US FINANCIAL MARKET
Stocks Rebound as Seesaw Moves on Omicron Continue – Wall Street Journal, 12/1/2021
- U.S. stocks and oil prices rose, clawing back some losses sparked by worries over the Omicron variant and the unwinding of Federal Reserve stimulus.
- Investors have little to go on as they assess whether the variant will lead to renewed restrictions in the U.S. and elsewhere and, if so, how governments and central banks would respond to support the economy.
- Though drugmakers have said the variant first identified in southern Africa looks like it could make existing vaccines less effective, they expect to be able to update the shots. Investors believe a return to full-scale lockdowns is unlikely.
- Still, the uncertainty has led to seesaw moves in global markets that extended into Wednesday.
- The S&P 500 rose 1.2%, attempting a recovery from the benchmark index’s 1.9% fall on Tuesday.
- The Dow Jones Industrial Average added about 275 points, or 0.8%. The technology-heavy Nasdaq Composite jumped 1.2%.
- Vaccine-maker Moderna pared some recent gains, slipping 6.7%.
- Salesforce.com lost 6.4% after the software company’s guidance for fourth-quarter earnings fell short of expectations.
- Brent oil prices, which have tumbled recently on signs Omicron could curtail demand for jet fuel, rose 2.9% to $71.22 a barrel.
- The OPEC meets Wednesday and Thursday to determine its response to recent price declines.
- The organization said Wednesday it expects consumer-price inflation in the U.S. to average 4.4% in 2022, up from the 3.1% forecast in September.
- Wednesday’s move back into riskier assets knocked the government bond market. The yield on benchmark 10-year Treasury notes rose to 1.478% from 1.440% Tuesday. Yields move inversely to bond prices.
- Overseas markets gained. The Stoxx Europe 600 rose 1.1%, led higher by shares of travel, leisure and basic-resource companies, which would all be exposed to an economic downturn.
- Strong performers included budget airline Wizz Air, up 7%, and British Airways owner International Consolidated Airlines Group, which gained 4.6%.
- Winners from the stay-at-home trade fell. German food-delivery firm HelloFresh lost 5% and U.K.-listed takeout company Deliveroo shed 3.3%.
- Asian markets were broadly higher. South Korea’s Kospi added 2.1% while Japan’s Nikkei 225 and China’s Shanghai Composite rose 0.4%.
Omicron Spread Widens; Travel Curbs Tighten: Virus Update – Bloomberg, 12/1/2021
- As the omicron variant pops up in locations from the U.K. and Switzerland to Brazil, countries are readying tighter travel curbs to help check its spread.
- Norway found two cases, Ireland recorded its first and Australia’s New South Wales confirmed a sixth traveler infected with the new strain. Travelers are waiting longer to buy airline tickets amid rapidly emerging border restrictions, making it harder for carriers to gauge near-term demand, European airline executives said.
- France will require visitors coming from outside the European Union to provide a negative test carried out in the 48 hours before entry. Japan’s airlines have suspended new inbound bookings for December at the government’s request, while U.S. President Joe Biden is expected to announce fresh pre-boarding testing requirements.
- The Swiss government will decide on reintroducing stricter measures by the end of the week, after detecting three cases of the omicron variant. Measures could include mandatory work from home, reducing the time period a negative Covid-19 test is valid and limiting the number of people allowed at private gatherings.
- Denmark saw a record number of confirmed cases on Wednesday, as 5,120 people tested positive. The Nordic country, which has detected six cases of the new omicron variant, has reintroduced some restrictions to cope with the recent spike in infections.
- Poland reported 29,064 new infections, the highest in almost eight months, and 570 fatalities. The Health Ministry said 25% of the deaths were among vaccinated patients, mostly elderly people with comorbidities.
- The European Union should discuss whether mandatory vaccinations are needed to help fight the spike in cases, as well as the new omicron variant, European Commission President Ursula von der Leyen said on Wednesday.
- Germany’s next chancellor, Olaf Scholz, Tuesday threw support behind making vaccinations compulsory and called for a parliamentary vote on the plan.
Salesforce fourth quarter guidance misses Wall Street expectations – CNBC, 12/1/2021
- Salesforce reported fiscal third-quarter earnings on Tuesday for the period ending Oct. 31, beating Wall Street expectations on earnings and sales. But shares fell over 6% in extended trading after earnings guidance for the fourth quarter fell short of expectations.
- Revenue: $6.86 billion, versus $6.80 billion expected. Sales were up 27% from $5.42 billion in the same period a year earlier.
- Sales Cloud, the company’s core product that salespeople use to track leads and opportunities, reported $1.54 billion in sales, up 17% from last year.
- Salesforce’s Service Cloud business was up over 20% from last year to $1.66 billion in sales.
- The Platform and Other unit reported $1.27 billion in sales during the quarter, although the company said it had re-classified sales from its Tableau and Mulesoft acquisitions into its Data unit, which reported $900 million in sales.
- But Salesforce said earnings per share for the December quarter will fall between 72 and 73 cents, lower than Refinitiv analyst expectations of 81 cents.
- The company expects between $7.22 billion and $7.23 billion in revenue in its fiscal fourth quarter, raising its previous guidance, and coming in on par with analyst expectations of $7.22 billion.
GlobalFoundries Says Revenue Rose 56% as Chip Shortage Continues – Wall Street Journal, 12/1/2021
- GlobalFoundries swung to a third-quarter profit and its revenue rose 56%, driven by strong demand amid a chip shortage.
- Net revenue rose to $1.7 billion from $1.09 billion a year earlier.
- The contract chip maker, one of the world’s largest chip makers and Ford Motor’s semiconductor partner, reported a $5 million profit for the September quarter, compared with a $293 million loss a year earlier.
- On a per share basis, the profit was one penny, or 7 cents on an adjusted basis.
- The results were in line with GlobalFoundries projections, while analysts surveyed by FactSet expected the company to report a loss and $1.7 billion in revenue.
- This quarter, which would cover the period of the IPO, GlobalFoundries expects profit to range from $13 million to $33 million and revenue from $1.8 billion to $1.83 billion.
- Analysts expect a profit of about $15 million and about $1.8 billion in revenue.
Eco-friendly shoemaker Allbirds posts wider loss despite 33% gain in quarterly sales; shares fall – CNBC, 12/1/2021
- Allbirds said Tuesday that its third-quarter revenue rose 33% from last year, while its losses widened as the cost of opening stores and listing its stock weighed on its results.
- Sales climbed 33% to $62.7 million from $47.2 million a year ago.
- The sustainable shoemaker said its revenue was up 40% on a two-year basis.
- For the three months ended Sept. 30, net losses widened to $13.8 million, or 25 cents per share, from a loss of $7 million, or 13 cents a share, a year earlier.
- For fiscal 2021, Allbirds said net revenue should be up anywhere between 23% and 24% from year-ago levels, amounting to between $270 million and $272 million.
Global Inflation Set to Be Higher for Longer, Says OECD – Wall Street Journal, 12/1/2021
- The pickup in inflation rates around the world will be longer-lasting and sharper than previously anticipated, with a growing risk that households and businesses grow accustomed to faster price rises, the Organization for Economic Cooperation and Development said in its latest forecasts for the global economy.
- But the Paris-based research body’s chief economist also warned that should the new Omicron variant of the coronavirus sidestep existing vaccines, the world economy could face a sharper slowdown than previously expected and a round of price declines similar to those seen in the early months of the pandemic.
- Releasing the last of its four reports on the economic outlook this year, the OECD said it now expects consumer-price inflation in the U.S. to average 4.4% in 2022, up from 3.1% when it last released forecasts in September.
- It said it now expects inflation in the eurozone to be 2.7%, up from 1.9%.
- The new forecasts were made before the discovery of the Omicron variant.
- The OECD also expects inflation to be above the U.S. Federal Reserve’s 2% target at 2.5% in 2023, although it expects eurozone inflation to be just below the European Central Bank’s target at 1.8% in the same year.
- The OECD believes that the lengthening period of high inflation is being caused by a series of imbalances in the demand for and supply of energy, semiconductors and a number of other goods, as well as workers.
- But it said central banks could do little to address those problems, and instead urged governments and businesses to address the causes of those imbalances.
OPEC+ Meets to Debate Output Boost as Virus Weighs on Price – Bloomberg, 12/1/2021
- OPEC and its allies have begun two days of meetings to debate a planned output increase, with expectations growing that the group will take a pause due to the threat from a new virus variant.
- Ministers have been tight lipped about their intentions. One of the few to speak on the record about output policy, Iraqi Oil Minister Ihsan Abdul Jabbar Ismaael, said he would go along with whatever the group decides, whether it’s a supply hike or a pause. The majority of analysts and traders surveyed by Bloomberg expected the latter.
- Internal research by the Organization of Petroleum Exporting Countries suggests that world markets will be inundated with a 3 million barrel-a-day surplus during the first quarter.
- The excess could be as much as 4.8 million barrels a day in a more pessimistic scenario for demand.
- With the outlook deteriorating, 18 of 25 traders, analysts and brokers in global survey by Bloomberg News predicted that OPEC+ will defer the production boost.
- That could certainly fit the ethos of Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, who has repeatedly opted for caution in restarting halted production.
GM says it plans to form JV, build NA battery materials plant – Reuters, 12/1/2021
- General Motors said Wednesday it plans to form a joint venture with South Korea’s POSCO to build a battery cathode materials plant in North America by 2024.
- The move comes as GM is ramping up electric vehicle production and vowing to shift more of its supply chain to North America.
- GM did not disclose the planned investment or size of the facility but said it could announce a location in early 2022. GM has said it plans to end the sale of light duty internal combustion vehicles by 2035.
U.S. bank profits dip on slower reduction in loan loss provisions – Reuters, 12/1/2021
- U.S. bank profits fell 1.2% in the third quarter of 2021 to $69.5 billion as firms were slower to shrink their credit loss provisions and grappled with low interest rates, the Federal Deposit Insurance Corporation reported Tuesday.
- Bank profits are still up nearly 36% from the same time a year ago when banks were still rushing to set aside funds to guard against pandemic-driven loan losses.
- Banks have been shrinking those loan loss provisions for three straight quarters, but slowed the rate of decline in the third quarter, dropping it by $5.2 billion compared to 10.8 billion in the second quarter.
- As banks continued to shrink those reserves, the rate of non-current loans for banks fell by 6.3% to 0.94%.
- The net charge-off rate for loans no longer expected to be repaid fell to 0.19%, the lowest level on record.
- Total loan balances were up slightly, as two-thirds of all banks reported annual profit growth. Nearly 96% of banks were profitable.
US ECONOMY & POLITICS
U.S. Manufacturing Gauge Reverses Decline in Broad-Based Gain – Bloomberg, 12/1/2021
- A measure of U.S. manufacturing advanced in November as new orders accelerated and factories ramped up production and hiring.
- The Institute for Supply Management’s gauge of factory activity increased to 61.1 — in line with expectations — from 60.8 a month earlier, according to data released Wednesday. Readings above 50 indicate manufacturing is expanding.
- The group’s measure of factory production jumped to a seven-month high and new orders accelerated, underscoring how resilient consumer demand for goods and solid business investment have underpinned the manufacturing recovery.
- The average lead time for materials used in the production process held at a record 96 days. Capital equipment lead times continued to grow, with the average now at 160 days, the most since 1989.
- Average lead time for supplies used for maintenance, repairs and operations climbed to 49 days, also a record.
- The ISM’s U.S. employment gauge also rose to a seven-month high, suggesting the pace of factory hiring picked up last month.
- A measure of order backlogs fell to its lowest level since the start of the year, indicating backlogs are growing at a slower pace.
- The group’s prices paid index — though still very high — declined for the first time in three months, a trend that could continue if crude oil prices decline further.
U.S. private payrolls increase solidly in November – ADP – Reuters, 12/1/2021
- U.S. private employers maintained a strong pace of hiring in November, but there are fears that the Omicron variant could hurt demand for services as well as keep the unemployed at home, and hold back job growth in the months ahead.
- Private payrolls increased by 534,000 jobs last month after rising 570,000 in October, the ADP National Employment Report showed on Wednesday. Economists polled by Reuters had forecast private payrolls would increase by 525,000 jobs.
- The broad-based gains in hiring were led by the leisure and hospitality industry, where payrolls rose by 136,000 jobs. Manufacturing added 50,000 jobs and construction payrolls increased by 52,000 positions.
Construction spending rises moderately in October – Reuters, 12/1/2021
- U.S. construction spending rebounded less than expected in October as a decline in homebuilding blunted a surge in outlays on public projects.
- The Commerce Department said on Wednesday that construction spending gained 0.2% after dipping 0.1% in September.
- Spending on private construction projects slipped 0.2% in October after falling 0.1% in September.
- Outlays on residential construction dropped 0.5% after slipping 0.2% in September.
- Single-family homebuilding spending declined 0.8% and outlays on multi-family housing projects fell 0.1%.
- Shortages and more expensive building materials are holding back homebuilding.
- Residential investment contracted for a second straight quarter in the third quarter, weighed down by decreases in home improvements and single-family homebuilding.
- Investment in private non-residential structures like gas and oil well drilling rose 0.2% in October.
- Spending on structures declined for a second straight quarter in the July-September period, led by commercial and healthcare structures.
- Spending on public construction projects shot up 1.8% in October after dipping 0.1% in September.
- Outlays on state and local government construction projects jumped 0.9%, while federal government spending accelerated 14.6%.
Powell, Yellen Return to Capitol Hill for Second Day of Testimony – Wall Street Journal, 12/1/2021
- Federal Reserve Chairman Jerome Powell returns to Capitol Hill on Wednesday for a second day of testimony. Markets will be looking for clues about how the central bank is thinking about plans to raise interest rates next year.
- Mr. Powell testified alongside Treasury Secretary Janet Yellen before the Senate Banking Committee on Tuesday, where he said that inflation risks were growing more serious than the central bank had anticipated.
- Mr. Powell said the Fed was preparing to wind down its easy-money policies more quickly, opening the door to raising interest rates in the first half of next year. The comments sent stock markets tumbling and government bond yields up.
- Both policy makers are scheduled to begin addressing the House Financial Services Committee at 10 a.m. ET Wednesday, first delivering the same prepared testimony they presented Tuesday and then taking questions from lawmakers.
Credit-Card Applications Hit Pandemic High – Wall Street Journal, 12/1/2021
- Americans are applying for credit cards at a rate not seen since before the pandemic.
- Close to 27% of U.S. consumers said in October that they had applied for a credit card in the past 12 months, according to the Federal Reserve Bank of New York. That is the highest level since 2019 and well above the record low of 16% recorded a year ago.
- The rise in applications doesn’t guarantee bigger profits for lenders. While people are requesting more cards and spending more when they get them, they are also paying off balances more quickly than they did before the pandemic.
- Banks charge interest on balances that are carried month to month. Credit-card balances remain $123 billion lower than they were at the end of 2019, according to the New York Fed.
EUROPE & WORLD
Russia Expels Some U.S. Diplomats in Latest Tit-for-Tat Action – Wall Street Journal, 12/1/2021
- Russia ordered U.S. Embassy staff who have been in Moscow for more than three years to leave the country by Jan. 31, a move that comes a day before diplomats hold talks to address the worsening relationship between the two countries.
- Foreign ministry officials on Wednesday indicated that the decision to remove the U.S. Embassy staff was in retaliation for Washington’s expulsion of more than 50 Russian diplomats by June 30, in line with previously imposed term limits.
- The State Department said it had asked the Russian diplomats to leave in line with existing policy.
Turkish Central Bank Props Up Collapsing Lira – Wall Street Journal, 12/1/2021
- Turkey’s central bank moved Wednesday to prop up the country’s collapsing currency, selling foreign reserves after the lira reached new lows following comments by President Recep Tayyip Erdogan in defense of his unorthodox economic policies.
- The lira rebounded after the bank said it was taking action to address “unhealthy price formations in exchange rates.” The free-falling lira has heaped economic pressure on ordinary Turkish people, who are struggling with rising prices of food, fuel, medicine and other essential goods.
- The Turkish lira gained 3.3% to 13 to the dollar after the intervention announcement, bouncing back from an all-time low of 13.91. Mr. Erdogan told state television that he wouldn’t back down from his economic policies.
- Overall, the lira’s value has dropped 40% this year.
- The presidential election between John Q. Adams, Andrew Jackson, William Crawford, and Henry Clay was turned over to the House of Representatives due to the lack of an electoral-vote majority. (1824)
- Rosa Parks was arrested for refusing to give up her front-section bus seat to a white man in Montgomery, Ala. (1955)
- Twelve nations, including the United States, signed a treaty setting aside Antarctica as a scientific preserve free from military activity. (1959)
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