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Daily Market Report | December 20, 2021

US FINANCIAL MARKET

Stocks, Oil Prices Fall on New Covid-19 Curbs – Wall Street Journal, 12/20/2021

  • The Dow Jones Industrial Average fell more than 600 points on Monday as investors worried that a rise in Omicron Covid-19 cases would stall economic growth and add pressure to inflation.
  • The Dow was down 1.7% in morning trading, continuing its decline after a 1.5% drop on Friday.
  • The S&P 500 slid 1.6%, while the technology-focused Nasdaq Composite shed 1.5%.
  • Oil prices and bond yields tumbled as investors reassessed the prospects for near-term economic growth and fled for assets perceived as safe havens. Shares of energy companies were punished, with Occidental Petroleum falling 4.3% and Marathon Oil declining 3.1%.
  • Some countries are imposing restrictions to stem the spread of the Omicron variant as the holiday season starts.
  • The Netherlands on Sunday reimposed a lockdown, with all nonessential shops, bars and restaurants closed until mid-January.
  • Irish Prime Minister Micheál Martin also announced new restrictions.
  • President Biden plans to deliver an update Tuesday on the fight against Covid-19 in the U.S., where cases are rising.
  • The rise in infections has prompted concerns that a new wave is likely to prolong supply-chain disruptions that have elevated inflation.
  • Oil prices fell amid concerns that the spread of the Omicron variant could crimp oil demand. Brent crude futures, the benchmark in global oil markets, declined 4.4% to $70.32 a barrel.
  • In bond markets, the yield on the benchmark 10-year Treasury note fell to 1.390% Monday from 1.401% Friday.
  • Investors tend to buy government bonds, seen as one of the safest assets to hold, in times of uncertainty, causing bond prices to rise and yields to fall.
  • Further weighing on sentiment, Sen. Joe Manchin (D., W.Va.) said he would oppose his party’s roughly $2 trillion education, healthcare and climate package, likely dooming the centerpiece of Mr. Biden’s economic agenda as currently written.
  • Portfolio managers whose performance is assessed on a year-over-year basis are also likely closing out positions and locking in gains after a strong year in markets. Despite recent volatility, the S&P 500 is up more than 20% this year.
  • Overseas, the pan-continental Stoxx Europe 600 was down 1.4%. Shares of BNP Paribas ticked up 0.4%, outperforming the broader banking sector, after it agreed to sell Bank of the West to Bank of Montreal for $16.3 billion in one of the largest recent bank deals.
  • Major indexes in Asia closed lower. South Korea’s Kospi contracted 1.8% and Japan’s Nikkei 225 shed 2.1%. Hong Kong’s flagship Hang Seng Index fell 1.9% to its lowest closing level since March 2020, according to FactSet.

Davos Forum Postponed; Moderna’s Booster Efficacy: Virus Update – Bloomberg, 12/20/2021

  • The World Economic Forum postponed its annual meeting in Davos, which had been slated for January, amid fresh waves of coronavirus across Switzerland and the globe.
  • Moderna said a third dose of its Covid-19 vaccine increased antibody levels against the omicron variant, even as the company works on a version tailored to the new strain.
  • Puerto Rico will begin requiring attendees of indoor and outdoor events — including at theaters, stadiums, coliseums and convention centers — to present proof of vaccination and a negative test that’s no more than 48 hours old. Religious organizations are exempt from the measures.
  • The World Economic Forum postponed its annual meeting in Davos next month, thwarted for a second year by the waves of coronavirus sweeping across Switzerland and the globe.
  • The forum said in a statement that it was forced to rethink plans for the meeting, which had been slated for Jan. 17-21, and will now host it in early summer.
  • Hong Kong is banning Cathay Pacific’s passenger flights from New York between Dec. 20 to Jan. 2 after three passengers on a flight on the same route were confirmed to have Covid-19, according to a government statement.
  • After a new lockdown in the Netherlands and travel restrictions targeted by several countries at the U.K., Germany is bracing for stricter measures, while France is considering requiring vaccine passes in the work place.
  • The Israeli cabinet approved recommendations by health officials to add the U.S., Canada and eight other countries to a list of banned travel destinations due to the spread of the omicron variant.
  • Other countries on the list include Italy, Belgium, Germany, Hungary, Morocco, Portugal, Switzerland and Turkey.
  • New Zealand health authorities said they believe a man’s death may be linked to the Pfizer Covid-19 vaccine.
  • The 26-year-old man died within two weeks of his first dose of Pfizer and preliminary post-mortem information suggests the probable cause was myocarditis, an inflammation of the heart muscle wall that is a rare side effect of some Covid-19 vaccines, New Zealand’s Covid-19 Vaccine Independent Safety Monitoring Board said in an emailed statement on Monday.
  • China reported 39 Covid infections on Monday amid a cluster in the city of Xi’an. The country also reported four imported cases of omicron.

Central Banks Worry Omicron Could Sustain Inflation – Wall Street Journal, 12/20/2021

  • The Omicron variant is circling the globe, closing borders and sparking new restrictions on economic activity. Yet central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates.
  • When the pandemic first became widespread, in early 2020, governments locked down their economies. Consumer spending fell sharply, employers shed workers and prices fell. Within a few months, the rise of e-commerce and remote working allowed the economy in many developed countries to recover rapidly. With mass vaccinations, that recovery has continued this year.
  • Now, new case surges are having much less severe impacts on spending and job creation.
  • Instead, they are threatening to prolong supply-chain disruptions and keep inflation elevated.
  • Nonetheless, economists and investors do expect Omicron to have some negative impact on growth, particularly with international travel. In recent days several European countries have announced new restrictions on activity.
  • Economists at Pantheon Macroeconomics brought down forecast U.S. growth to 3% annualized in the first quarter from 5%. They see most of that decline being made up in subsequent quarters.

Novavax’s Covid-19 Vaccine Recommended for Use in EU – Wall Street Journal, 12/20/2021

  • Novavax’s Covid-19 vaccine has been recommended for use by the European drug regulator, a major step toward its clearance for use in the European Union.
  • The European Medicines Agency on Monday said the vaccine has efficacy against symptomatic Covid-19 of around 90%. The trials were done when the Alpha and Beta variants were dominant, the EMA said. There was limited data on its effectiveness against the Delta and Omicron variants, it said.
  • Novavax shares jumped more than 10% after the EMA made its recommendation.

Carnival’s near-term cruise bookings under pressure on Omicron concerns – Reuters, 12/20/2021

  • Carnival, said on Monday Omicron has hurt near-term bookings, but demand for cruises late next year and 2023 suggest that the impact from new coronavirus variants could be short-lived.
  • Revenue rose to $1.29 billion from $34 million a year earlier, while analysts had expected $1.41 billion, according to IBES data from Refinitiv.
  • The company’s fourth-quarter adjusted net loss widened to $1.96 billion from $1.86 billion as it spent heavily on preparing its ships across its several brands for sailings.
  • Cash from operations turned positive in the month of November, Carnival’s Chief Executive Officer Arnold Donald said, adding the cruise operator expects positive cash flow beginning in the second quarter of 2022.
  • Carnival forecast a net loss for the first half of 2022 before turning profitable in the second half.
  • Carnival’s rival Royal Caribbean Group also said on Monday 48 of 6,091 guests on its Symphony of the Seas cruise ship tested positive for COVID-19, although nearly all of them were fully vaccinated.

Oracle to Pay More Than $30 Billion Including Debt for Cerner – Wall Street Journal, 12/20/2021

  • Oracle is expected to pay more than $30 billion including debt for electronic-medical-records company Cerner, according to people familiar with the matter.
  • The all-cash deal is expected to be announced later Monday and value Cerner at about $95 a share, one of the people said.
  • Kansas City, Mo.-based Cerner designs software that hospitals and doctors use to store and analyze medical records and other healthcare data.

‘Spider-Man’ $253 Million Debut Smashes Pandemic-Era Record – Bloomberg, 12/20/2021

  • Spider-Man fans jammed theaters across North America, shattering the opening-weekend record for a movie released during the pandemic, even as Covid cases surged in many places.
  • “Spider-Man: No Way Home” generated $253 million in U.S. and Canada ticket sales in its debut, Sony Group said in a statement. The film, made in conjunction with Walt Disney’s Marvel division, had the third-highest domestic opening weekend of all time, beating Boxoffice Pro’s forecast of $224 million, as well as Sony’s own projections.
  • The two recent “Avengers” movies had the biggest opening weekends in movie history, though “No Way Home” is well ahead of the “Star Wars” and “Jurassic World” franchises.
  • International theaters brought in an additional $334.2 million, Sony said. Among individual markets, it was second-highest opening ever in Brazil and the second-highest for a Hollywood film in India.

Sky-High Lumber Prices Are Back – Wall Street Journal, 12/20/2021

  • Lumber prices have shot up again in a rise reminiscent of a year ago, when high-climbing wood prices warned of the hinky supply lines and broad inflation to come.
  • Futures for January delivery ended Friday at $1,089.10 per thousand board feet, twice the price for a prompt delivery in mid-November.
  • Cash prices are way up as well. Pricing service Random Lengths said that its framing composite index, which tracks on-the-spot sales, has jumped 65% since October, to $915.
  • A $129 gain this week was the biggest on record, eclipsing a $124 jump in May, when lumber prices crested at all-time highs.
  • Lumber prices have a way to go before they threaten the records set in spring, when futures hit $1,711.20.
  • Still, lumber prices with a comma were unimaginable before the lockdown, when mills were caught off guard by do-it-yourself and home-building booms and all the decks needed to facilitate outdoor dining.

OPEC+ produces below target in November as compliance rises – Reuters, 12/20/2021

  • OPEC+ compliance with oil production cuts rose to 117% in November from 116% a month earlier, two sources from the group told Reuters, indicating production levels remain well below agreed targets.
  • Compliance from the 10 OPEC countries participating in the production cuts reached 122%, with participating non-OPEC countries achieving 107%, data seen by Reuters showed.
  • The OPEC+ data shows West African producers Nigeria and Angola continued to struggle to pump at target with Angola’s compliance hitting its highest this year at nearly 300%.
  • Nigerian compliance fell by 10 percentage points month on month to 239%, as the country raised production slightly.
  • Russian Deputy Prime Minister Alexander Novak has said the country’s oil production will reach pre-pandemic levels by May 2022.

GM to extend production halt for Chevrolet Bolt EV through February – Reuters, 12/20/2021

  • General Motors said Monday it is extending a production halt at its Orion Assembly plant in Michigan, which makes the Chevrolet Bolt electric vehicle, through the end of February.
  • The largest U.S. automaker in August widened its recall of the Bolt to more than 140,000 vehicles to replace battery modules after a series of fires. Earlier this month, it extended its production shutdown through late January. GM has also indefinitely halted retail sales of new Bolt vehicles.
  • The suburban Detroit plant halted production in August but conducted two weeks of limited production at Orion starting Nov. 1 to help provide courtesy transportation vehicles for customers during recall repairs.

Global M&A activity smashes all-time records to top $5 trillion in 2021 – Reuters, 12/20/2021

  • Global merger and acquisition (M&A) activity shattered all-time records in 2021, comfortably erasing the high-water mark that was set nearly 15 years ago, as an abundance of capital and sky-high valuations fueled frenetic levels of dealmaking.
  • The value of M&A globally topped $5 trillion for the first time ever, with volumes rising 63% to $5.63 trillion by Dec. 16, according to Dealogic data, easily surpassing the pre-financial-crisis record of $4.42 trillion in 2007.
  • Overall deal volumes in the United States nearly doubled to $2.61 trillion in 2021, according to Dealogic.
  • Dealmaking in Europe jumped 47% to $1.26 trillion, while Asia Pacific rose 37% to $1.27 trillion.

Biogen Cuts Price for Alzheimer’s Drug Aduhelm by Half – Wall Street Journal, 12/20/2021

  • Biogen is slashing in half the price of its controversial new Alzheimer’s disease treatment, Aduhelm, in a bid to revive a product launch that has stalled in part because of a backlash over the drug’s cost.
  • The price cut will reduce the average annual cost of treatment to $28,200 a patient from the $56,000 the company set when the drug was approved in June, Biogen said Monday.
  • Several health insurers including the Department of Veterans Affairs have declined to pay for the medicine because of uncertainty about its effectiveness and concerns about potential side effects.
  • Some hospitals have cited the price as a factor in refusing to administer the drug, which requires monthly infusions by a nurse or other healthcare professional.

US ECONOMY & POLITICS

Sen. Joe Manchin Says He Won’t Vote for ‘Build Back Better’ Bill in Blow to President Biden – Wall Street Journal, 12/20/2021

  • Sen. Joe Manchin (D., W.Va.) said he would oppose his party’s roughly $2 trillion education, healthcare and climate package, likely dooming the centerpiece of President Biden’s economic agenda as currently written.
  • “This is a ‘no’ on this legislation,” Mr. Manchin said on Fox News Sunday. “I have tried everything.”
  • Mr. Manchin, who spoke with Mr. Biden multiple times last week about the bill, said that he couldn’t explain a “yes” vote to the people he represents in West Virginia. “I can’t get there,” Mr. Manchin said on Fox News.
  • “If his comments on Fox and written statement indicate an end to that effort, they represent a sudden and inexplicable reversal in his position, and a breach of his commitments to the president and the senator’s colleagues in the House and Senate,” Ms. Psaki said.

U.S. motor vehicle travel rose by 7.1% in October over 2020 levels – Reuters, 12/20/2021

  • U.S. motorists drove 7.1% more miles in October over 2020 levels as people return to offices and leisure trips, but the distance is off slightly from pre-pandemic levels.
  • The Federal Highway Administration said Monday motorists drove 277.5 billion miles in October, up 18.5 billion miles over the same month in 2020, but still down 5.6 billion miles over October 2019.
  • For the first 10 months of 2021, road travel is up 11.2%, or 262.5 billion miles.

U.S. home sales to rise 7.1% in 2021, fall next two years-Fannie Mae – Reuters, 12/20/2021

  • Home sales across the United States are expected to end 2021 up 7.1%, but are forecast to decline over the next two years as limited supply, along with higher mortgage rates and prices, cool the residential real estate market, Fannie Mae said on Monday.
  • The government-sponsored enterprise’s Economic and Strategic Research Group raised its 2021 home sales growth projection from a prior 5.3%, citing an expected strong year-end surge in home buying.
  • A 7.1% increase would be just under 2020’s 7.3% jump.
  • However, the forecast showed home sales declining 1.4% next year due to limited listings and other factors, and falling 3.8% in 2023.

Senators Own Cryptocurrency Assets as They Shape Rules for Industry – Wall Street Journal, 12/20/2021

  • Sens. Pat Toomey (R., Pa.) and Cynthia Lummis (R., Wyo.) sit on the powerful Senate Banking Committee and have been advocates for a light government touch toward the growing—and largely unchecked—cryptocurrency market.
  • They also own cryptocurrency assets. Ms. Lummis’s roughly $250,000 of bitcoin makes her the most heavily invested U.S. lawmaker in the digital asset. Mr. Toomey has smaller holdings in crypto-related investment vehicles. Together they are the only two senators with such investments, according to a Wall Street Journal review of public financial disclosures.
  • Ms. Lummis and Mr. Toomey, the committee’s ranking Republicans, say their experience with cryptocurrency gives them expertise on a subject that few on Capitol Hill have studied.
  • Others are concerned that the lawmakers’ personal investments could influence potential regulation.

Biden Administration to Make 20,000 More Visas Available for Temporary Workers – Wall Street Journal, 12/20/2021

  • The Biden administration will make an additional 20,000 H-2B seasonal guest-worker visas available to employers ahead of the winter hiring season, the Department of Homeland Security said.
  • The visas are being made available in addition to 33,000 visas already set aside for seasonal employers, such as landscapers, hotels and ski resorts, for the winter hiring season.
  • They will be available to employers looking to bring on temporary workers on or before March 31.
  • The move marks the first time the department is offering the additional visas for the winter season, and leaves open the possibility that the administration could make an additional batch available for the summer, which is typically busier.
  • Of the 20,000 additional visas, 6,500 will be set aside for applicants from Guatemala, Honduras, El Salvador and Haiti—all countries that have sent large numbers of migrants to the U.S. border in recent months. The remainder will be set aside for returning workers from any country.

EUROPE & WORLD

Europe Braces for More Covid Lockdowns as U.K. Cases Surge – Bloomberg, 12/20/2021

  • Europe’s biggest countries are introducing more curbs to fight a surge in Covid-19 infections, from another lockdown in the Netherlands to stricter travel restrictions at the height of the holiday period.
  • As omicron cases surge in the U.K., the country faces the politically perilous decision whether to tighten restrictions. Health Minister Sajid Javid has declined to rule out such a move before Christmas, but Prime Minister Boris Johnson — who previously called the end of curbs “irreversible” — would likely face further rebellion from his own ranks should such steps come into effect.
  • Ireland’s chief medical officer refused to rule out new restrictions if the omicron variant continues to spread.
  • Prime Minister Micheal Martin on Friday ordered bars and restaurants to close by 8pm and limited attendance at certain events.
  • The Dutch already made their move: the nation returned to a strict lockdown on Sunday. That means schools and non-essential shops are closed, and fewer visitors will be allowed in households.
  • The steps come as the government said the rise of omicron will likely overburden its health care system in January. The new restrictions will remain in place until at least Jan. 14.
  • On Thursday, Italy’s government will also hold an emergency meeting and may look at options such as requiring masks outdoors, shortening the validity of vaccine certificates, and possibly requiring inoculated people as well as the unvaccinated to take Covid tests to access large events, according to people familiar with the matter.
  • A vaccine laggard, with less than 68% fully inoculated, Switzerland will exclude the unvaccinated from large parts of public life, such as restaurants, museums and gyms.
  • The Swiss government also reintroduced a work-from-home requirement. The measures are in place until Jan. 24.

Chinese Developer Kaisa Follows Evergrande Into Restructuring Talks – Wall Street Journal, 12/20/2021

  • Kaisa Group Holdings, which in 2015 became one of the first Chinese developers to default abroad, said it had failed to make several payments on dollar bonds as planned, and is talking to creditors about a wide-ranging restructuring plan.
  • The move sets the stage for parallel debt workouts by two of the mainland real-estate sector’s biggest offshore borrowers, Shenzhen-based Kaisa and China Evergrande Group.
  • Kaisa said Monday it had $11.8 billion of dollar bonds outstanding, while the tally for Evergrande is nearly $20 billion.
  • Kaisa said it didn’t pay the principal and interest on a $400 million 6.5% note that matured on Dec. 7 and missed more than $105 million in overdue interest payments on three other bonds. Creditors haven’t demanded accelerated repayment yet, the company said.

Inflation Hawk to Lead German Bundesbank – Wall Street Journal, 12/20/2021

  • A longtime Bundesbank official with a record as an inflation hawk has been appointed as Germany’s new central-bank governor, just as the European Central Bank moves away from its ultra-easy-money policies amid a surge in eurozone inflation.
  •  Joachim Nagel will replace Jens Weidmann, the hawkish German central-bank chief who made his name by attacking easy-money policies under former ECB President Mario Draghi. His tenure will start on Jan. 1.
  • Mr. Weidmann announced his departure from the Bundesbank in October, five years before his term was due to end.
  • The move suggests continuity in the Bundesbank’s policies, although economists said it is unlikely to substantially alter the direction of ECB monetary policy, since Mr. Weidmann’s hawkish stance was already in a minority at the bank.

Turkey’s Currency Crisis Slams the Nutella Global Supply Chain – Wall Street Journal, 12/20/2021

  • The Turkish hazelnut industry—which employs some four million people who produce 70% of the world’s hazelnuts—is a stark example of the potential global implications of an economic gamble set in motion by President Recep Tayyip Erdogan, who says he wants a weaker Turkish lira to encourage exports and expand productive industry. The lira has lost half of its value this year.
  • In the center of Turkey’s vast hazelnut industry, the plummeting lira is driving up the cost of fertilizer, seeds, pesticide and other imported essentials. Nut factories are paying more for energy, packaging and transportation. Hazelnut labor costs are expected to rise as the Turkish government is set to raise the minimum wage to keep pace with a 21% inflation rate.
  • The result: Turkey’s once-prosperous hazelnut farmers are getting poorer, and their farms are producing fewer of the nuts that go into the world’s supply of items such as hazelnut milk and Nutella. Falling supplies of hazelnuts will eventually drive up prices for consumers, industry leaders say.
  • “The world is on the verge of hazelnut shortage,” said Turgan Zülfikar, a New York-based consultant for Turkish companies entering the U.S. market. “If you are a Nutella fan, you better stock up at your next food-shopping visit.”

Hong Kong Voters Widely Shun Election for Beijing-Approved Legislators – Wall Street Journal, 12/20/2021

  • Voters mostly shunned a citywide poll to select Beijing-approved candidates for the city’s legislature, dealing a blow to the government’s efforts to show it had popular support after a national-security crackdown that has crushed dissent in the city.
  • Turnout on Sunday was the lowest for a legislative election since the city’s return to China from British rule more than two decades ago. Just 30.2% of the city’s 4.5 million registered voters cast ballots, according to a provisional government tally. In 2016, total turnout was 58.3%.
  • The lowest post-handover turnout previously was 43.6% in 2000.
  • Under a series of Beijing-led election rules imposed this year, candidates were heavily vetted by authorities and the number of directly elected seats was cut to less than a quarter from half in 2016.
  • Dozens of would-be opposition contenders are in jail facing subversion charges. Others are in exile or quit politics amid the crackdown.

Chinese Tennis Star Peng Shuai Denies Making Sexual-Assault Accusations – Wall Street Journal, 12/20/2021

  • Chinese tennis star Peng Shuai denied accusing anyone of sexual assault, suggesting a global wave of concern for her safety and wellbeing was the result of misunderstandings.
  • “I’ve never claimed, or written about anyone having sexually assaulted me. This is very important and needs to be clear,” said Ms. Peng in a six-minute video interview with Singapore’s Lianhe Zaobao, a Chinese-language publication run by state-controlled Singapore Press Holdings Ltd. , that was posted online Sunday.
  • “There’s been a lot of misunderstanding,” Ms. Peng said in the interview, describing the situation as touching on “my personal privacy.”
  • Her words follow a Nov. 2 post that appeared on Ms. Peng’s verified social-media account, which described an on-and-off relationship with former Chinese Vice Premier Zhang Gaoli that lasted for some years, and was sometimes consensual and sometimes involved coercion.
  • The post alleged that in one instance Mr. Zhang forced Ms. Peng to have sex with him, but it didn’t use the Chinese term for sexual assault to describe the encounter.

Factmonster – TODAY in HISTORY

  • The United States purchased the Louisiana territory from France for $15 million. (1803)
  • South Carolina became the first state to secede from the Union. (1860)
  • Author John Steinbeck died at age 66. (1968)
  • The United States invaded Panama and installed a new government but failed to capture General Manuel Antonio Noriega. (1989)

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