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Daily Market Report | December 6, 2021

US FINANCIAL MARKET

Stocks and Oil Rise on Hopes of Milder Covid Variant – Wall Street Journal, 12/6/2021

  • U.S. stock indexes mostly ticked up as investors assessed early indicators that the Omicron Covid-19 variant may be causing milder illness than previously feared, while bitcoin and other cryptocurrencies edged up from weekend lows.
  • 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.
  • Kohl’s rose 4.5% premarket after an activist investor urged the retailer to consider a sale of the company.
  • Lucid Group plunged close to 17% after disclosing that it had been subpoenaed by the Securities and Exchange Commission in relation to the deal that took the company public this summer.
  • Global benchmark Brent crude advanced 2.9% to trade at $71.91 a barrel.
  • The yield on the benchmark 10-year Treasury note ticked up to 1.375% Monday from 1.342% Friday.
  • Overseas, the pan-continental Stoxx Europe 600 rose 0.9%.
  • The Shanghai Composite Index retreated 0.5% and Hong Kong’s Hang Seng Index slid 1.8%.
  • Alibaba shares fell another 5.6%, after declining more than 7% last week. The company said Monday it would appoint a new chief financial officer as part of a wider reshuffle, amid increased competition in China and slowing growth.
  • Shares of Evergrande plunged nearly 20% after it warned about a possible default on its dollar bonds.
  • Tech-investment firm SoftBank tumbled over 8%, extending losses into a seventh consecutive trading session, as some of its portfolio companies declined in value. These included ride-hailing company Didi, which may delist from the New York Stock Exchange, and Alibaba.

Nvidia’s Deal Setback Eased by Soaring Chip Demand – Wall Street Journal, 12/6/2021

  • The exploding growth in semiconductor demand that has helped turn Nvidia into a chip titan is expected to ease the setback facing the company if it can’t complete its acquisition of Arm, analysts said.
  • The Federal Trade Commission filed a lawsuit Thursday alleging the acquisition of the chip-design specialist would give Nvidia unlawful control over computing technology that rivals need to develop their chips.
  • The performance of Nvidia’s shares also has driven the value of the cash-and-stock deal for Arm to roughly $75 billion from the original value of $40 billion.
  • The acquisition would give Nvidia a way to expand its data-center business, though it can likely pursue such circuitry using Arm’s blueprints without owning the business, Bernstein Research analyst Stacy Rasgon said Friday.
  • Owning Arm also would add a lucrative licensing revenue stream to Nvidia, industry officials note.
  • The FTC has scheduled an administrative trial for August 2022.

EV maker Lucid gets SEC subpoena on $24-bln blank-check deal – Reuters, 12/6/2021

  • The U.S. securities regulator has asked Lucid for documents related to an investigation into its blank-check deal, joining a growing list of companies that have come under scrutiny for their merger with shell companies.
  • The investigation appears to concern the business combination between the Company (Churchill Capital) and Atieva and certain projections and statements, Lucid said in a regulatory filing.
  • Lucid’s deal with veteran dealmaker Michael Klein’s blank-check acquisition firm had given the combined company a pro-forma equity value of $24 billion and was completed earlier this year.
  • The California startup joins many other electric-car makers being investigated by federal agencies and regulators as they rush to meet production targets and catch up with Tesla which is producing nearly 200,000 cars every quarter.

Uber Suffers Fresh Blow Over Drivers’ Rights in U.K. Court – Bloomberg, 12/6/2021

  • Uber lost a bid to challenge part of a landmark decision on the working rights of its drivers, meaning the ride-hailing app and its London rivals will have to overhaul their business models.
  • U.K. judges ruled that the tech firm should enter into a direct contract with passengers when providing car journeys and therefore assume more responsibility for each trip booked on their app.
  • The ruling shows that the battle over worker rights in the U.K. gig economy didn’t end after the nation’s top court ruled earlier this year that Uber must treat its drivers as “workers,” giving them access to vacation pay, rest breaks and minimum wage while they’re using the app.
  • Uber said it will comply with the ruling, but that the judgment applies to every private hire operator in London, not just it.
  • Monday’s decision “will fundamentally restructure the private hire industry in London,” the App Drivers and Couriers Union said in a statement.

Johnson & Johnson Prepares to Untangle Finances Ahead of Planned Split – Wall Street Journal, 12/6/2021

  • 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.
  • J&J’s consumer-health unit generated $14.1 billion in sales last year, compared with $45.6 billion for pharmaceuticals and $23 billion for medical devices, according to a filing with securities regulators.
  • The company operated 90 manufacturing facilities globally at the end of 2020.
  • The separate firm will market over-the-counter medications and consumer-health goods, while the remaining company will continue selling prescription drugs and medical devices.

SEC probes Tesla over whistleblower claims on solar panel defects – Reuters, 12/6/2021

  • The U.S. securities regulator has opened an investigation into Tesla over a whistleblower complaint that the company failed to properly notify its shareholders and the public of fire risks associated with solar panel system defects over several years, according to a letter from the agency.
  • Concerns about fires from Tesla solar systems have been published previously, but this is the first report of investigation by the securities regulator.
  • Henkes, a former Toyota Motor quality division manager, was fired from Tesla in August 2020 and he sued Tesla claiming the dismissal was in retaliation for raising safety concerns.
  • Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. It did not warn of fire risks, offer temporary shutdown to mitigate risk, or report the problems to regulators, Henkes said.
  • More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to his lawsuit filed in November last year against Tesla Energy over wrongful termination.

Ford delays return-to-work hybrid plan to March amid COVID uncertainty – Reuters, 12/6/2021

  • The No. 2 U.S. automaker said it will begin a pilot phase for select employees in February and March.
  • The company had previously said it would not return to work under a hybrid work model – a combination of on-site and remote working – before January.
  • This covers Ford’s non-site-dependent employees and does not include plant workers represented by the United Auto Workers union.
  • The union and Detroit Three automakers have recommended vaccinations and boosters for those workers, but those are not mandatory.

Jack in the Box to Buy Del Taco Restaurants – Wall Street Journal, 12/6/2021

  • Jack in the Box is buying Del Taco for $455 million, a deal that ties up two West Coast fast-food chains.
  • Del Taco shareholders are expected to receive $12.51 in cash for each share owned, a 166% premium to the Mexican-focused chain’s closing price on Friday. Including debt, the companies valued the deal at $575 million.
  • The two chains have more than 2,800 restaurants spanning 25 states, but are largely concentrated on the West Coast.
  • Jack in the Box had revenue of $1.14 billion for fiscal 2021, which ended in October.
  • Del Taco had $521 million over the same period.
  • The transaction is expected to close in the first calendar quarter of 2022.

US ECONOMY & POLITICS

High Inflation, Falling Unemployment Prompted Powell’s Fed Pivot – Wall Street Journal, 12/6/2021

  • 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.
  • Inflation has surged this year—to 5% in October from a year earlier, according to the Fed’s preferred gauge—amid strong demand for goods and services and supply-chain bottlenecks associated with reopening the economy.
  • Mr. Powell’s turnabout accelerated over the past month as a slew of new data showed price pressures rising and broadening amid a robust economic recovery, according to public comments and recent interviews.
  • The Fed has moved cautiously this year to withdraw stimulus in part because of a new framework officials adopted last year that set aside the central bank’s longstanding preference for pre-emptively raising rates to head off inflationary pressures.
  • Officials are giving more weight to the prospect that the aggressive fiscal- and monetary-policy responses to the pandemic last year altered traditional recessionary dynamics, buoying wage growth that normally takes longer to recover after a downturn.

U.S. Won’t Send Officials to Beijing Winter Olympics – Wall Street Journal, 12/6/2021

  • The Biden administration won’t send U.S. officials to attend the coming 2022 Winter Olympics in Beijing, staging a diplomatic boycott that drew immediate criticism from China.
  • The decision to withhold official U.S. representation at the Olympics was made several weeks ago, though administration officials waited to make the announcement to allow some time to pass after a phone call last month between President Biden and his Chinese counterpart, Xi Jinping, to stabilize tense relations, advisers to the administration said.
  • While such a boycott would keep U.S. officials from attending the games, the move wouldn’t affect participation by athletes.

Fauci Says U.S. Is Reviewing Travel Restrictions on Daily Basis– Bloomberg, 12/6/2021

  • The U.S. is reevaluating the travel ban on eight southern African countries as more information about the omicron variant and its spread becomes available, White House medical adviser Anthony Fauci said Sunday.
  • The U.S. has barred entry from South Africa, Botswana, Zimbabwe, Namibia, Lesotho, Eswatini, Mozambique and Malawi.
  • That’s prompted criticism from international officials, with United Nations Secretary General Antonio Guterres last week likening the restrictions to “travel apartheid.”
  • U.S. officials have defended the restrictions as a way to buy time to learn more about the variant and develop possible countermeasures.
  • Fauci also indicated that the U.S. was encouraged by reports from South African officials that the rapid spread of omicron hadn’t yet resulted in a spike in hospitalizations in that country, an indication that the strain could be less virulent.

New York mayor plans vaccination mandate for private-sector employers – Reuters, 12/6/2021

  • New York City Mayor Bill de Blasio said on Monday he planned to issue a COVID-19 vaccine mandate for private-sector employers that will go into effect on Dec. 27, calling it a “pre-emptive strike.”
  • Several indicators on Monday showed the spread of COVID-19 were increasing in the most populous city in the United States, including the percentage of people who are testing positive for the virus, according to data from New York City.
  • In November, a U.S. appeals court upheld its decision to put on hold an order by President Joe Biden for companies with 100 workers or more to require COVID-19 vaccines, rejecting a challenge by his administration.

EUROPE & WORLD

Evergrande moves toward restructuring; state swoops in to contain risk – Reuters, 12/6/2021

  • Evergrande has set up a risk management committee as the cash-strapped property developer inches closer to a debt restructuring that has loomed for months over global markets and the world’s second-largest economy.
  • The real estate giant, which is grappling with over $300 billion in liabilities and is at risk of becoming China’s biggest ever default, said on Monday that the committee included officials from state entities and would play an important role in “mitigating and eliminating the future risks” of the group.
  • Evergrande shares slumped to a record low on Monday as it teetered, yet again, on the brink of default with the end of a 30-day grace period looming on dues totaling $82.5 million.
  • Chinese authorities have ramped up efforts to reassure markets that Evergrande’s woes can be contained.
  • In the latest move, China’s central bank said on Monday it would cut the amount of cash that banks must hold in reserve, its second such move this year, releasing $188 billion in long-term liquidity to bolster slowing economic growth.
  • The recent tumble in Evergrande’s dollar-denominated bonds accelerated with the March 2022 issue dropping 4.35 cents in the dollar to 27.7 cents, while other issues like the 2024 and 2025 bonds , tumbled to record lows below 20 cents, MarketAxess data showed.

Rout in Chinese Internet Stocks Rolls On in Hong Kong – Wall Street Journal, 12/6/2021

  • Chinese internet stocks fell in Hong Kong on Monday following a selloff in comparable American depositary receipts late last week, as the fear of more U.S. delistings led many investors to re-evaluate the risks of an already battered technology sector.
  • The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in the city, slid 3.3% to its lowest level, after Alibaba, JD.com, and other internet stocks logged sizable declines.
  • The benchmark, which launched in July 2020, has lost close to a third of its value this year, and is down 45% from a peak in February.
  • Chinese ride-hailing company Didi’s decision to delist from the New York Stock Exchange has triggered a wall of worries about the future of Chinese internet and technology stocks listed on American stock exchanges.
  • On Sunday, the China Securities Regulatory Commission responded to market concerns regarding delisting, saying that it has always maintained an open attitude toward Chinese companies choosing to list overseas and that it fully respects companies choosing their listing venues.

China Cuts Reserve Requirement Ratio as Economy Slows – Bloomberg, 12/6/2021

  • The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks on Dec. 15, releasing 1.2 trillion yuan ($188 billion) of liquidity, according to a statement published Monday.
  • The decision comes after an improvement in recent industrial and broader economic data, although Beijing’s tighter curbs on the property market have led to a slump in construction and worsened a liquidity crisis at real-estate firms including embattled China Evergrande Group.
  • The PBOC decision was closely followed by a statement from top leaders pledging to stabilize the economy in 2022, with a Politburo meeting signaling an easing of some property curbs.
  • The Monday meeting of the Politburo will be followed by the Central Economic Work Conference sometime this month, which will flesh out economic policy plans for the next year.

Aung San Suu Kyi Sentenced to Four Years in Myanmar Prison – Wall Street Journal, 12/6/2021

  • Myanmar’s ousted civilian leader, Aung San Suu Kyi, was sentenced to four years imprisonment after being found guilty on two charges, the first verdicts in a raft of criminal cases that the country’s military has brought against her since seizing power 10 months ago.
  • The guilty verdicts are likely to spark more unrest in the Southeast Asian nation, which was plunged into turmoil after the coup on Feb. 1.
  • Ms. Suu Kyi’s conviction is the most recent sign that the junta has no intention of loosening its grip and follows harsh punishments recently meted out to several of her allies.
  • Ms. Suu Kyi was sentenced on Monday alongside two others, ousted President Win Myint and a senior member of her political party, Myo Aung, according to the person familiar with the cases.
  • All three were found guilty of incitement, while Ms. Suu Kyi and Mr. Win Myint were also convicted of violating a disaster-management law.

Factmonster – TODAY in HISTORY

  • Construction of the Washington Monument was completed. (1884)
  • Jefferson Davis, the first and only president of the Confederate States of America, died in New Orleans. (1889)
  • A presidential address was broadcast on the radio for the first time when Calvin Coolidge spoke before Congress. (1923)
  • Hugo Chavez elected president of Venezuela. (1998)

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