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North American Morning Briefing : Stock Futures, Oil Rise on Hopes of Milder Covid Variant

12/06/2021 | 06:16am EST

MARKET WRAPS

Watch For:

U.S. Employment Trends Index for November.

Opening Call:

U.S. stock futures were mixed on Monday, as investors digested the latest news on the spread of the coronavirus and prepared for new inflation data later in the week.

In recent days, markets have swung on conflicting signals from scientists and vaccine makers regarding the severity of the Omicron variant and how well existing vaccines may work against it. It still may be weeks before a more definitive picture forms.

Some positive news emerged over the weekend, boosting market sentiment. A small study of people hospitalized from Omicron in South Africa found a pattern of milder illness than in previous waves of Covid-19, though scientists cautioned that it was too early to say for sure.

U.S. chief medical advisor Anthony Fauci said on CNN that there didn't appear to be a "great deal of severity" to Omicron, adding the same caveat. Meantime, regulators said Sunday that the Food and Drug Administration planned to streamline authorization for revamped vaccines.

"It seems like this is not going to lead to the worst-case scenario. I wonder if we're being complacent, but the early indicators suggest we're not," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

Science Applications International is scheduled to report Monday ahead of the opening bell and Coupa Software and Healthequity after markets close.

Earnings from home builder Toll Brothers are planned for tomorrow and Campbell Soup and GameStop are scheduled for Wednesday. Companies including Lululemon, Costco and Oracle are expected to post earnings Thursday.

Stocks to Watch:

Compagnie de Saint-Gobain said Monday that it has agreed to acquire GCP Applied Technologies in a deal valued at around $2.3 billion.

The French construction-materials company plans to take over all outstanding shares of GCP for $32 a share in cash. The price represents a premium of 39% above the volume-weighted average price of each GCP share for the 30 trading days ended on Nov. 30, it said.

The boards of both companies have approved the deal but it still is subject to GCP shareholders' approval. GCP investors Starboard Value LP and Standard Industries Inc. have pledged to vote their respective stakes in favor of the deal, Saint-Gobain said.

Forex:

The dollar rose as investors bet on the Federal Reserve accelerating asset purchase tapering at its next policy meeting after data showed U.S. unemployment fell sharply in November even as jobs growth slowed.

"The release of the latest non-farm payrolls report on Friday provided further evidence that the U.S. economy is continuing to recover from the initial negative Covid-19 shock," MUFG Bank currency analyst Lee Hardman said.

"The developments support the Fed's plans to speed up tightening and are encouraging a stronger U.S. dollar." The Fed holds its next meeting on December 14-15.

Sterling could weaken against the dollar if the Fed accelerates its tapering of asset purchases and the Bank of England delays raising interest rates this month, MUFG Bank said.

In that case "the timing of the gap between the first Fed and BOE and rate hikes could be a lot shorter than expected and keeps risks tilted to the downside for [GBP/USD] in the near-term," MUFG's Lee Hardman said.

Fed policymakers have signalled a faster withdrawal of asset purchases at the December 14-15 meeting despite the emergence of the Omicron coronavirus variant, while BOE policymaker Michael Saunders on Friday said there could be advantages to assessing the variant's impact before raising rates.

Bitcoin and other cryptocurrencies including ether and Solana edged up from weekend lows. Bitcoin traded at around $48,400, nearly 10% down on its level at 5 p.m. ET Friday, but up from Saturday's low of $42,000.

Bitcoin's price action in the past couple of weeks help rule out the idea that the cryptocurrency is a safe haven and a hedge against inflation, Swissquote Bank analyst Ipek Ozkardeskaya said. "Bitcoin is a very high-risk asset, and it is not a proven hedge against inflation," she said.

Bonds:

The yield on the benchmark 10-year Treasury note ticked up to 1.382% Monday from 1.342% Friday.

HSBC expects German Bunds to rally next year, bringing the 10-year yield down to -0.50% by the end of 2022, said strategist Chris Attfield. Bund yields may be slow to fall in the first half of 2022, however, as headline inflation is likely to remain high. This creates a more neutral short-term outlook, he said.

"Unless the European Central Bank terminal rate is significantly positive, we do not think Bund valuations greater than zero are sustainable," he said. HSBC expects early rate rise expectations to be priced out in 2022, causing renewed curve steepening.

Commodities:

Oil prices rose after Saudi Arabia raised its official selling prices for crude sold to Asia and the U.S. over the weekend. Higher premiums can be viewed as a sign of robust demand, according to analysts at Commerzbank, supporting last week's decision by the Organization of the Petroleum Exporting Countries and their allies to raise oil production by 400,000 barrels a day in January in spite of concerns related to the Omicron variant.

Prices are also supported by slimming prospects of an imminent rise in Iranian oil exports following indirect talks between the U.S. and Iran last week.

TODAY'S TOP HEADLINES

Johnson & Johnson Prepares to Untangle Finances Ahead of Planned Split

Johnson & Johnson is trying to figure out how to divide its supply chain and substantial financial holdings as part of a planned split into two publicly-traded businesses.

The New Brunswick, N.J.-based healthcare and consumer-goods giant last month said it would split off its consumer-health business, which sells Tylenol medicines, Band-Aid bandages and Johnson's Baby Powder, into a so-far unnamed company in 18 months to two years. The company is considering spinning out the unit and holding a stock offering.

Advertising Market Keeps Growing Much Faster Than Expected, Forecasters Say

The advertising market is continuing to expand much more quickly than forecasters earlier predicted.

Global advertising spending will grow 22.5% to $763.2 billion this year, excluding U.S. political ad spending, according to the latest forecast from GroupM, which houses the media-buying agencies and data operations of ad giant WPP PLC.

Alibaba Reshuffles E-Commerce Teams Amid Competition, Slowing Growth

Alibaba Group HoldingLtd. said it would reorganize its e-commerce teams and appointed a new chief financial officer, as the tech giant faces increasing competition in China, slowing growth and a plummeting stock price.

The company said Monday that its various Chinese e-commerce units would be combined into one from next year, and that it would form a new international digital commerce team.

China Evergrande Shares Fall After Warning on Possible Dollar Bond Defaults

China Evergrande Group's shares fell Monday, following the property developer's warning of possible cross-defaults on its dollar bonds after it was asked to repay a US$260 million debt obligation.

"In light of the current liquidity status of the group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations," Evergrande said in a statement late Friday.

Kohl's Urged to Consider Sale by Activist Investor

An activist investor is urging department-store chain Kohl's Corp. to consider a sale of the company or a separation of its e-commerce business.

New York-based hedge fund Engine Capital LP wants the retailer to examine the two alternatives to improve its lagging stock price, according to a letter sent to Kohl's board Sunday and viewed by The Wall Street Journal. Engine owns a roughly 1% Kohl's stake.

Saint-Gobain Agreed to Buy GCP Applied Technologies

Compagnie de Saint-Gobain SA said Monday that it has agreed to acquire GCP Applied Technologies in a deal valued at around $2.3 billion.

The French construction-materials company plans to take over all outstanding shares of GCP for $32 a share in cash. The price represents a premium of 39% above the volume-weighted average price of each GCP share for the 30 trading days ended on Nov. 30, it said.

China's Central Bank Cuts Reserve Requirement Ratio for Banks

BEIJING-China's central bank said Monday it would lower the amount of funds banks have to set aside, replenishing liquidity into the financial system in a bid to support the economy and cut financing costs for businesses.

The People's Bank of China said in a statement that it would cut banks' reserve requirement ratio by 0.5 percentage point, which will bring the weighted average RRR level for the whole banking system to 8.4%. The cut won't apply to county-level rural lenders whose RRR stands at 5%, the central bank added.

High Inflation, Falling Unemployment Prompted Powell's Fed Pivot

Just four weeks ago, the Federal Reserve set in motion carefully telegraphed plans to gradually wind down a bond-buying stimulus program by June. Officials are making plans to accelerate the process at their policy meeting next week, ending it by March instead.

The abrupt shift opens the door to the Fed raising interest rates next spring rather than later in the year to curb inflation, marking a significant policy pivot by Chairman Jerome Powell shortly after President Biden offered him a second four-year term leading the central bank.

Nasdaq Is On Track to Beat NYSE in Record Year for IPOs

Nasdaq Inc. is poised to beat the New York Stock Exchange in initial public offerings this year, far outpacing its crosstown rival during a record year for capital raised in U.S. public markets.

(MORE TO FOLLOW) Dow Jones Newswires

12-06-21 0615ET

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