Skip to Content
Global News Select

North American Morning Briefing: Stock Futures, Oil Rise, Pointing to More Seesaw Moves

MARKET WRAPS

Watch For:

Construction Spending for October; ISM Report on Business Manufacturing for November; EIA Weekly Petroleum Status Report; Federal Reserve Beige Book; Canada Building Permits for October; Royal Bank of Canada 4Q earnings

Opening Call:

Stock futures and oil prices rose Wednesday, suggesting markets would claw back some losses sparked by worries over the Omicron variant and the unwinding of Federal Reserve stimulus.

Investors have little to go on as they assess whether the variant will lead to renewed restrictions in the U.S. and elsewhere and, if so, how governments and central banks would respond to support the economy. Though drugmakers have said the variant first identified in southern Africa looks like it could make existing vaccines less effective, they expect to be able to update the shots. Investors say a return to full-scale lockdowns is unlikely. The uncertainty has led to seesaw moves in global markets that extended into Wednesday.

"We just don't know how much more infectious it is, how severe the symptoms are and what the impact of that is," said Sebastian Mackay, a multiasset fund manager at Invesco. "What I'd assume now is this probably isn't enough to derail the recovery that's going on."

Invesco's multiasset funds have bought stocks at cheaper levels since Omicron first rattled markets last week, Mr. Mackay added.

Ahead of the bell, Merck shares rose 4.8% after scientific advisers recommended the Food and Drug Administration authorize the company's experimental Covid-19 oral antiviral. Salesforce.com fell 7.4% after the software company's guidance for fourth-quarter earnings fell short of expectations.

One cause for concern, money managers say, is that the rapid pace of inflation could prevent the Fed and other central banks from unleashing stimulus in the event of severe disruption caused by Omicron. Jerome Powell added to those worries Tuesday when he opened the door to an interest-rate rise in the first half of 2022.

For a reading on inflationary pressures, investors will parse the Institute for Supply Management's manufacturing index at 10 a.m. ET. Economists expect the survey to show factories experienced another month of strong new orders in November, but also rising prices and long waiting times for materials.

Overseas markets gained. The Stoxx Europe 600 rose 0.7%, led higher by shares of travel, leisure and basic-resource companies, which would all be exposed to an economic downturn. Asian markets were broadly higher.

Stocks to Watch:

Chip-maker GlobalFoundries is seeing sustained willingness from customers to make long-term buying commitments during the semiconductor shortage. The company that went public in late October had around $2.5 billion in customer prepayments in hand as it prepared for its IPO. That number now tops $3 billion, said CFO Dave Reeder after the company posted its third quarter results. Long-term revenue commitments now top $20 billion, up from roughly $19 billion, over the same short period.

---

Salesforce, habitually acquisitive, isn't ready to dive back into M&A after its blockbuster acquisition of Slack. "Right now the focus is on integrating Slack," newly minted Co-CEO Bret Taylor said on a call. Marc Benioff, the other co-CEO, said it will be several more quarters before it is more fully integrated.

---

The emergence of another Covid-19 variant could be welcome news for the global container shipping market. Citi said that container-shipping companies stand to gain if the Omicron variant leads to tighter movement and gathering restrictions. That could prompt more port suspensions, intensifying the current shipping capacity shortage and driving shipping times up, which would mean higher rates for faster transport.

And that increase would come as shipping rates--especially on routes between Asia and North America--are already at very high levels, where they have been throughout most of the year amid tight capacity and rebounding consumption in the U.S.

Citi said high container freight rates between Asia and the U.S. will likely be sustained into mid-2022, as continuing shipping-capacity shortages push up prices. Citi said its channel checks with Taiwan exporters suggest no signs that shipping supply tightness-caused by slower port operations amid the pandemic--could ease "in the foreseeable future."

Lead time for orders from Asia has also significantly increased because of longer shipping time, which also suggests tight capacity and could underpin elevated freight rates. Citi said many shipping companies could book substantial income thanks to the high prices, and return more cash to shareholders next year.

Forex:

Comments by Jerome Powell that the notion of 'transitory' inflation should be retired is likely to cause the dollar to strengthen into year-end, albeit dependent on how the Omicron variant of coronavirus develops, said MUFG.

"This speech from Powell certainly reflects increased concerns over inflation risks going forward and points to a faster QE taper that points to further dollar strength into year-end," said Derek Halpenny, head of research for global markets for EMEA.

For now, however, given the uncertainty over the new Covid-19 strain, investors remain unwilling to "revert completely back to pre-Omicron level of rate hike expectations."

Bonds:

Wednesday's move back into riskier assets knocked the government bond market. The yield on benchmark 10-year Treasury notes rose to 1.500% from 1.440% Tuesday.

The yield curve flattened this month, as the two-year rose 0.033 percentage point to 0.524% and the 10-year fell 0.115 p.p. to 1.440%. The performances extended the two-year's gain to four consecutive months and snapped the 10-year's three-month winning streak.

Longer-term, the 30-year yield was down for two consecutive months, and in November it lost 0.157 p.p. to 1.784%. The month was marked by bets on how much more hawkish the Fed could turn as inflation rises.

Commodities:

Oil recovered most of Tuesday's losses during early European trading, but prices are still down 11-12% over the past week, a selloff described by Goldman Sachs as overdone.

A lack of progress in Iran nuclear talks and a month-long pause from OPEC+ in its policy of easing production curbs when it meets Thursday could offset nearly half of the impact of Omicron and SPR releases, said Goldman Sachs's Damien Courvalin.

Analysts said OPEC may pause plans to pump more oil in January, or further cut output.

Gold edged higher after prices slumped following Jerome Powell's comments, but likely higher rates, a firmer dollar and strong global growth are factors why Fitch expects bullion prices to weaken in 2022.

Fitch forecasts gold averaging $1,700 a troy ounce next year. We "are now turning increasingly bearish as the balance of factors affecting the asset are now weighted to the downside. We now believe that prices are unlikely to reach once again the all-time high of $2,075 an ounce."

   
 
 
   
 
 

TODAY'S TOP HEADLINES

 
 

GlobalFoundries Says Revenue Rose 56% as Chip Shortage Continues

GlobalFoundries Inc. swung to a third-quarter profit and its revenue rose 56%, driven by strong demand amid a chip shortage.

The contract chip maker, one of the world's largest chip makers and Ford Motor Co.'s semiconductor partner, reported a $5 million profit for the September quarter, compared with a $293 million loss a year earlier. On a per share basis, the profit was one penny, or 7 cents on an adjusted basis.

   
 
 

Nuclear-Fusion Startup Lands $1.8 Billion as Investors Chase Star Power

Commonwealth Fusion Systems LLC said it has raised more than $1.8 billion in the largest private investment for nuclear fusion yet as startups race to be the first to generate carbon-free energy like the sun.

Big-name investors backing the latest funding round for the Massachusetts-based company include Microsoft Corp. co-founder Bill Gates and George Soros via his Soros Fund Management LLC. Some of Commonwealth Fusion's competitors, including Helion Energy Inc., have also recently secured huge funding as investors pile into clean energy technologies amid growing concerns about climate change.

   
 
 

Electricity-Market Tech Platform Voltus Going Public in $1.3 Billion SPAC Deal

Voltus Inc. is going public by combining with a special-purpose acquisition company in a merger that values the electricity-market technology startup at about $1.3 billion, the companies said.

Based in San Francisco, Voltus uses software to manage small, decentralized electricity systems known as distributed energy resources for customers such as Coca-Cola Co. and Home Depot Inc. Called DERs, distributed energy resources are anything that consumes, produces or stores electricity and can be connected to a grid. Examples include a store's electricity demand and electric-vehicle charging.

   
 
 

Beijing Goes Full Nanny State on Internet Tech

The Wild West days of China's consumer internet are now well and truly over.

Instead, the sheriffs from Beijing seem determined to micromanage industries like ride-hailing and online advertising for the benefit of the little guy-or at the very least be seen to be doing so, as regulators rally behind President Xi Jinping's new policy of "common prosperity."

   
 
 

Ex-Mastercard CEO Ajay Banga to Join General Atlantic

Ajay Banga, former chief executive officer of Mastercard Inc., is joining General Atlantic as vice chairman, officials at the private-equity firm said.

Mr. Banga, who stepped down as CEO at the card network Jan. 1 after more than a decade in the role, will advise General Atlantic's top management on the firm's strategy and work with its sector and geographic leaders on investment strategy.

   
 
 

Blue Prism Agrees to Improved GBP1.23 Bln Offer from SS&C; Withdraws Vista Recommendation

Blue Prism Group PLC said Wednesday that it has agreed a new, higher 1.23 billion-pound ($1.64 billion) takeover by SS&C Technologies Holdings, Inc. and withdrawn its recommendation for Vista Equity Partners' offer.

(MORE TO FOLLOW) Dow Jones Newswires

December 01, 2021 06:02 ET (11:02 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.