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North American Morning Briefing : Stock Futures Swing Higher as Investors Grapple with Omicron, Rates Uncertainty

12/02/2021 | 05:57am EST


Watch For:

Weekly Jobless Claims; Toronto-Dominion Bank 4Q earnings

Opening Call:

Stock futures pointed to a stronger start Thursday, in what's becoming an increasingly volatile market due to uncertainty over the spread of coronavirus and the direction of interest rates.

Commentary from scientists and pharmaceutical executives has helped drive market sentiment, as investors await more concrete data on vaccine efficacy against the Omicron variant. On Thursday, investors were focused on comments from the World Health Organization's chief scientist suggesting vaccines were likely to still offer some protection.

"It seems that investors' main concern remains the uncertainty surrounding omicron and the implications any new restrictions could have to the global economy," said Charalambos Pissouros, head of research at JFD Group.

Market sentiment soured Wednesday after the confirmation of the first U.S. omicron variant case, which sent the S&P 500 below its 50-day moving average for the first time since Oct. 13.

It also came as Jerome Powell, for a second day, brought up the prospect of a quicker taper, which in turn sets the stage for more, and faster, interest-rate hikes.

"It is not about covid; it is about the Fed and what they plan to do. This selling will grow much worse; this will become about how much pain the Fed can endure," said Michael Kramer, chief executive of Mott Capital Management.

Four Fed officials are due to speak Thursday, as the latest jobless claims report gets released. The OPEC+ grouping also will be debating production policy in response to the virus.

Earnings season is ongoing, with food-retailer Kroger and Dollar General scheduled to report Thursday before the opening bell. Cosmetics company Ulta Beauty and gunmaker Smith & Wesson Brands are expected to post earnings after markets close.

Overseas, the pan-continental Stoxx Europe 600 fell 1%.

"It does seem like European countries are a bit more reactive to Covid news. We expect European stocks to be more sensitive to what's going on with Omicron, or Covid broadly," said Salman Baig, a multiasset investment manager at Unigestion. "Right now we have a significant preference for U.S. equities over European."

Stocks to Watch:

Hopes that Apple will see a rebound in demand for its products after the holiday season were dimmed following a report that the company has warned suppliers of softness stretching into 2022. According to a Bloomberg article published early Thursday, the company has informed vendors that a production pick up in the new year may not happen.

However, Equita Sim said Apple "is still on track for a record holiday season, with consensus projecting a sales increase of 6% to $117.9 billion in the final three months of the calendar year, although it won't be the blockbuster quarter that Apple had originally envisioned."

Equita Sim also said Apple should be able to report an increase in sales in its fiscal first quarter despite news that iPhone demand is slowing.


AT&T isn't making changes to how it operates due to the Omicron variant, said CFO Pascal Desroches. "This is the latest of what will be a continuation of many different variants," Desroches said earlier this week, adding that he considers new lockdowns unlikely. AT&T's international roaming business could be negatively impacted by the variant, while its streaming services could benefit, he said. AT&T has been pursuing a hybrid approach in recent quarters, with a proportion of its employees continuing to work from home.


Blackstone, which has sought to reduce carbon emissions at portfolio companies and said in November that Jean Rogers would join as ESG head in January, announced a deal in line with its environmental goals. The firm's Tactical Opportunities unit said it bought Sustana Group, a maker of recycled fiber, paper and packaging products, from H.I.G. Capital. Sustana's projects have included working with Starbucks to recycle coffee cups.


Costco comparable sales, those from stores or digital channels operating for at least 12 months, rose 9.2% in the four weeks ended Nov. 28 compared to last year, excluding the impact of gas sales and currency fluctuation. Ecommerce sales rose 11.7% during that time compared to the same period last year.

The warehouse retailer has reported a string of strong sales this year on top of high sales growth last year, when pandemic buying behavior sent shoppers to Costco for bulk goods, electronics and furniture.


Fannie Mae named Chryssa Halley as CFO. Halley, whose appointment took effect Nov. 29, most recently served as controller of the government-sponsored firm, which guarantees mortgage loans. She joined Fannie Mae in 2006. In her new role, Halley succeeds Celeste Brown, who resigned in May to become finance chief at Evercore.


It is too early to tell whether the Omicron variant will impact Hewlett Packard Enterprise's guidance, CFO Tarek Robbiati said. "We will have to figure this one out and see if it impacts us." While he doesn't expect new lockdowns, the company's existing regulations, which include a vaccine requirement for U.S. employees, will remain in place. "The world will have to learn to live with the virus," Robbiati said.


Cancer victims who blame Johnson & Johnson's talc-based baby powder for their disease asked for the dismissal of chapter 11 proceedings the company filed, in an effort to drive a settlement. A committee of injury claimants said J&J's decision to place talc-related liabilities into bankruptcy was meant only to shield assets and avoid jury trials, which isn't what chapter 11 is for.

J&J has said the bankruptcy by its LTL Management subsidiary was designed to facilitate a fair settlement and avoid wasteful spending on nearly 40,000 talc-related injury lawsuits filed around the country. Talc claimants disagree, saying J&J is exploiting legal protections meant for "honest but unfortunate" businesses.

"The world is watching this case," they said in Wednesday's filing in the U.S. Bankruptcy Court in Trenton, N.J. J&J maintains its talc products are safe and don't cause cancer. A hearing on the dismissal request is set for mid-February.


Walmart is bringing back a $150 Covid-19 vaccine incentive payment to encourage its 1.6 million U.S. workers to get the shot, citing rising concern about variants. It's also extending its paid-leave policy through March 31.

The policy provides up to two weeks of paid time off to workers who test positive for Covid-19 if a facility is part of a mandated quarantine or if a worker is required to quarantine. Walmart said more than 90% of corporate staff are fully vaccinated.


Shares of WeWork dropped over 5% in off-hours trading. The office-sharing company said in a securities filing that it would restate several quarters of its results, including its latest one, and that management had concluded there was a material weakness in its internal controls.


The dollar inched higher in Europe as concerns about omicron continued to dominate markets, leaving limited effect for now from the prospect of faster monetary tightening by the Federal Reserve.

However, the dollar should strengthen by the beginning of next year as monetary policy takes center stage, said MUFG. "We expect the Fed to continue to tighten policy. It leaves room for rates and the dollar to rise further at the start of next year," said currency analyst Lee Hardman.

Comments this week from Jerome Powell "provided strong guidance" that the pace of asset-purchase tapering would be speeded up, potentially allowing interest rates to rise sooner, Hardman added.

The "hawkish" tilt from the Fed earlier this week has moved its statements in line with market expectations and it now looks likely the taper will be completed by March, said Charles Diebel, head of fixed income at Mediolanum International Funds.

"This will allow rates to start moving higher from June onwards with market pricing now for two to three hikes in 2022, Diebel said. "Obviously set against recent virus concerns, volatility will remain elevated but unless there is a major growth side effect, we would expect the FOMC to lift off next year and potentially at a faster pace than currently discounted by the market."

The Turkish lira depreciated 1.1% against the dollar, after President Recep Tayyip Erdogan named a loyalist as the new finance minister. The lira has lost around 45% of its value this year on concerns about Turkey's economic policy.

Bitcoin extended losses into a third consecutive day. It traded at around $56,650, down 0.7% from its level at 5 p.m. Wednesday, and around 18% lower than its last record high.


The yield on the benchmark 10-year Treasury note edged up in Europe. The yield curve has flattened this week, with shorter-dated bond yields rising and longer-dated ones ticking down.

Markets are still reacting to Jerome Powell's comments earlier in the week, said Georgina Taylor, a multiasset fund manager at Invesco. She said the central bank was prepared to accelerate the pullback of stimulus, as the risk of higher inflation has increased.

How do we balance this potential growth impact from Omicron, with more signals of policy tightening from the Fed, Ms. Taylor asked. "Markets are all over the place."

The problem for the bond market posed by the omicron variant "is to know not only how big this threat is, but whether it is deflationary or inflationary," said Steve Barrow, head of G-10 strategy at Standard Bank.

Policy makers in the U.S. and the U.K. "seem to be skewing the risks towards higher inflation and we think this is correct," he said. "So, while there's no doubt that bonds will rally and yields fall if risk aversion takes an even firmer grip, bond bulls have to remember that the cost of omicron could be higher inflation--and higher yields--over the longer term."


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12-02-21 0556ET

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