Good morning. Happy Friday.
The Asian/Pacific markets were mixed. Japan, China and South Korea did well; Hong Kong, India and Indonesia were weak. Europe, Africa and the Middle East are mostly up. The UK, Denmark, France, Turkey, Germany, Greece, the UAE, Switzerland, Italy, Portugal and Austria are up the most. Futures in the States point towards a moderate gap up open for the cash market.
————— Holiday Special –>> here —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Missing workers
When today’s big jobs report arrives the labor force participation rate will be getting just as much attention as the headline number. Economists are looking for gain of 550K nonfarm payrolls for November, right near what ADP reported for private sector jobs. That would be more evidence of the substantial progress on the labor front that the Fed is aiming for, but not the breakout month of workers returning.
“For November, our model points to a mere 300K increase in private payrolls, but it has undershot in recent months so we look for a 500K increase, down from our previous estimate, 800K,” Ian Shepherdson of Pantheon Economics says. “We’d love to be wrong about this, but the long-awaited surge to 1M-plus appears to have been delayed, again, suggesting that labor participation remains stuck in a rut.”
“Chair Powell … expressed surprise at the continued flat trend in participation, which remains the biggest single risk to the benign medium-term inflation story,” he adds. “If participation fails to rise, the huge labor demand/supply imbalance will persist, and the Fed likely will have to hike three or four times next year.”
The labor force participation rate is at 61.6%, steady for the last two months, and has not really budged this year. There are 3.1M fewer workers than before the pandemic and Wells Fargo estimates another 1M would have joined the workforce had the pandemic not happened. The distribution of missing workers is uneven, though.
Not coming back: Labor participation for those 65+ is down sharply and has shown almost no improvement through the pandemic and recovery. “The drop in the participation rate of seniors comes as the ranks of this age group has swelled, with more than half of baby boomers having already reached the age of 65,” Wells Fargo economists Sarah House and Karl Vessely write in a note. “When compared against the prior trend and accounting for the growing size of this cohort, workers ages 65 and over account for nearly another quarter of missing workers, far more than their share of the pre-COVID labor force.”
Many have retired and that becomes a huge hurdle for the labor market as only a small share of retirees move back in the labor force and retirees are 1/5 as likely to return to work than those not wanting a job for other reasons, they say. “COVID’s grim reminder of mortality could also persist beyond pandemic, prolonging the trend toward earlier retirement,” they add. “Stronger financial positions – wealth among households ages 55-69 is up 18% since the end of 2019 – also point to the pattern of earlier-than-otherwise retirements persisting for at least a while yet.”
Looking for the tipping point: Women aged 25-54 are the biggest pool of missing workers and childcare is the chief reason. At the same time, daycare center employment is down 10% from before the pandemic and recovery will be tough as labor is by far the industry’s biggest cost, making it harder to boost wages while competing sectors do, Wells Fargo notes.
Current “inflation pressures stemming from higher labor compensation are likely to pull more workers back into the labor force, as the trade-off between work-leisure tilts back toward paid employment,” House and Vessely say. “This tipping point is likely to be closest for young workers. In contrast to prior downturns, young workers have not fled the labor force in favor of additional education; overall college enrollment for Fall 2021 was down for a second straight year.” (2 comments)
Shutdown sidestepped
The U.S. Congress passes a bill to keep the government funded until Feb. 18. The Senate votes 69 to 28 to keep funding, following a 221-212 vote in the House of Representatives.
Some GOP Senators were looking to hold up the legislation to block federal COVID-19 vaccine mandates. A deal was struck for a vote on a separate mandate-defunding measure, which eventually failed to pass. (4 comments)
Gold tumbles
Gold prices slipped to their lowest settlement since mid-October, as the initial safe-haven demand for the metal caused by worries over the new COVID-19 Omicron variant proves short-lived.
“Omicron fears have somewhat subsided late this week and that’s putting some risk appetite back into the marketplace,” according to Kitco’s Jim Wyckoff. Also, Fed Chair Jerome Powell’s hawkish pivot yesterday has prompted talk of rate hikes coming sooner than expected, also weighing on the non-interest-bearing metal. (38 comments)
DIDI listing done
Ride-hailing firm DiDi Global (NYSE:DIDI) said it plans to delist its shares from the New York Stock Exchange.
The company’s board has also authorized DiDi to pursue a listing of its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange. DiDi, known as the “Uber of China,” will organize a shareholders meeting to vote on the delisting at an “appropriate” time in the future, according to a statement. (150 comments)
NVIDIA’S ARM lock
The U.S. Federal Trade Commission is suing to block NVIDIA’s (NASDAQ:NVDA) planned $40B purchase of ARM Holdings (ARMHF). ADRs of Softbank, which owns ARM, fell 3.8%.
“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova in a statement. “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.” (111 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
9:45 PMI Composite Final
10:00 Factory Orders
10:00 ISM Service Index
1:00 PM Baker-Hughes Rig Count
Companies reporting earnings today »
What else is happening…
Virgin Galactic (NYSE:SPCE) invites more customers to join priority list for space flight.
Prior infection may not protect against Omicron COVID variant: S. Africa microbiologist.
Travel stocks rebound as analysts tell investors to ‘buy the dip’.
‘The Harder They Fall,’ ‘Seinfeld’ pace Netflix (NASDAQ:NFLX) to streaming wins.
Goldman sees oil (CL1:COM) upside next year in ongoing structural bull market.
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Good morning. Happy Thursday.
The Asian/Pacific markets mostly did well. Hong Kong, South Korea, India, Taiwan and Indonesia posted solid gains; Japan and New Zealand were weak. Europe, Africa and the Middle East are currently down big. The UK, Denmark, Poland, France, Germany, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria and Sweden are getting hit hard. Only Hungary is doing well. Futures in the States point towards a flat open for the S&P but a gap down for the Nas.
————— Holiday Special –>> here —————
The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Omicron in America
The first Omicron case identified in the United States kicked selling into high gear on Wall Street yesterday. Stocks began the previous session sharply higher, but started to lose gains once Federal Reserve Chairman Jerome Powell reiterated that a faster Fed taper will be discussed at the next meeting.
The report of an Omicron variant case in California pushed stocks down sharply into the close. The S&P (SP500) has now seen its biggest two-day loss in 14 months, off a little more than 3%. Tech stocks have been particularly weak. This morning, S&P (SPX) (NYSEARCA:SPY), Dow (INDU) and Nasdaq 100 (NDX:IND) (NASDAQ:QQQ) futures point to a slightly higher open.
“In terms of developments about Omicron, we’re still in a waiting game for some concrete stats, but there was positive news early on from the World Health Organization’s chief scientist, who said that they think vaccines ‘will still protect against severe disease as they have against the other variants,'” Deutsche Bank rates strategist Jim Reid says. “On the other hand, there was further negative news out of South Africa, as the country reported 8,561 infections over the previous day, with a positivity rate of 16.5%.”
Growth takes it on the chin: The Nasdaq Composite (COMP.IND) has fared the worst among the major averages in this selloff, down 3.3% in the last two sessions. One reason for the extreme market reaction to the report of one case, when many were already assuming the variant would show up in the U.S. eventually, is the run stocks have been on this year. Stocks currently have very high valuations and investors may have been looking for a trigger for profit-taking.
When you compare the market reaction to that of other COVID waves and the Delta variant, what’s different this time is that there was not a flight to Big Tech stocks, Florence Barjou, CIO at Lyxor Asset Management, said on Bloomberg. “This is really a growth-based selloff, which is why it looks a little bit like panic,” Barjou says. “If we do get better news (on Omicron) we think it looks more like an entry point.”
JPMorgan strategist Marko Kolanovic goes a step further and posits that Omicron could be the highly-transmissible yet milder variant that crowds out the more severe variants. “As such, we view the recent selloff in these segments as an opportunity to buy the dip in cyclicals, commodities and reopening themes, and to position for higher bond yields and steepening,” he says.
Fed Factor: Also weighing on equities, especially growth stocks, is the presence of a newly-hawkish Fed chief. Rather than walking back comments about a faster tapering of asset purchases that hit Wall Street on Tuesday, Powell reiterated that it’s time to discuss removing accommodation. “At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” he said on Capitol Hill. “I expect that we will discuss that at our upcoming meeting.”
When Omicron was first identified, markets pushed out the first Fed rate hike to December 2022, but have now returned to pricing in liftoff for June next year. Kinsale Trading says the Fed is getting ready to make a move that will be a “bearish gamechanger.” (4 comments)
Apple’s iPhone issues
Apple (NASDAQ:AAPL) says it may not make up for missed holiday sales for the iPhone 13 caused by a lack of parts, Bloomberg reports. Supply chain issues have already forced the company to cut its 2021 iPhone 13 production target by 10M units.
Now it tells suppliers that demand for the phones has weakened, indicating that customers may just skip upgrading to the hard-to-find phones and not order next year when production increases, Bloomberg says, citing people familiar with the matter. (7 comments)
Snowflake surges
Beaten-down Snowflake (NYSE:SNOW) shares pop in extended-hours trading as the cloud-based data-management company reported better-than-expected third-quarter results and forecast stronger sales ahead.
Snowflake (SNOW) said that it lost 51 cents a share, on revenue of $334.4 million, for the quarter ending Oct. 31. During the same period a year ago, the company lost $1.01 a share on $159.6 million in sales. Wall Street analysts had forecast Snowflake (SNOW) to lose 61 cents a share on revenue of $306.1 million. It forecasts fourth-quarter product revenue of $345 million to $350 million, or nearly double that of the year-ago quarter.
Moderna booster in March?
A Moderna (NASDAQ:MRNA) executive said that the company could have a COVID-19 booster shot specific for the Omicron variant for regulators to review in March, Reuters reports.
President Stephen Hoge said that a shot that contains genes targeting the mutations found in the variant would be the best way to address any potential reduction in efficacy seen in current vaccines. (24 comments)
Trump SPAC looks to raise $1B
Trump-related SPAC Digital World Acquisition (NASDAQ:DWAC) rose in extended-hours trading on a report that it’s working to raise up a $1B in a private investment in public equity or PIPE deal.
Trump Media & Technology Group is trying to raise as much as $1B in a PIPE transaction, according to a Reuters report. The additional funding would value the new entity at close to $3B. The original SPAC deal between Trump Media and DWAC valued Trump Media at $875M.
Trump Media is looking to secure a PIPE that would value DWAC close to its current share price of around $40/share, according to Reuters, which cited people familiar. Trump Media has asked investors to finalize commitments for PIPE investment by the middle of the month. (102 comments)
Robinhood at record low
Robinhood Markets (NASDAQ:HOOD) sank to its lowest level since going public four months ago, falling on heavy volume as the popular investing app’s IPO lockup fully expired.
Shares were apparently tanking due to the final and most significant in a series of lockup expirations that followed the company’s IPO. Some 569.7M shares bought at IPO by insiders and key investors like Salesforce (NYSE:CRM) became eligible for sale for the first time Wednesday. (13 comments)
Today’s Economic Calendar
Auto Sales
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Fed’s Bostic: “Why Is Housing So Expensive?”
10:30 EIA Natural Gas Inventory
11:00 Fed’s Quarles Speech
11:30 Fed’s Bostic Speech
11:30 Fed’s Daly Speech
11:30 Fed’s Barkin Speech
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
The trend is your friend — what worked in November.
Disney (NYSE:DIS) names Susan Arnold chairman, as Bob Iger bows out at year end.
Square (NYSE:SQ) changing corporate name to Block; crypto operation to be named Spiral.
GSK (NYSE:GSK), Vir Bio’s (NASDAQ:VIR) antibody retains activity against Omicron mutations.
Tesla (NASDAQ:TSLA) confirms that Austin is its headquarters now.
CrowdStrike Holdings (NASDAQ:CRWD) higher after third-quarter earnings, raised forecast.
Cathie Wood: Not in a bubble, and here’s why she remains bullish on growth stocks.
Sweetgreen (NYSE:SG) sinks 15% to post-IPO low as salad chain gives back more of 101% first-day pop.
Dow (NYSE:DOW) guides for lower than expected Q4 EBITDA on higher costs, lower PE pricing.
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Good morning. Happy Wednesday.
The Asian/Pacific markets did great. China, Hong Kong, South Korea, India, Taiwan, Singapore and Thailand posted solid gains. Europe, Africa and the Middle East are also doing well. The UK, France, Turkey, Germany, Greece, Russia, South Africa, Finland, Hungary, Spain, the Netherlands, Italy, Israel, Austria and Sweden are up 1% or more. Futures in the States point towards a big gap up open for the cash market.
————— Holiday Special –>> here —————
The dollar is down. Oil and copper are up. Gold is up, silver is down. Bonds are down. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Retiring ‘transitory’
After spending months arguing that the surge in pandemic inflation was largely due to “transitory” forces, Fed Chair Jerome Powell told Congress on Tuesday that it’s “probably a good time to retire that word.” Many have taken issue with the verbiage in recent months, given that Powell has acknowledged that inflation is proving more powerful and persistent than expected. As a result of the price pressures, the Fed is now considering a faster tapering to its asset purchase program, shifting gears to tighter monetary policy.
Can tapering be good for the markets? While stocks sank after the comments – with traders boosting bets on upcoming interest rate hikes – futures are already pointing to renewed gains this morning. Volatility may still be the name of the game, but if history is any guide, the Fed’s “taper tantrum” of 2013 was followed by strong gains for equities, as traders bet the economy was healthy enough to stand on its own. Following Ben Bernanke’s comments in May 2013, stocks fell 5.8% in the next month, but for the rest of that year, the market was up 17.5%.
“The old adage that markets hate uncertainty couldn’t be more true, and it’s going toe-to-toe with another well-known force, investors’ love of dips,” added Craig Erlam, senior market analyst at OANDA.
Go deeper: Powell’s testimony to Congress suggested that the Fed is pivoting from being worried about a faster labor market recovery toward being more concerned about keeping a lid on prices. “The risk of higher inflation has increased,” explained Powell, who was tapped for a second four-year term by President Biden last week. He appeared alongside Treasury Secretary Janet Yellen, who urged lawmakers to address the nation’s debt ceiling and said a failure to do so could derail the economic recovery.
Testing, testing
Concerns about the Omicron variant have led the U.S. to tighten travel rules, requiring all air travelers entering the country to show a negative COVID-19 test performed within one day of departure. Currently, vaccinated international travelers can present a negative result obtained within three days. The new one-day testing requirement from the CDC would apply to U.S. citizens as well as foreign nationals.
Fresh volatility: “It feels a little bit like we are back to where we were a year ago and that’s not a great prospect for the industry and beyond,” said Deirdre Fulton, a partner at consultancy MIDAS Aviation.
Last week, the U.S. imposed travel restrictions that banned the arrival of foreign nationals who had been in any of eight southern African nations (where Omicron was first detected) in the past 14 days. The Biden administration is also weighing whether to require air travelers entering the U.S. to get another test within three to five days after arrival. Some 56 countries have already implemented travel measures to guard against Omicron, with Japan and Israel even barring all foreigners from entering their borders.
World Health Organization: “I well understand the concern of all countries to protect their citizens against a variant that we don’t yet fully understand,” Director-General Tedros Adhanom Ghebreyesus declared. “But I am equally concerned that several member states are introducing blunt, blanket measures that are not evidence-based or effective on their own, and which will only worsen inequities.” The agency is still warning that people over 60 years of age – who are not fully vaccinated, do not have proof of previous COVID infection or those with underlying health conditions – should postpone travel given the “very high” risk posed by the Omicron variant.
Renewable renewal
The IEA is out with its latest Renewables Market Report, which forecasts the planet’s renewable electricity capacity will jump to more than 4,800 GW by the year 2026, an increase of over 60% compared to levels in 2020. Note that capacity here represents the maximum amount of energy that installations can produce, not what they will necessarily generate. Renewables are even expected to account for almost 95% of the increase in global power capacity through 2026 despite the pandemic and surging inflation seen across the globe.
Excerpt: “We have revised up our forecast from a year earlier as stronger policy support and ambitious climate targets announced for COP26 outweigh the current record commodity prices that have increased the costs of building new wind and solar PV installations.”
Nearly 290 GW of new renewable energy generation capacity has been installed around the world in 2020, and based on current trends, renewable energy generating capacity will exceed that of fossil fuels and nuclear energy combined by 2026. Interestingly enough, the world’s biggest polluter has installed the most new renewable energy capacity this year. China is even expected to reach 1,200 GW of wind and solar capacity in 2026, four years earlier than its target of 2030, and ahead of the U.S., Europe and India.
Outlook: “The high commodity and energy prices we are seeing today pose new challenges for the renewable industry, but elevated fossil fuel prices also make renewables even more competitive,” said IEA executive director Fatih Birol. Other headwinds include a “range of policy uncertainties and implementation challenges” like financing grid integration and social acceptance. Despite the predictions of rapid growth, the capacity additions would not be enough to meet the IEA’s scenario for net-zero emissions by 2050, and would need to be “80% faster than in our accelerated case.”
Fines or vaccine
A surge in new daily infections and the emergence of the Omicron variant is prompting Greece to institute mandatory vaccinations against coronavirus. Residents over 60 years old will be required to get jabbed, or face a monthly €100 ($114) fine beginning on Jan. 16. The penalty would be added to tax bills and the funds will be given to Greek hospitals fighting the pandemic.
Quote: “It is not a punishment. I would say it is a health fee,” Greek Prime Minister Kyriakos Mitsotakis declared. “Experts estimate that the importance of the vaccine in a 70-year-old person is equivalent to 34 vaccinations of younger ones in terms of public health.”
Over the summer, vaccination mandates were introduced for healthcare workers and firefighters in Greece, with those failing to comply being suspended from their jobs indefinitely without pay. The government has also ruled out imposing new lockdowns, making it all the more important that the public health system does not become overloaded (ICU occupancy is already near capacity nationwide). Greece’s vaccination ratio in the “over 60” age group is around 83%, a figure comparable to levels in the American population.
Over in the U.S.: Some companies have imposed policies similar to Greece, like Delta (DAL), which hit unvaccinated employees with $200 monthly fine due to increased health insurance premiums. However, COVID vaccine mandates at the federal level haven’t been as successful. On Tuesday, the Biden administration was blocked from enforcing two orders requiring millions of American workers to get vaccinated against COVID, while a workplace vaccine-or-testing mandate (for businesses with at least 100 employees) was temporarily blocked by a federal appeals court in early November.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Powell testifies before the committee on financial services
10:30 EIA Petroleum Inventories
2:00 PM Fed’s Beige Book
Companies reporting earnings today »
What else is happening…
Adobe says Americans spent almost $11B on Cyber Monday.
Not waiting for the U.S., Fidelity launches a Spot Bitcoin ETF in Canada.
Twitter (NYSE:TWTR) bans sharing of private media without permission.
Case-Shiller: Home price increases slow more than expected in September.
Fannie (OTCQB:FNMA), Freddie (OTCQB:FMCC) jump after FHFA raises mortgage limits.
Pfizer (NYSE:PFE) on track to post best monthly gain in nearly three decades.
FDA advisors recommend authorization of Merck (NYSE:MRK) COVID antiviral pill.
AT&T (NYSE:T) hits 12-year low after warning of slower industry growth.
GlobalFoundries (NASDAQ:GFS) rises on earnings beat in first public report.
Salesforce (NYSE:CRM) names new co-CEO; outlook disappoints.
Elon Musk warns SpaceX (SPACE) employees of ‘risk of bankruptcy.’
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mostly weak. New Zealand did well, but Japan, Hong Kong, South Korea, Singapore, Indonesia and Thailand dropped more than 1%. Europe, Africa and the Middle East currently lean down. Poland, the UAE and South Africa are doing well, but the UK, France, Germany, Greece, Finland, Norway, Spain, the Netherlands, Italy, Israel and the Czech Republic are down 1% or more. Futures in the States point towards a big gap down open for the cash market.
————— Holiday Special –>> here —————
The dollar is down. Oil and copper are down. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Goodbye @jack
Fifteen years after he co-founded the company, Jack Dorsey resigned as CEO of Twitter (TWTR) on Monday, saying he wanted the company to move on from its founders. Shares rose as much as 12% on the news in premarket trading, but closed the session off nearly 3% as investors digested the developments. “This one really has to shake out… it has got lower lows,” said Dan Nathan of Risk Reversal Advisors. “We’ve seen fleets, Super Follows and Twitter Blue, but if technology and innovation at the company have been the big problem, this kind of news is not going to get the company going.”
Bigger picture: Sources say that the succession was planned for more than a year, but it could still be challenging to get the company to repivot to areas like media or social e-commerce. Last year, activist hedge fund Elliott Management took a 4% stake in Twitter and tried to get rid of Dorsey. There were concerns that he was distracted, since he was also the CEO of mobile payments company Square (SQ), as well as other big interests, like in cryptocurrency, which were taking him away from his job.
Twitter chose to go with a company insider as Dorsey’s replacement. Chief technology officer Parag Agrawal, who has been at the microblogging service for a decade, will take up the reins immediately. Some of his accomplishments include advancing the state of artificial intelligence and machine learning across Twitter, like projects to make the tweets in a person’s timeline more relevant or identifying tweets that violate Twitter’s terms of service. Going forward, he has some ambitious goals to fill, such as reaching 315M monetizable daily active users by the end of 2023 and to double annual revenue by that date.
What’s next for Dorsey? A crypto future may be in the works and he’s still CEO of Square. At the Bitcoin 2021 Conference in June, Dorsey said that “if I were not at Square or Twitter, I would be working on Bitcoin.” In terms of Square’s business, Bitcoin (BTC-USD) generated $1.82B of its $3.84B in net revenue in Q3, making crypto responsible for nearly half of the company’s total sales.
GIF-less
It’s getting harder for Big Tech to expand these days as global watchdogs continue to put the industry in its crosshairs. The latest deal disruption just hit Facebook parent Meta (NASDAQ:FB), which was told by the U.K. Competition and Markets Authority that it must sell GIPHY, the largest provider of animated images to social networks. While it is far from the largest deal Meta has ever done (Facebook scooped up the GIF-sharing platform back for a reported price of $400M), it could be a red flag for tech acquisitions in the current regulatory climate.
The concern: The CMA concluded that Meta’s acquisition of GIPHY would reduce competition between social media companies like Snapchat (NYSE:SNAP) and TikTok (BDNCE), or deny or limit other platforms’ access to GIFs from GIPHY. In turn, that could send more traffic to Meta-owned properties – Facebook, Instagram and WhatsApp – which account for 73% of user time spent on social media in the U.K. The British regulator also argued that the merger would remove Giphy as a potential competitor to Meta in the display advertising industry.
A month after the transaction was announced in May 2020, antitrust authorities in the U.K. and Australia said they were scrutinizing the deal. The CMA’s initial enforcement order stopped Facebook from integrating with GIPHY while it conducted the probe, but it issued a provisional finding in August 2021 saying the merger would harm competition, and that the only effective remedy would be for Meta to sell GIPHY. In October, the CMA ended up fining Facebook £50.5M for failing to provide regular updates to show that it is complying with an order.
Response from Meta: “Both consumers and GIPHY are better off with the support of our infrastructure, talent, and resources,” said a spokesperson. “We are reviewing the decision and considering all options, including appeal.”
Market doubts
Following a brief rebound on Monday, Dow futures fell over 500 points overnight, while contracts linked to the S&P 500 and Nasdaq slipped 1.1% and 0.5%, respectively. WTI crude oil (CO1:COM) is also off 3.6% to $67.42/bbl, while the 10-year Treasury yield fell 10 bps to 1.44%. The downward trend followed a warning from Fed Chair Jerome Powell, which wrote in prepared testimony to Congress that Omicron and COVID, in general, could threaten the economy’s post-pandemic recovery. Moderna’s (NASDAQ:MRNA) CEO is also predicting that existing vaccines will struggle with the new variant, sending fresh shockwaves through the markets.
Quote: “There is no world, I think, where [the effectiveness] is the same level… we had with [the] Delta [variant],” Stéphane Bancel told the Financial Times. “I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to… are like, ‘This is not going to be good.'”
The statement raises some eyebrows, as it comes less than 24 hours after the CDC strengthened its existing COVID-19 booster recommendations, saying, “the recent emergence of Omicron further emphasizes the importance of vaccination.” President Biden also directed federal agencies to be ready to move quickly to approve additional vaccines or boosters tailored to shield against the new variant, though symptoms linked to Omicron have been described as “extremely mild” by the South African doctor who first sounded the alarm over the new strain.
Outlook: A lot of the mixed messaging is causing uncertainty out there, and markets don’t like uncertainty. Volatility could ensue in the coming weeks as researchers race to understand the changed pathogen, with Wall Street’s fear gauge – known as the VIX – declining during Monday’s rally, but still remaining above 22 (the index spiked 10 points above 28 at one point on Friday). Even without Omicron, infectious disease experts anticipate another wave of COVID cases and hospitalizations this winter, with federal officials already dispatching medical teams to Michigan to help relieve doctors and nurses across the state.
Four possibilities
Goldman Sachs Chief Economist Jan Hatzius has released several economic forecasts until the likelihood of four possible outcomes for the new COVID variant becomes clearer.
Downside Scenario: A Q1 infection wave leads to a sizable GDP hit. That “hit to activity then gradually abates starting in the spring, as antivirals and redesigned vaccines are distributed. Inflation is probably below our current forecast in services and energy (because of weaker demand) but above our current forecast in goods (because of weaker supply).”
Severe Downside Scenario: A less likely case that is worse than Delta where “global growth is significantly lower than in the first downside scenario given more intense hospital pressures, severe restrictions, and consumer fear.” Inflation faces a larger push and pull between services and energy and goods.
False Alarm Scenario: Omicron spreads less quickly than Delta with little impact on growth and inflation. The “ability of Omicron to outcompete Delta in South Africa does not necessarily carry over to other geographies with higher vaccination/lower prior infection rates.”
Upside Scenario: The variant is more transmissible but causes much less severe disease. “In this speculative ‘normalization’ scenario, a net reduction in disease burden leaves global growth higher than in our baseline. In this scenario, global inflation likely declines more quickly than in our baseline scenario because the rebalancing of demand from goods to services, and the recovery in goods and labor supply accelerate.”
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
10:00 Powell testifies before Senate Banking Committee
10:30 Fed’s Williams Speech
3:00 PM Farm Prices
Companies reporting earnings today »
What else is happening…
Facebook’s (FB) Meta to delay move to MVRS ticker until early 2022.
Elon Musk sends cryptic tweet on SpaceX (SPACE) IPO.
Cyber Monday sees drops for Etsy (ETSY) and other pandemic favorites.
FTC asks Amazon (AMZN) and Walmart (WMT) about supply chain issues.
Bluebell wants Glencore (OTCPK:GLCNF) should separate coal business – Bloomberg.
Lawmakers raise questions over FAA oversight of Boeing (BA) 737 MAX.
Tesla (TSLA) plans to save on costs associated with late-quarter deliveries.
Pandemic recovery… Hertz (HTZ) announces $2B in share buybacks.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly weak. Indonesia did well, but Japan, Hong Kong, South Korea, Singapore and Thailand dropped more than 1%. Europe, Africa and the Middle East are currently up big. The UK, France, Turkey, Germany, the UAE, Russia, Greece, South Africa, Finland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Austria and Sweden are up 1% or more. Futures in the States point towards a big gap up open for the cash market.
————— Holiday Special –>> here —————
The dollar is up. Oil and copper are up. Gold is up; silver is down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
The Omicron edition
The newly discovered Omicron coronavirus variant has the world on edge, with a lot of questions surrounding its infectiousness, ability to cause serious disease and to what degree it’s able to evade the immune response from prior infection or vaccination. The strain first identified in South Africa was dubbed a “variant of concern” last week by the World Health Organization, sparking fresh worries it could prolong the nearly two-year COVID-19 pandemic. While no cases of this variant have yet been identified in the U.S., the CDC is “continuously monitoring” the situation and many say it is only a matter of time.
Snapshot: The Omicron variant has about 50 mutations, more than 30 of these are on the spike protein that allows the virus to bind to human cells. The receptor-binding domain (i.e. the part of the virus that first makes contact with our cells) also has 10 mutations, which is far greater than just two for the rapidly spreading Delta variant. The high level of mutation means that Omicron likely came from a single patient who could not clear the virus, giving it the chance to genetically evolve (a similar hypothesis was proposed for the Alpha strain).
Meanwhile, the first South African physician to raise the alarm over Omicron has called its symptoms unusual but mild. For example, none of her patients experienced a loss of taste or smell, considered as hallmarks of the disease, but rather showed up with body aches and “feeling so tired,” according to Dr. Angelique Coetzee. Other South African scientists and health officials have also said there were no signs so far that Omicron led to more serious illness.
Go deeper: Americans need to be prepared to do “anything and everything” to fight the Omicron variant, White House chief medical advisor Dr. Anthony Fauci said Sunday, adding that it is still “too early to say” whether lockdowns or new mandates will be appropriate. More definitive information would become available in about two weeks, though it’s worthy to note that other “variants of concern” – like South Africa’s Beta and Brazil’s Gamma – did not take off around the world as initially feared. “There are lots of unknowns,” added Sharon Peacock, director of the COVID-19 Genomics U.K. Consortium. “It’s so important to stress how much we don’t know at the moment about this new variant.”
Travel restrictions
Even before Omicron, many European countries began reimposing pandemic restrictions in response to rising coronavirus cases. Austria shut down, Germany flirted with another national lockdown, while Belgium announced it would close nightclubs and prohibit private parties except for weddings and funerals. The focus is now turning to travel restrictions as countries seek to slow the spread of the Omicron variant, which has so far been detected in Australia, Belgium, Britain, Canada, Denmark, France, Germany, Hong Kong, Israel, Italy, the Netherlands and Scotland.
What’s happening: In the most far-reaching effort, Japan joined Israel in banning the entry of all foreigners. Meanwhile, Morocco said it would suspend all incoming flights for two weeks starting Monday, Australia reversed its border reopening plans, while the Philippines ditched an idea to let in vaccinated tourists. Over in the U.S., travel will be restricted for non-U.S. citizens from South Africa and seven other countries starting today, though there is no indication of how long the ban will remain in place.
“I’ve decided we’re going to be cautious,” President Biden told reporters. “We don’t know a lot about the variant except it is a great concern, seems to spread rapidly.”
Outlook: The new restrictions come just as airlines and jet manufacturers like Boeing (BA) expressed optimism about a resurgence in demand. While flights between the U.S. and South Africa are limited compared with other global destinations, sudden changes in travel rules could further delay the return of lucrative international business travel. Delta Air Lines (NYSE:DAL) and United Airlines (NASDAQ:UAL), the two airlines that fly direct to Johannesburg, said they are not adjusting their schedules, but it remains to be seen how many of the 122 flights scheduled for December will end up running or are booked enough to be profitable.
Market effects
Futures for the three major U.S. stock averages rose overnight as investors considered the potential effects of the Omicron variant. Stocks previously sold off on Friday, with Wall Street suffering its worst day in more than a year, in an echo of panic that swept through markets when COVID was spreading in early 2020. The frantic response has more to do with fears of lockdowns and restrictions on the economy, as well worries that the variant could stall the global recovery.
Other movement: WTI crude oil prices (CL1:COM) rebounded more than 5% this morning to retake the $70 level, while travel industry shares inched up after a bloodbath before the weekend. A flight to safety also saw the 10-year Treasury yield tumble 15 bps to 1.49% on Friday, but it regained the 1.54% level overnight. Cryptocurrencies are in the green, with Bitcoin (BTC-USD) rising 4.5% to $57,187 and Ether (ETH-USD) up 4.9% to $4,302 in the past 24 hours.
“While central bank commentary has been focused on upside risks to inflation, this [new COVID variant] highlights that there are significant downside risks and we are in a significant phase of uncertainty for the economy,” noted Chris Scicluna of Daiwa Capital Markets.
What it means: Volatility is likely to ensue as more details about Omicron emerge as the market heads into December. The macro backdrop will be important to watch, specifically the jobs report on Friday, as well as if the inflationary environment continues to gain steam. Investors are also eager to assess coming rate hikes from the Federal Reserve, but Omicron could put a dent in the central bank’s plans if new risks arise to economic activity.
Scientists scramble
Vaccine makers have thus far been hesitant to tweak existing coronavirus jabs due to fears it could become a game of whack-a-mole, but a super strain may change that sentiment. Testing involving Omicron is already underway among the big manufacturers, with several saying it would take about two weeks to establish whether the new variant renders their shots less effective. On Friday, South Africa’s health minister said he expects current jabs to still offer protection against severe illness and death from Omicron, though they might be less effective at preventing infections and milder disease.
In case it doesn’t: Pfizer (NYSE:PFE) and partner BioNTech (NASDAQ:BNTX) said they would be able to adapt their vaccines within six weeks and ship initial batches within 100 days. Moderna can meanwhile get a new construct into human trials in less than 60 days, though manufacturing would take a few months. Any new candidates would also need to clear the regulatory process, getting a green light from the Food and Drug Administration.
In terms of therapeutics, Pfizer’s (PFE) Paxlovid and Merck’s (NYSE:MRK) molnupiravir are expected to target parts of the virus that are not changed in Omicron, and could be all the more important if vaccine-induced and natural immunity are threatened. Both drugmakers have licensed their antiviral pills to other manufacturers, so they should be widely available if needed. The Biden administration has even ordered 13M courses of the two drugs after seeing significant success in trials at preventing severe illness in high-risk groups.
Outlook: Regarding manufactured antibodies, Omicron’s mutations are likely to render some treatments ineffective, according to Dr. David Ho, professor of microbiology and immunology at Columbia University. Investors are particularly worried about antibody drugs from Regeneron (NASDAQ:REGN) and Eli Lilly (NYSE:LLY), but some think Vir Biotechnology (NASDAQ:VIR) and AstraZeneca’s (NASDAQ:AZN) could hold up better against this variant due to the way the antibodies are constructed to target the spike proteins. The new variant might also dull the impact of monoclonal antibody treatment because of those same mutations, declared Dr. Wendy Barclay, head of the G2P-UK National Virology Consortium.
Today’s Economic Calendar
10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing Survey
3:00 PM Fed’s Williams Speech
Companies reporting earnings today »
What else is happening…
Black Friday sales growth reverses for first time – Adobe Analytics.
Thermo Fisher (NYSE:TMO) confirms its COVID tests accurately detect Omicron.
OPEC no longer has incentive to maintain oil production increases.
Biden to seek federal oil lease reforms like higher fees and climate focus.
Macau stocks on watch after Suncity (OTCPK:SCGHF) CEO detained by authorities.
Nissan (OTCPK:NSANY) to spend $17.6B over five years to ramp up EV production.
Peloton (NASDAQ:PTON) sues Lululemon (NASDAQ:LULU) as legal spat heats up.
Apple (NASDAQ:AAPL) may have AR headset for sale by late 2022 – MacRumors.
Tesla (NASDAQ:TSLA) forced to turn down €1.1B in subsidies for Germany battery factory.
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