Dec 8 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com PANDEMIC NEWS ROLLER COASTER (1214 GMT) This morning, the coronavirus pandemic stole the centre stage once again, first driving risk assets down and then bringing them back up. First, it was a report about imminent new pandemic restrictions in the UK, which hit equities and drove bond yields down. Right after, Pfizer and BioNTech headlines changed the mood entirely. Both groups said a three-shot course of their COVID-19 vaccine was shown to generate a neutralising effect against the new Omicron variant in a laboratory test and added that, if needed, they could deliver an Omicron-based vaccine in March 2022. That had the immediate effect of soothing market fears. The Stoxx 600 index (.STOXX) is now up 0.3%, with the travel and leisure stock index rising 0.4% among the best performers after falling more than 2% (.SXTP). The bank index (.SX7P) hurt by a sudden drop in bond yields is now down 0.4%, way above its day’s lows. Healthcare stock index (.SXDP) is still the best performer on the Stoxx 600, up 1%. U.S. futures are also back in positive territory. (Stefano Rebaudo) ***** UK EQUITIES: POLITICAL UNCERTAINTY COMES INTO PLAY (1057 GMT) Politics is now playing a starring role in the relative underperformance of UK equities despite them being so cheap. Berenberg economist Kallum Pickering wrote in a note about the UK"s economic outlook that the feedback he got from clients suggests the state of British politics may be holding back investors when it comes to UK PLC. "Referring to issues ranging from continued Brexit noise to the Conservative government’s sleaze scandals, several clients remained cautious of the UK due to a perceived high level of political uncertainty", Pickering said. "Nearly all such concerns were framed along the lines of ‘UK fundamentals look good but...’ and then came some – usually well justified – caution linked to the UK Prime Minister and his antics", the Berenberg economist added. His note came in yesterday before a video surfaced showing Boris Johnson"s staff laughing and joking over how to explain a gathering in Downing Street during a COVID lockdown last Christmas. read more It follows a string of scandals that have led opposition politicians to accuse the Johnson government of cronyism and corruption, and of behaving as if rules do not apply it. While it remains anyone"s guess as to how these scandals will dent Johnson"s leadership, his replacement at 10 Downing Street is now a hypothesis some economists factor in. "As an outside bet, we see some risk of a leadership contest in 2022 (which would probably be followed by a snap general election)", Pickering wrote. There is some kind of silver lining in that scenario. "If and when Johnson is ousted as Prime Minister, markets may be inclined to strike a much less cautious tone on the UK", Pickering argued. Talking about the chances to see Johnson being replaced, RBC Capital Markets published this chart which shows how bookmakers raising the odds for a change of leadership. "If we take the bookies’ pricing as a proxy, the threat to Johnson’s survival as PM is much greater from the current allegations than was the case the at the last peak back in the spring", commented Chief Currency Strategist Adam Cole. "The kneejerk reaction would probably be negative to the rise in political uncertainty", Cole predicted, adding that it"s less what the consequences for the pound would be further down the road. "Our assumption is that a Sunak-led government would be more fiscally conservative and less “populist” than the current government", he added. Going back to UK equities, the fact that the bank of England is expected to tighten sooner than the Fed and the ECB is also of course not a competitive advantage for UK stocks. "This, together with the residual uncertainty on the final post-Brexit set-up makes investors a bit reluctant to enter in strength on UK stock markets", said Giuseppe Sersale, fund manager and strategist at Anthilia, who downgraded UK stocks to neutral in October. Some reading here: Cheap UK equities: value trap or opportunity? read more ANALYSIS-No-brainer bet on cheap UK stocks disappoints, believers hang on read more (Julien Ponthus with Dhara Ranasinghe and Danilo Masoni) ***** BULLS STILL IN ACTION (0858 GMT) European stocks are higher again today amid hopes that the new coronavirus variant won’t trigger any disruptions for the global economy. A bit of rotation is helping with defensive shares, such as healthcare (.SXDP) and utilities (.SX6P), leading gains, pushing the Stoxx 600 index (.STOXX) up 0.4%. The oil and gas stock index (.SXEP), which outperformed yesterday, is the worst performer today, down 0.5%. Some analysts argue the time is ripe to take some profits before U.S. inflation data on Friday, which might convince the Fed to tighten its monetary policy even faster than currently expected. "In U.S. trading, the Dow Jones Industrial Average achieved its best 2-day performance since Nov 2020, and biggest daily gain since March,” Raymond James analysts say, adding it looks "very much like a short covering induced revival." They also suggest "that, beneath the surface, conviction levels remain brittle and sentiment vulnerable to a reversal on adverse newsflow.” Among single stocks, Games Workshop (GAW.L) is down 6.5% after its trading update, Berkeley Group (BKGH.L) is up 5.15 after raising its profit outlook. (Stefano Rebaudo) ***** A LITTLE BIT OF FEAR, A LITTLE BIT OF HOPE (0828 GMT) A little bit of hope and fear defines markets on Wednesday, with investors showing no signs yet of winding down for year-end. Let"s start with the fear part, which centres on China"s troubled property sector. Shares in the country"s biggest developer Evergrande have hit all-time lows after a missed debt payment deadline put it at risk of becoming China"s biggest defaulter. Note too that trading in shares of embattled smaller peer Kaisa Group Holdings (1638.HK) was suspended, after a source with direct knowledge of the matter said Kaisa was unlikely to meet a $400 million offshore debt deadline. Hopes of a managed debt restructuring at Evergrande are somewhat calming the angst. But even if the fallout so far has been broadly contained, fears linger of how the crisis might impact the world"s second-biggest economy. read more But as the trading baton passes from Asia to Europe, it"s hope that"s taking hold. Already Asian shares have risen to near two-week highs on optimism that the Omicron variant of the coronavirus may be less disruptive than initially feared (.MIAPJ0000PUS). U.S. stock futures are trading higher, European futures are flat. That sentiment boost also lifted the Aussie dollar to its strongest level in a week. Markets have shown themselves remarkably resilient to political crises, and they appear to be shrugging off President Joe Biden"s warning that Russia risked "strong economic and other measures" if it invaded Ukraine. Possibly news of a two-hour Biden-Putin chat is being seen as a positive read more . Finally, Wednesday brings the end of an era in Germany, where Olaf Scholz will take over as Chancellor, bringing an end to Chancellor Angela Merkel"s 16-years as head of Europe"s biggest economy. Key developments that should provide more direction to markets on Wednesday: - Australia joins diplomatic boycott of Beijing Winter Games read more - India"s c.bank holds rates as inflation, Omicron risks loom read more - Weibo shares fall 6% below issue price on Hong Kong listing read more - Japan downgrades Q3 GDP on deeper hit to consumer spending read more - German exports/current account - ECB speakers: President Christine Lagarde, Vice-President policymakers Luis de Guindos, board member Isabel Schnabel - Iceland central bank meets - US JOLTS job openings/10-year Treasury auction - U.S. earnings. Campbell soup, Gamestop - European earnings: TUI, Stagecoach, Berkeley - Bank of Canada meets (Dhara Ranasinghe) ***** EUROPE READY TO TAKE A BREATHER (0728 GMT) European equities seem to be ready to pause for breath after yesterday’s substantial gains when investors cheered signs that Omicron can be less dangerous than first feared. Markets are wary that volatility will remain the winner until there isn’t a clear view about the new coronavirus variant"s capacity to evade vaccines and transmit. The focus is now slowly shifting to U.S. inflation data due on Friday, which might give the Federal Reserve more reasons to speed up its monetary tightening. While European stock futures are lower, its U.S. peers are in positive territory, with the Nasdaq ready to provide support to tech stocks. (Stefano Rebaudo) ***** Our Standards: The Thomson Reuters Trust Principles.