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Exxon Mobil as COP26 play? Here's why Morgan Stanley says some of the dirtiest companies will benefit from decarbonization.

By Steve Goldstein

Critical information for the trading day

World leaders are gathering in Glasgow -- or in the case of the top carbon-dioxide emitter, China, by video link -- for the United Nations 26th Conference of Parties, or COP26, to discuss climate change. Potentially, they may reach more ambitious 2030 and 2050 targets.

It's a big moment for investors as well, as they try to identify the companies best positioned to take advantage of decarbonization. According to Morgan Stanley, there are four key actions that COP26 will try to secure: accelerating the phaseout of coal, curtailing deforestation, speeding up the switch to electric vehicles and encouraging investment in renewables.

What's interesting about Morgan Stanley's list of companies that are set to benefit is how many rank among the world's dirtiest, including oil producers Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP). For Chevron and Exxon, Morgan Stanley notes their presence in sustainable alternative fuels and carbon capture, utilization and storage, with Conoco also mentioned for carbon capture.

In fairness, the Morgan Stanley list isn't entirely fossil fuel companies. SolarEdge Technologies (SEDG), Sunrun (RUN), QuantumScape (QS) and Tesla (TSLA) also make the brokerage's list of overweight-rated companies that can benefit from decarbonization. Companies facing headwinds include Continental Resources (CLR), Nabors Industries (NBR), Ford Motor Co. (F) and American Airlines (AAL), according to Morgan Stanley.

The chart

Bill Ackman, the chief executive and founder of hedge fund Pershing Square Capital Management, is calling for the Federal Reserve to raise rates "as soon as possible" -- and made that case to the New York Fed. At his presentation, Ackman argued both the unemployment rate is lower and inflation measures are substantially higher than the beginning of prior rate-hike cycles. Pershing Square in March disclosed an interest-rate swaption, which initially cost $157 million but "has a potential payoff that is many multiples of our credit at risk."

The buzz

The U.S. and the European Union agreed a deal to ease tariffs on steel and aluminum, which also had beneficiaries including Harley-Davidson (HOG), which avoids a 56% tariff rate in Europe.

The U.S. economics calendar includes the Institute for Supply Management's manufacturing gauge for October, as well as construction spending for September.

U.S. President Joe Biden tested negative for coronavirus disease on Sunday, the White House said, after the press secretary, Jen Psaki, tested positive.

Union workers at Deere & Co. (DE) would get wage increases of 10% in the first year under a tentative pact reached Sunday.

The chief executive of Barclays (BARC.LN), Jes Staley, resigned after learning of the preliminary outcome of the U.K. regulator's investigation into his links to convicted sex trafficker Jeffrey Epstein as well as his disclosures about it. Though the regulator didn't say what the outcome was, Barclays said there was no allegation that Staley was aware of any of Epstein's crimes.

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The market

U.S. stock futures pointed to further gains, building on the 7% rally in the S&P 500 in October, which was the best month since November 2020.

The Nikkei 225 jumped 3% in Tokyo after a comfortable election win for the ruling LDP party. The yield on the 10-year Treasury was 1.58%.

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-Steve Goldstein


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11-01-21 0802ET

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