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North American Morning Briefing : Stock Futures Rise as Investors Continue to Weigh Omicron Impact

11/29/2021 | 05:53am EST

MARKET WRAPS

Watch For:

Pending Home Sales for October; Canada Balance of Payments for 3Q; Canada Industrial Product & Raw Materials Price Indexes for October

Opening Call:

Stock futures gained Monday, indicating major benchmarks might recoup some losses from Friday's selloff as investors continued to monitor the likely implications of a new variant of Covid-19.

"Friday was a panic selloff," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. "Traders have had time to sit back and breathe a bit," she added, saying that trading volumes were lower over the Thanksgiving holiday, likely exacerbating declines.

Investors are awaiting more clarity on the likely transmissibility and severity of the Omicron variant and whether it will weigh on the efficacy of vaccines. Some money managers worry that the new strain could hit global mobility and the economic recovery.

Israel has banned foreigners from entry and Japan has said it will close its borders to foreign visitors until more information about Omicron is available. The U.K. has reintroduced mask mandates and PCR tests for travelers.

Others expect that the economic impact of the variant will be limited as vaccine manufacturers update their shots to combat it.

"We know in a situation like this, we know the winds can change very quickly. We can get one piece of news and [the market's] back to red," Ms. Ozkardeskaya said.

Overseas, the pan-continental Stoxx Europe 600 added 0.8%. However, major stock indexes in Asia fell.

Economists at Morgan Stanley Asia said that countries that had instituted Covid-zero strategies, such as China, Hong Kong and Taiwan, would likely see limited near-term economic impact from the new variant. Others, such as Japan, South Korea and Singapore, would suffer more, including through greater pressure on their healthcare systems.

Forex:

The dollar has started the week higher against a range of currencies, including the euro, as investors continue to evaluate the danger of the newly-emerged omicron variant of the coronavirus. So far, there are encouraging signs that the symptoms appear mild compared with other variants, but the uncertainty is still likely to lead to greater volatility in currencies, said MUFG.

"The developments should continue to favor higher FX volatility. European assets and currencies had already been undermined in recent weeks by another Covid wave heading into the winter. The new variant risks making that situation worse," MUFG said.

CBA said the dollar is likely to remain elevated this week, particularly against commodity currencies, even as markets pare back Fed tightening expectations due to Omicron uncertainty.

Some FOMC officials have recently suggested they are open to upping the pace of tapering in December, but "the emergence of omicron may delay such a policy change," CBA said.

Bannockburn Global Forex said Omicron has injected a new dynamic into foreign exchange markets and a key risk is that uncertainty about the level of threat is not lifted quickly, which would underpin volatility.

It said there are three key changes since the middle of last week: odds of a Bank of England rate increase next month have fallen further; acceleration of Fed tapering seems unlikely, and prospects for stronger world growth are diminished on the margins.

"This undermines risk appetite and weakens those currencies that often appear to do better in robust growth phases, e.g., dollar bloc, Scandis, and most emerging market currencies."

Bonds:

Investors sold out of government bonds, pushing up yields.

Mizuho said omicron raises uncertainty around the effectiveness of vaccines and brings back the possibility of full lockdowns.

"Omicron is potentially a game changer. ince there's a risk that current vaccines are rendered much less effective, markets need to account for the scenario in which we go back into full lockdowns."

Mizuho ascribed a 20-25% probability at this stage to this scenario. This risk means that investors and central bankers will need to be revising down their growth forecasts, reducing the urgency of policymakers to immediately raise interest rates.

Commodities:

Oil futures gained more than 5% in Europe, clawing back significant proportions of their sharp losses on Friday that came as major economies imposed travel restrictions on countries where the Omicron variant of the coronavirus has spread. Low trading volumes--with the U.S. celebrating Thanksgiving--added to the volatility.

"Given the lack of information on the latest variant, one could probably question the scale of Friday's selloff and whether it is really justified," said ING's Warren Patterson, adding that "the market seems to be coming to that realization in early morning trading today, with a relief rally underway." The market's attention will soon turn to OPEC+, which meets later this week.

Jefferies said Omicron jeopardizes what was an increasingly positive near-term outlook for mining stocks.

"Regardless of whether this new variant is a real issue, the sector is likely to be under short-term pressure as there is a renewed risk of lockdowns, which would negatively impact demand and push investors away from such a highly cyclical sector."

Still, Jefferies--which said the mining sector is otherwise "underowned" and poised to benefit from higher metals prices--reckons investors should buy mining stocks in bouts of short-term weakness because the medium- to long-term fundamental outlook is unchanged and still very positive.

TODAY'S TOP HEADLINES

Clearlake Capital to Buy Quest Software From Francisco Partners

Clearlake Capital Group LP has struck a deal to buy Quest Software Inc. from Francisco Partners in the latest sign of private-equity firms' voracious appetite for software.

The deal, expected to be announced as soon as Monday, values Quest at $5.4 billion including debt, according to people familiar with the matter.

Amazon Builds Out Network to Speed Delivery, Handle Holiday Crunch

In the past two years, Amazon.com Inc. has added workers at an unprecedented clip to keep up with a pandemic-induced surge in demand. As it has done so, an even bigger expansion drew less attention: The company is close to doubling the size of its fulfillment network.

Amazon blanketed the country with more than 450 new facilities used to store, sort and ship items, according to logistics consultant MWPVL International, doubling down on a logistics empire that aims to deliver items in one day or less, and increasingly to do so without the help of third-party shippers.

Nissan to Spend $17.6 Billion on Battery-Powered Vehicles Over Five Years

TOKYO-Nissan Motor Co. said Monday it plans to spend $17.6 billion over the next five years as it adds 20 new battery-powered vehicles to its lineup.

The company hopes to recapture a degree of the prominence it held in the electric-vehicle race after its pioneering introduction of the Leaf EV more than a decade ago. Investors have boosted the share prices of car makers that are betting big on EVs, including relative newcomers such as Tesla Inc. and industry stalwarts like Ford Motor Co. and Volkswagen AG.

Covid-19 Vaccine Makers Assess Omicron Response

Vaccine makers will spend several weeks assessing the danger and potential impact of the coronavirus's new Omicron variant.

But they are already racing to develop ways to combat it.

Activist Investor Ancora Urges Berry Global to Explore a Sale

Activist investor Ancora Holdings Inc. is pushing Berry Global Group Inc., a packaging manufacturer with a roughly $9 billion market value, to explore a sale.

Ancora, which owns about 1% of Berry Global, is urging it to explore strategic alternatives including a possible sale and make other changes, according to a copy of a letter the activist sent to the company's board Sunday that was viewed by The Wall Street Journal.

Airlines Avoid Thanksgiving Pitfalls as Daily Passengers Top Two Million

Travelers returning home Sunday after the Thanksgiving holiday are encountering busy airports and full flights, but relatively few of the problems that have plagued air travel in recent months.

The holiday week has been a test of whether U.S. airlines have done enough to prevent the kinds of snafus that have resulted in major meltdowns and thousands of canceled flights.

Australia Seeks to Make Social-Media Firms Liable for Users' Defamatory Comments

SYDNEY-Australia said on Sunday that it would introduce legislation to make social-media companies liable for defamatory comments published on their platforms, in a move that risks exposing tech companies to future lawsuits.

Prime Minister Scott Morrison said the legislation also aims to unmask people who make hurtful comments online by requiring companies such as Meta Platforms Inc.'s Facebook to disclose their details, such as an email address or cellphone number, when a complaint is made.

Companies See Omicron Variant as Latest Unknown in a Pandemic Full of Shocks

U.S. companies responded to the new Covid-19 variant with a mix of both concern and confusion. Some executives scheduled calls with internal teams to assess the threat or peppered health advisers with questions, while many cautioned that they would hold off in making changes to operations until more is known.

The fast-spreading Omicron variant pushed companies in a range of industries to consider how safety measures and new workflows created during the peak of the pandemic could be reinstated. It also served as a reminder, executives say, that navigating through the unknowns of Covid-19 is a new reality of corporate management.

U.S.-Listed Digital Realty Trust Unit Seeks to Raise Around $700 Million in Singapore IPO

Digital Realty Trust Inc.'s unit is planning to raise up to $682 million through a real estate investment trust listing in Singapore, which if successful would be the largest offering in more than four years.

(MORE TO FOLLOW) Dow Jones Newswires

11-29-21 0553ET

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