Cyber-security firm Darktrace and science and chemicals company Johnson Matthey are being relegated out of the FTSE 100 index of leading shares.

The latest reshuffle of Britain’s blue-chip stock index, just announced, shows that they’ll be replaced by Dechra Pharmaceuticals, which has seen strong demand for its veterinary products in the pet pandemic boom, and industrial and electronics products maker Electrocomponents.

Darktrace and Johnson Matthey are being shuffled into the FTSE 250 index of smaller companies, in a rebalancing based on last night’s closing share prices.

Darktrace, which floated earlier this year, has seen its shares halve since hitting record highs in September, as a lock-in period preventing insiders selling shares ended, and some analysts questioned its prospects.

Johnson Matthey’s value tumbled after it announced last month it was pulling out of the electric vehicle battery business.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explained that Darktace could yet return to the FTSE 100.

Darktrace is not alone in being a former IPO darling, now experiencing the pain of a rapid deceleration in its share price. Its successful launch in the spring was seen as a coup for the London market, and if it exits the top-flight it will leave a big tech gap in the FTSE 100. However, given ongoing growth reported by the company and some pretty upbeat trading updates, it may not stay outside the top-flight for long.

There is growing demand for sophisticated technology to counter the growing armies of cyber criminals and Darktrace uses AI to scan regular business operations and detect tiny irregularities, providing an early warning system of cyber-attacks. The ongoing shift to digital is likely to keep opening up new opportunities and markets for Darktrace as firms scale up their operations to meet demand, whilst trying to ensure their systems stay secure.’’

While for Johnson Matthey, investors are clearly worried about its strategy for the future, she explained.

The engineering company’s decision to abandon plans to become a battery supplier by selling off its eLNO business saw shares slide, because this appeared to be JMAT’s answer to the shift towards electric vehicles and away from combustion engines, for which it makes catalytic converters. Management says it will focus on other potential growth avenues, but ultimately the group will be starting from scratch as it looks for new opportunities alongside the new greener auto industry.

Although catalytic converters won’t be rendered obsolete immediately, the clock is ticking and as the transition to electric vehicles speeds up, Johnson Matthey will need to quickly find a new sense of direction.’’

Among smaller companies, online electricals retailer AO World and Wagamama’s owner Restaurant Group are dropping out of the FTSE 250.

With risk appetite returning to the City, the FTSE 100 index has closed 109 points higher at 7169 points.

That’s a surge of 1.5% today, its biggest one-day rise since 21st July as worries about the Omicron variant recede.

Gains in banks, oil and mining stocks led the index higher, along with travel companies such as IAG (+3.4%).

The smaller FTSE 250 index jumped by 1.75%, with travel and hospitality stocks such as Wizz Air (+7%), easyJet (+4.3%), and Restaurant Group (+7.7%) higher. Energy company Drax jumped 9%, after outlining plans to invest billions more in biomass.

A strong start to December, but it still leaves the FTSE 100 index around 140 points, or 2%, below its levels last Thursday - ahead of Friday’s heavy selloff.

Other European stock markets also had a strong day, with the pan-European Stoxx 600 rising 1.7%, and Germany and France up around 2.4% each.

Danni Hewson AJ Bell financial analyst, explains that investors are hopeful that the Omicron variant won’t undermine the recovery.

“The volatility that’s marked the last few days hasn’t gone away but today’s action has at least been positive pretty much across the board. Investors have likely grabbed onto the comments from a WHO official that Omicron is in most cases mild and that there’s no evidence that vaccine efficacy should be reduced.

If this twist in the Covid saga follows the same path as Delta did then global recovery shouldn’t be undermined. London’s indices have bubbled over with optimism rather like an over eager sommelier with a good champagne. Across all sectors there’s been positive momentum and notable gains for companies that bore the brunt of Friday’s battering with IAG, Wizz Air and The Restaurant Group most in fashion.

“By contrast Ocado has fallen out of favour as people breath a huge sigh of relief that queues around supermarket car parks are not expected to make a return appearance any time soon. Today Christmas is back on, whether tomorrow will bring a new twist to chill the glow is frankly anybody’s guess.

Craig Erlam of OANDA points out that there is still significant uncertainty about Omicron, and the risk that America’s central bank ends its stimulus measures sooner.

Today’s rebound really doesn’t feel particularly warranted given what little we know about Omicron at this point and what Jerome Powell said yesterday. A hawkish central bank and clearly concerned governments around the world is hardly the recipe for a new surge in the stock market.

But then, buying dips has often appeared to defy logic and yet been very effective so you can’t blame investors for giving it a try. And let’s face it, we’re a good headline on vaccine effectiveness away from a potentially tasty Santa rally. Maybe that’s the play for those jumping back in despite the worrying signs around the new variant.

Travel and hospitality stocks are rallying strongly this afternoon, as fears over the latest variant of Covid-19 recede.

In London, British Airways parent company IAG is up 3% in late afternoon trading, with budget airlines easyJet up 5.4% and Wizz Air gaining nearly 7%.

Cruise operator Carnival are 4% higher, while hotel operator Whitbread have gained nearly 3%.

The FTSE 100 index of blue-chip shares is ending the day strongly, up 91 points or 1.3% at 7151 points.

Industrial metals, such as copper, are also rebounding.

Michael Hewson of CMC Markets says investors are hoping that Omicron will be more benign than initially feared:

This expectation of a more benign outcome, as a WHO official says early data shows existing vaccines should be effective, has seen a wholesale rebound in the likes of travel and leisure stocks, with British Airways owner IAG, and Premier Inn owner Whitbread leading the way, along with the likes of BP and Shell as oil prices rebound ahead of this week’s OPEC meetings.

The lack of appetite for co-ordinated travel restrictions amongst EU leaders may well also be helping on the margins with easyJet and Wizz Air also showing strong gains.

The economic impact from COVID-19 has faded since the start of the pandemic but still remains strong, Bank of England Governor Andrew Bailey said today.

Asked how to assess news of the Omicron variant of coronavirus, Bailey explained:

“Direct economic effects of COVID have attenuated a lot since the fall in GDP in the second quarter of last year, when we went off a cliff.

“However, there are still impacts that we are feeling from COVID quite strongly,”

He was speaking at a question and answer session hosted by Britain’s Institute and Faculty of Actuaries which focused mostly on insurance regulation, Reuters reports.

Less encouragingly, growth across America’s factories has slowed to its lowest level this year, according to data firm IHS Markit.

It’s US manufacturing PMI has dropped to an 11-month low for November, with firms reporting that:

• Output growth was subdued amid softer rise in new sales and supply shortages
• Job creation slowed due to reports of labor shortages
• Input costs rose att he fastest pace on record

Chris Williamson, chief business economist at IHS Markit, said supply chain problems are hurting US factories, who are also seeing a slowdown in new orders.

“Broad swathes of US manufacturing remain hamstrung by supply chain bottlenecks and difficulties filling staff vacancies. Although November brought some signs of supply chain problems easing slightly to the lowest recorded for six months, widespread shortages of inputs meant production growth was again severely constrained to the extent that the survey is so far consistent with manufacturing acting as a drag on the economy during the fourth quarter.

While demand remains firm, November brought signs of new orders growth cooling to the lowest so far this year, linked to shortages limiting scope to boost sales and signs of push-back from customers as prices continued to rise sharply during the month.

While average selling price inflation eased as firms sought to win customers, the rate of input cost inflation hit a new high, hinting at a squeeze on margins

Stocks in New York have opened higher, a day after worries about Omicron contributed to a sharp selloff.

The Dow Jones industrial average of 30 large US companies has jumped by 240 points, or 0.7%, at the open to 34,725 points.

The broader S&P 500 index has risen by 1.1%, or 50 points, to 4,617, while the tech-focused Nasdaq Composite index is nearly 1.2% higher.

Every sector is green, led by energy, materials, financials and consumer discretionary stocks.

Entertainment group Walt Disney (+2.2%) is leading the Dow risers, along with healthcare insurance firm UnitedHealth (+2%), American Express (+1.9%), construction equipment maker Caterpillar (+1.7%) and investment bank Goldman Sachs (+1.7%).

Back in the UK, footwear company Clarks has reached an agreement with about 100 workers to end a two-month strike at its distribution centre in Somerset.

The deal with the Community union, which follows mediation with Acas, is understood to protect hourly pay for established workers and increase pay for new staff at the site.

Staff at the warehouse have been on strike since 4 October, saying the shoemaker had been seeking to cut their wages by almost 15% to £9.50 an hour by using controversial fire and rehire tactics.

The changes were implemented after Clarks was taken over by a Hong Kong-based private equity firm, LionRock Capital, and the billionaire former Chinese Olympian Li Ning in March.

The deal pumped £100m in new cash into the near 200-year-old British footwear company, which is still co-owned by the descendants of its founders – Cyrus and James Clark.

In a joint statement, Community and Clarks said:

“We are pleased that a resolution has been reached that works in everybody’s interests, protects Community members’ livelihoods, and recognises their loyalty to Clarks.

“Following an indicative ballot of Community members it is confirmed that normal working has now resumed.”

American companies added over half a million more employees to their payrolls last month, as the labor market continued to recover.

Payroll operator ADP reports that private payrolls increased by 534,000 for November, ahead of estimates, but down on the 570,000 added in October.

Services firms added 424,000 jobs, including 136,000 at leisure and hospitality companies, 110,000 at professional/business services firms and 78,000 across trade, transportation and utilities.

Goods-producing sectors hired 110,000 staff, including 52,000 in construction and 50,000 in manufacturing.

It suggests the US jobs market was solid last month, in the face of rising inflation, supply problems, and fears that the pandemic could slow growth into the winter months if infections rise.

The official US government measure of employment, the Non-Farm Payroll report, is due on Friday, and expected to show around 550,000 jobs were created last month.

House prices in the UK continued their upwards climb in November, reaching double-digit growth again as demand remained strong after the end of the stamp duty holiday and the furlough job support scheme.

The average UK house price rose by 0.9% last month, according to data from the building society Nationwide, after an increase of 0.7% in October, taking the average UK property value to £252,687. Average house prices are 10% higher than a year earlier.

House prices have risen to almost 15% above levels seen in March 2020 when the coronavirus pandemic first struck the UK, Nationwide said.

The continuing rising prices appear to be in part down to a reduction in the supply of houses available to buyers.

The October property market was the quietest for almost a decade, according to data from HM Revenue and Customs, as house sales were 28% lower in October than a year earlier after a record surge in activity earlier in 2021.

More here:

Small British energy supplier Zog Energy has collapsed, becoming the latest casualty of soaring wholesale energy costs.

Regulator Ofgem says that Zog, which has 11,700 domestic customers, has ceased to trade. Customers will now be moved to a new supplier.

A message on Zog’s website says:

Ofgem’s advice is not to switch, but to wait until they appoint a new supplier for you. This will help make sure that the process of handing customers over to a new supplier, and honouring domestic customers’ credit balances, is as hassle free as possible for customers.

Ipswich-based Zog is the 25th energy company to collapse since the start of September, as the surge in wholesale gas and electricity prices has disrupted the sector.

Bulb, the UK’s seventh biggest energy firm with 1.7m customers, collapsed last week, followed days later by Orbit Energy and Entice Energy, affecting over 70,000 customers.

The OECD is also concerned that the Omicron variant may intensify supply shortages and price pressures building in the global economy.

Laurence Boone, chief economist of the OECD, has told the Financial Times that the latest Covid-19 variant is:

“adding to the already high level of uncertainty and that could be a threat to the recovery, delaying a return to normality or something even worse”.

The OECD has warned that rising inflationary pressures could threaten the global recovery.

In its latest economic outlook, the Paris-based group warned that the rebound from last year’s pandemic slump is losing some momentum as the surge in demand for goods has led to bottlenecks in production chains. This could worsen, if central banks are forced to act to fight inflation.

Inflation pressures have emerged in all economies, it says, with rising food and energy prices hitting low-income households in particular.

It points out that:

• disruptions in energy, food and commodity markets have pushed up prices
• high energy prices and fuel shortages are limiting manufacturing of key materials and intermediate goods
• bottlenecks in production chains are spreading to more generalised shortages of goods.

Inflation is already at a 13-year high in the UK, and at 30-year highs in the US and Germany.

The OECD predicts price pressures will peak earlier next year, but warns that:

The main risk, however, is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected.

Such an outcome could stem from a number of possible factors, including prolonged supply disruptions, an upward shift in inflation expectations, labour market pressures, or if prices for a wider range of goods and services start to rise substantially.

The report also warns that “new, more transmissible COVID-19 variants of concern” could also hit the recovery. There’s also a risk of a slowdown in China, hitting other economies, if the problems in its property sector, and in power supplies, intensify.

The OECD also flags that the global recovery has lost momentum and is becoming increasingly imbalanced.

Parts of the global economy are rebounding quickly but others are at risk of being left behind, particularly lower-income countries where vaccination rates are low, and firms and employees in contact-intensive sectors where demand has yet to recover fully.

The recovery is expected to remain uneven, it adds:

Most advanced economies are projected to return to their pre-pandemic output path by 2023, but with greater debt and still-subdued underlying growth potential. Inflation is also projected to be higher than it was prior to the pandemic in many countries, although generally remaining in line with central bank objectives.

The OECD predicts global growth is set to hit 5.6% this year, before dipping to 4.5% in 2022 and 3.2% in 2023.

UK factories faced the sharpest rise in price pressures in at least 30 years last month, as supply chain problems and the energy crisis drove up costs.

The latest survey of UK purchasing managers found that factory costs rose to the highest level since records began in 1992.

Firms reported ongoing shortages of components, commodities and labour, forcing them to run down stocks to satisfy customer orders.

Although orders rose, firms also reported a drop in new export orders, for the third month in a row.

There were reports of weaker demand from China, disruption to trade with the EU (in part due to ongoing Brexit complications) and the cancellation of some orders due to extended lead times, says Markit.

Overall, the IHS Markit CIPS UK Manufacturing PMI rose in November to 58.1 from 57.8 in October, showing slightly faster growth.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, fears the UK economy could over inflate unless supply chain problems ease:

“Sluggish global supply chains remained uppermost in the minds of manufacturers this month. Disruption led to a new three-decade high in terms of mounting prices and supplier delivery times increased for the 29th consecutive month holding back further output.

“New orders flows exacerbated the problem in manufacturing capacity with the fastest intake for three months, and it was the domestic market that made up the majority of the new work. Export orders dropped back again as long lead times, port and shipping difficulties caused some clients to lose patience and opt to source elsewhere.

“This didn’t detract from the optimism in the sector as 63% of manufacturers that conditions would continue to improve – if only in fits and starts.

With more success in finding skilled labour they are preparing for supply chain issues to even out and for price rises to subside. 74% of supply chain managers paid more for their goods in November, as prices charged also accelerated at a rapid pace raising fears that the UK economy could over inflate if supply chain disruption doesn’t subside in the first quarter of 2022.”

The oil price is rallying this morning too, after tumbling yesterday on fears that omicron would hurt the global recovery.

Brent crude has surged by 4% this morning, back to around $72 per barrel.

On Tuesday, crude oil prices hit their lowest level in three months amid concerns about the efficacy of Covid-19 vaccines against the latest variant, and after Federal Reserve chair Jerome Powell said the central bank might end asset purchases sooner than planned.

The Opec+ cartel meets tomorrow to decide its monthly production targets from January. It has been adding an extra 400,000 barrels per day to output each month recently, but some analysts think it could freeze output, or even cut it slightly, following the recent drop in prices.

Stocks have opened sharply higher in London, as the markets try to shake off yesterday’s worries over the Omicron variant.

The FTSE 100 index has jumped by 74 points, or 1%, to 7133 points, led by travel companies, hospitality firms, miners and oil companies.

Hotel operator Whitbread (+3.7%), airline group IAG (+3.5%), and energy group BP (+3%) are leading the risers, with mining giants Anglo American (+2.6%) and Rio Tinto (+2.6%) also in demand.

This means the blue-chip index has recovered yesterday’s losses, but is still around 2.5% below last weeks levels, before Friday’s tumble.

Investors will be cheered by the head of BioNTech, who predicted yesterday that its vaccine (produced by Pfizer) is likely to offer strong protection against any severe disease from the new Omicron Covid variant.

BioNTech’s founder Ugur Sahin said:

“To my mind there’s no reason to be particularly worried.

“The only thing that worries me at the moment is the fact that there are people that have not been vaccinated at all.”

Yesterday, stocks were rattled after the CEO of drugsmaker Moderna suggested Covid-19 vaccines would struggle to cope with Omicron.

Richard Hunter, head of markets at interactive investor, says:

UK markets continue to blow hot and cold in the face of Omicron uncertainty, in terms of both the medical and economic impact. Taking the lead from a more positive overnight session in Asia, shares were marked higher in opening exchanges in something of a relief rally.

Even though there is insufficient information on the latest variant fully to assess the impact, there is an increasing feeling that any fallout would be less severe than that seen in the initial pandemic. In any event, and as seen in previous waves, companies are better prepared to deal with any future restrictions having experienced them before. Less positively, of course, there are already immediate impacts such as the restriction on overseas travel, which has stopped the tentative recovery of sectors such as the airlines in their tracks.

The markets are also pondering whether future variants and mutations will be dealt with in a similar fashion by governments and policymakers, Hunter adds:

If so, a full economic recovery will become more difficult as these interruptions interfere with the progress which companies had been making. Even so, some consider the initial market reaction to the news to have been overdone which has led to some bargain hunting as is the case in the UK today, with some rotation out of defensive shares.

Despite the jump in house prices in November, Nationwide cautions that the outlook for the sector remains uncertain.

There are several factors suggesting the pace of activity may slow -- including the latest Covid-19 variant, the cost of living squeeze, and the possibility that the Bank of England raises interest rates in the coming months.

Nationwide chief economist Robert Gardner explains:

It is unclear what impact the new ‘Omicron’ variant will have on the wider economy. While consumer confidence stabilised in November, sentiment remains well below the levels seen during the summer, partly as a result of a sharp increase in the cost of living. Moreover, inflation is set to rise further, probably towards 5% in the coming quarters.

A rise in interest rates could also dampen demand:

Even if economic conditions continue to improve, rising interest rates may exert a cooling influence on the market. Indeed, house price growth has been outpacing income growth by a significant margin and, as a result, housing affordability is already less favourable than was the case before the pandemic struck.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

UK house price growth accelerated again last month, as demand holds up despite the end of the furlough job protection scheme and the stamp duty tax break this autumn.

The average UK house price rose by 0.9% in November, data released by Nationwide shows, following a 0.7% increase in October. This pushed the average house price 10% higher than a year ago.

House prices are now almost 15% above their level in March 2020 when the pandemic struck the UK, Nationwide says, as the move to homeworking drove people to seek larger homes in more rural areas.

Robert Gardner, Nationwide’s Chief Economist, says annual house price growth remained strong last month, despite a sharp drop in transactions in October after stamp duty rates returned to normal.

“There have been some signs of cooling in housing market activity in recent months. For example, the number of housing transactions were down almost 30% year-on-year in October. But this was almost inevitable, given the expiry of the Stamp Duty holiday at the end of September, which gave buyers a strong incentive to bring forward their purchase to avoid additional tax.

“Indeed, activity has been extremely buoyant in 2021. The number of housing transactions so far this year has already exceeded the number recorded in 2020 with two months still to go and is actually tracking close to the number seen at the same stage in 2007, before the global financial crisis struck.

The cut in stamp duty on house purchases in England and Northern Ireland finished at the end of September, having wrapped up earlier in Wales and Scotland.

UK mortgage approvals dropped to their lowest level since mid-2020 in October, but Gardner argues that underlying activity appears to be holding up well, with approvals running above the 2019 monthly average.

Early indications also suggest that labour market conditions remain robust, despite the furlough scheme finishing at the end of September, he adds:

If this is maintained, housing market conditions may remain fairly buoyant in the coming months, especially since the market has momentum and there is scope for ongoing shifts in housing preferences, as a result of the pandemic, to continue to support activity.

More to follow...

Also coming up today

Healthchecks on factories in the UK, eurozone and the US will show how manufacturers fared last month, in the face of ongoing supply chain problems and the rise in Covid-19 cases in some countries.

Already today, manufacturing surveys from across Asia have shown activity stabilized last month amid easing lockdown and border restrictions.

The financial markets remain volatile, with shares expected to rise this morning after being hit by worries over the Omicron variant yesterday.

Stocks were also hit yesterday by Jerome Powell, after the Fed chair suggested America’s central bank could wind down its bond-buying stimulus package faster than anticipated, to combat inflation.

Ipek Ozkardeskaya, senior analyst at Swissquote, explains:

Inflation is ‘not transitory’ said the Federal Reserve (Fed) Chair Jerome Powell at his testimony before the Senate yesterday, and the stock markets took the ‘no transitory’ phrase as a slap in the face. Most equities dived yesterday, as many didn’t expect to hear a hawkish Powell at a time the new omicron wave threatens the economic recovery.

We now know that Jerome Powell thinks ‘it’s appropriate to discuss whether it will be appropriate to wrap up the QE purchases a few months earlier’, at the next FOMC meeting which is a couple of weeks from now, and an earlier end of the QE program would also mean an earlier hike of interest rates, even though Powell wants investors to dissociate the link between the timing of the QE taper and the first rate hike.

The agenda

• 9am GMT: Eurozone manufacturing PMI report for November
• 9.30am GMT: UK manufacturing PMI report for November
• 10am GMT: OECD to release its latest Economic Outlook
• 1.15pm GMT: ADP survey of US private sector payroll changes in November
• 3pm GMT: Fed chair Jerome Powell testifies to the House Financial Services Committee