforce growth, and high inflation that's expected to last into mid-2022, was reason enough for the Fed to start discussing whether to end bond purchases earlier than anticipated. read more

The result? Markets are back to pricing in a first 25 basis-point Fed hike for July 2022, versus September a day ago and U.S. Treasury yields have resumed their climb.

Working out the Fed's next move is another task for investors -- in addition to assessing how serious an impact the Omicron coronavirus variant might have on the world economy.

But for now, markets have started December in brighter spirits. U.S. and European share futures are higher, Asian stocks were heading for their best day in nearly two months and oil has rallied around 2%.

The Organization of the Petroleum Exporting Countries meets later on Wednesday, ahead of Thursday's meeting of OPEC+, which groups OPEC with other oil producing allies. They will discuss how to respond to the threat of a hit to fuel demand from the Omicron variant.

The latest U.S. ISM manufacturing survey, out later this session, will also be in focus.

Renewed COVID concerns wipe $2 trillion off value of world stocks

Key developments that should provide more direction to markets on Wednesday:

- Asian factories shake off supply headaches but Omicron presents new risks. read more

- Suncity shuts VIP gaming rooms in Macau after CEO's arrest -sources read more

- Prepare sanctions on Russia and ramp up military cooperation, Ukraine tells NATO - read more

- Australia economy's Q3 slump not as bad as feared, recovery underway read more

- Bank of England Governor Andrew Bailey speaks

- Federal Reserve Beige Book of economic condition

- Final manufacturing PMIs euro zone

- Emerging markets: Korea exports; PMIs in several countries

- ADP private payrolls/ISM PMIs

- Earnings. Trip.com, Royal Bank of Canada, National Bank of Canada, Snowflake, Synopsys, Crowdstrike, Veeva Systems, Okta, Splunk, Elastic, Five Below

(Dhara Ranasinghe)

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EUROPE: ONE DAY DOWN, ONE UP... (0736 GMT)

The post-Omicron scare is taking shape and it's name is volatility. And a hawkish Powell is also doing his fair share.

So what we're seeing across equity markets these days are dramatic sell-off followed by powerful bounce-backs.

No surprise then that after plunging to seven-week lows, European shares look set for a positive open. Futures on main regional benchmarks are rising as much as 0.6%.

A similar script is in store for Wall Street with derivatives pointing to a tech-led bounce after yesterday's battering. Nasdaq futures are up 1.4%.

(Danilo Masoni)

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