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North American Morning Briefing :

11/30/2021 | 06:07am EST

MARKET WRAPS

Watch For:

S&P CoreLogic Case-Shiller Home Prices Index for September; Chicago Business Barometer for November; Conference Board Consumer Confidence for November; Canada GDP for September

Opening Call:

Stock futures tumbled anew on Tuesday after Moderna's chief executive officer Stéphane Bancel predicted that current vaccines would be less effective against the new omicron variant of Covid.

Just as markets appeared to be finding their footing after the worst session in more than a year on Friday, downbeat comments from vaccine maker Moderna's CEO about the prospects for vaccines against the new omicron variant put them back on shaky ground.

"There is no world, I think, where [the effectiveness] is the same level...we had with delta," Bancel told the Financial Times in an interview that published early Tuesday. He said the scientists he has spoken to expect a "material drop" in effectiveness of current vaccines against omicron.

Bancel cited the much higher number of mutations on the spike protein of the omicron variant and the speed at which it's currently spreading across Africa as reasons. He predicted vaccine manufacturers would need several months to mass produce a vaccine that would be effective against omicron.

"His tone contrasts with the likes of Pfizer and BioNTech who suggested any new vaccine would be able to modified fairly quickly. His rather candid comments have also seen oil prices slide back sharply, as an increasingly jittery market react with concern to the prospects of further restrictions and lower demand," said Michael Hewson, chief market analyst at CMC Markets.

"As we look ahead to the rest of the week, this morning's drop in markets shows that sentiment is set to remain extremely fickle until we get a clearer idea of what comes next when it comes to the new variant," said Hewson.

Investors awaited testimony from Jerome Powell on Tuesday for clues on how the new variant might impact the outlook for inflation and interest-rate rises. Mr. Powell is expected to say that the new strain could intensify the supply-chain issues that have fueled a spike in inflation.

Should the Omicron strain prompt fresh lockdowns it would put the central bank in a difficult position by worsening inflation and strengthening calls for rate rises just as the economy and markets take a hit, said Seema Shah, chief strategist at Principal Global Investors.

"We had been starting to see this glimmer of hope that some of the supply-side constraints were starting to ease," she said. "If we go back into fear mode you would be looking at those supply-side bottlenecks being exacerbated."

Also in focus Tuesday will be data on house prices and consumer confidence, set to be released at 9 a.m. ET and 10 a.m., respectively. Earnings from Salesforce.com and Hewlett Packard Enterprise are due after markets close.

Overseas, the Stoxx Europe 600 dropped 1.3% led by oil and travel stocks. In Asia, stock markets closed mixed.

Stocks to Watch:

For American Airlines, an uneventful Thanksgiving was welcome. The airline beat its operational goals for the busy holiday week, with 85.3% of flights arriving on time and just 0.5% cancelled--its most reliable operation over Thanksgiving since 2017, according to a memo to employees from COO David Seymour.

---

Food manufacturer J.M. Smucker is closely watching the new Omicron variant, CFO Tucker Marshall said. "I think it's early innings for us to understand the impact of the new variant," Mr. Marshall said, adding that Smucker hasn't taken any specific actions in response to the variant that was confirmed last week.

Smucker, which reported higher sales during its most recent quarter, is bracing for continued uncertainty --especially in terms of supply chains -- as well as inflation, Mr. Marshall said. "The outlook continues to demonstrate that we are an inflationary environment and we will have to continue to manage those cost increases with productivity savings, along with taking pricing actions where appropriate."

Smucker, which saw its gross margin fall to 34.7% during the second quarter, from 40.2% a year earlier, expects its margin will improve during its next fiscal year, Mr. Marshall said.

---

Truckload carrier Werner Enterprises has added to its last-mile delivery services with an acquisition of a last-mile delivery specialist. Werner has bought NEHDS Logistics and its fleet of more than 400 delivery trucks for $64 million.

Forex:

The dollar was lower in Europe, particularly against the low-yielding euro, yen and Swiss franc, as market sentiment was jolted by renewed concern about the Omicron variant of Covid-19. The buck's fall was exacerbated by Jerome Powell's comments that the variant could exacerbate inflation uncertainty and slow labor-market progress.

"Omicron fears have prompted market participants to scale back expectations for tighter Fed policy, which is also helping to trigger the correction lower in U.S. yields and USD/JPY," said MUFG currency analyst Lee Hardman.

Swings in market sentiment related to the Omicron variant are likely to be the main driver of the euro Tuesday, ING said.

"A popular funding currency before the Omicron-induced correction, it is likely that we need to see some confidence being re-built into risk trades to see the EUR depreciate across the board," ING forex strategist Francesco Pesole said. The low-yielding euro is used to fund the purchase of more risky currencies with higher yields in so-called carry trades.

ING said Omicron poses a threat to the pound's outlook. "A worsening of the virus situation globally and specifically in the U.K. may not only put upward pressure on EUR/GBP due to the pound's higher sensitivity to risk sentiment but may also mean markets could increasingly price out a December [interest] rate hike by the Bank of England."

While it's too early to draw conclusions on that, a "choppy risk environment" may lift EUR/GBP on Tuesday, ING forex strategist Francesco Pesole said.

Bonds:

The yield on the benchmark 10-year Treasury note, viewed as a safe asset to hold, fell to 1.443%. Eurozone government bond yields were also lower as the market shifted into a risk-off mood.

"Relief sentiment is already fading on sobering vaccine news," Michael Leister, head of interest rates strategy at Commerzbank said.

Deutsche Bank said the 10-year German Bund yield is set to turn into positive territory for the first time in years in 2022, forecasting the end-2022 level at 0.20%.

Long-term Treasury yields should continue to be driven by the continuing recovery in economic indicators, particularly on the labor side, Deutsche added.

Ulrich Stephan, chief investment strategist for private and corporate clients sees the yield on the 10-year Treasury yield at 2% by the end of 2022, but he doesn't rule out an overshooting of that level in the first half of the year.

Commodities:

Oil fell sharply in Europe, with prices now around flat for the week so far after volatility Friday and Monday over the feared effects of the Omicron coronavirus variant.

However "it is still too early to sensibly assess the risk that Omicron poses and this uncertainty is likely to add further volatility to the oil market," said ING's Warren Patterson. "The uncertainty of this latest variant will also make the job of OPEC+ more difficult."

OPEC's preliminary meetings have been delayed to later in the week, and with the full meeting going ahead Thursday "we would not rule out the group pausing its supply increases over January," Patterson said.

Copper prices also fell, with ING saying that while the severity of Omicron remains a big uncertainty, it casts a shadow over demand growth in the near future and further complicates the supply chain.

TODAY'S TOP HEADLINES

Merck's Covid-19 Pill to Be Reviewed by FDA Advisers

An outside panel of scientific advisers to the Food and Drug Administration is scheduled to meet Tuesday to discuss the experimental Covid-19 oral antiviral from Merck & Co. and partner Ridgeback Biotherapeutics LP.

At the end of the meeting, the panel, known as the Antimicrobial Drugs Advisory Committee, is expected to vote on whether to recommend that the agency clear the pill for emergency use, which may be limited to only high-risk people.

Appliance Business Cast Off by GE Thrives Under Chinese Ownership

LOUISVILLE, Ky.-When General Electric Co. agreed to sell its appliance unit to a Chinese manufacturer in 2016, the future wasn't clear for the business, its workers or the tens of millions of U.S. households owning GE appliances.

Nearly six years later, GE Appliances is growing, having increased its U.S. market share every year since 2017. Since being bought by Qingdao, China-based Haier Group, GE Appliances has invested about $1.5 billion in technology and new products, and added about 3,000 jobs for a total U.S. workforce of 15,000. In October, the company announced an additional $450 million investment and 1,000 new jobs at its main Appliance Park campus in Louisville that makes washers, dryers, dishwashers and refrigerators.

Manulife Banks Nearly $4.7 Billion for Second Infrastructure Investment Fund

Manulife Investment Management has raised $4.65 billion to invest in infrastructure, a sector where investors' hopes have been sparked by the transition to renewable energy and the possibility of increased U.S. government spending.

FDA Moving to Authorize Pfizer-BioNTech Booster for 16-, 17-Year-Olds

The Food and Drug Administration could authorize Covid-19 boosters from Pfizer Inc. and BioNTech SE for use in 16- and 17-year olds as soon as next week as concerns rise over a new, possibly more transmissible variant, according to a person familiar with the planning.

The agency is planning to move rapidly to take action on a request by the companies to authorize boosters for 16- and-17 year olds, according to a person familiar with the matter. So far, only people 18 years and older are eligible for boosters.

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11-30-21 0606ET

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