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North American Morning Briefing : Stock Futures Slip, Yields Rise After Powell's Fed Nomination

11/23/2021 | 05:52am EST

MARKET WRAPS

Watch For:

Flash Manufacturing PMI for November; Flash Services PMI for November; Richmond Fed Business Activity Survey for November

Opening Call:

Stock futures edged down and bond yields rose in the wake of Jerome Powell's nomination to continue as Federal Reserve chairman, and ahead of fresh economic data and retail and technology earnings.

Surveys of purchasing managers in the U.S. are set to be released at 9:45 a.m. ET. Economists are expecting the data to show a pickup in manufacturing and services activity after a slowdown in the third quarter. Similar surveys in the European Union showed activity expanded in November, despite a surge in Covid-19 infections.

Earnings season is ongoing. Best Buy, Medtronic and Dollar Tree are set to post results ahead of the opening bell Tuesday, while earnings from Dell Technologies, Nordstrom and Gap are due after markets close.

Overseas, the pan-continental Stoxx Europe 600 declined 1%. An uptick in Covid-19 cases and renewed restrictions in Austria and Germany is weighing on market sentiment in Europe. In Asia, major benchmarks were mixed.

Stocks to Watch:

Bain Capital and Hellman & Friedman's proposed $17 billion deal for Athenahealth is set to provide a windfall for the company's current private-equity backer Veritas Capital.

A person familiar with the situation said that the deal would produce a return multiple of approximately 10 times the firm's invested capital. Veritas and Evergreen Coast Capital acquired the company through a take-private deal in February 2019 for $5.7 billion. The company was combined with Veritas-backed Virence Health, the former value-based care assets of GE Healthcare.

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Zoom plans to spend more on research and development as a percentage of sales, Chief Financial Officer Kelly Steckelberg said Monday. The company intends to allocate about 10% of revenue toward R&D during its next fiscal year, up from about 6.4%, Ms. Steckelberg said. "The issue is not funding, but finding the right talent," Ms. Steckelberg said.

Zoom is also investing in expanding its data centers and growing its sales staff, Ms. Steckelberg said, adding the company is working on a new enterprise resource planning system which will launch next year. Zoom, whose deal to acquire cloud call-center business Five9 fell apart in September, continues to scout for potential targets, Ms. Steckelberg said. "We are proactively looking and responding to inbounds."

Forex:

The nomination of Jerome Powell for a second term as Fed chief has reinforced the market's expectations for interest rates to rise next year and provided fresh reason to buy the dollar, with the DXY hitting another 16-month high.

MUFG expects the dollar and Treasury yields to continue to rise in the near term as U.S. economic activity and inflation remain strong. "The removal of uncertainty over the Fed leadership has encouraged the U.S. rate market to intensify its focus on the building likelihood of the Fed adopting a faster pace of tightening."

However, DBS said the dollar's latest rally could be short-lived. The Fed's favorite inflation gauge, the PCE deflator, might disappoint when the October data are released on Wednesday given that it hasn't risen as fast as CPI since May, DBS said. Also, DBS remains wary of potential profit-taking by market participants on long dollar positions ahead of the upcoming U.S. holiday weekend.

DBS added that policy normalization will be a strong theme over the coming quarters, noting that Powell has turned incrementally hawkish since June's FOMC meeting, and upcoming minutes will likely reveal that policy flexibility will continue, providing leeway for an accelerated taper if needed.

Nonetheless, DBS said the market is only factoring in a partial normalization for the time being, because the Fed's employment mandate hasn't quite been met, although growth and inflation have both risen.

Bonds:

Bond yields continued to rise, with investors pricing in more certainty for the Fed's plans to taper asset purchases and raise interest rates in the near future. The yield on the two-year note climbed to 0.638%, the highest level since March 2020. The yield on the benchmark 10-year bond also rose, reaching as high as 1.643% before easing to 1.624%.

"The volatility is concentrated on the short end of the curve because that is where the expectations of monetary policy are affecting the most, " said Monica Defend, global head of research at Amundi. The market is pricing in rate rises to begin in June, she added.

German asset manager DWS said central banks' exit from stimulus measures will be "tricky" and it therefore expects bond yield levels to remain low.

"The central banks can keep the general level of yields pretty low, and they will do so," chief investment officer Stefan Kreuzkamp said in a webinar.

DWS expects the Fed to phase out asset purchases in 2022, with the first interest rate rise expected later next year. The European Central Bank is expected to phase out the Pandemic Emergency Purchase Programme in March but to keep the support via the Asset Purchase Programme, while interest rates are unlikely to rise before 2024, according to DWS.

Commodities:

Oil futures were more than 1% lower in Europe, with "a U.S. announcement of an oil release from the strategic petroleum reserves [appearing] to be imminent," according to ING's Warren Patterson.

With China, Japan, India and South Korea all potentially joining a coordinated release, various media reports suggest the U.S. would make up the majority of any release by freeing up as much as 35 million barrels.

While "action from the U.S. and other key consumers has been priced in by markets to a certain extent," Patterson said, the uncertainty of the size of the release means a surprise might move prices.

Copper prices edged higher despite bearish data from the International Copper Study Group that showed a building surplus of the metal.

The ICSG said the refined copper market swung to a 52,000 ton surplus in August compared with a 39,000 ton deficit the previous month. The figures seem to confirm that waning demand and reviving supply were relieving the tightness in the market. Global demand for refined copper dropped over 3% from July to August while production grew by 1%, the ICSG said. Though small, the changes were enough to push the market into a surplus.

Goldman Sachs said copper and Brent oil prices are likely to rise amid a tight market. "As demand recoveries met restrained supply due to structural under-investment, inventories have depleted, reaching multi-year lows in energy, base metals and agriculture."

Goldman Sachs said to go long on December 2023 Brent and copper contracts, forecasting "Brent at $90/bbl in three months with upside risk of $110/bbl by 2Q 2022 with colder weather and restrained supply". It targeted copper at $10,500 a ton, with upside risk of $12,000 a ton should inventories shrink further.

TODAY'S TOP HEADLINES

Samsung to Choose Taylor, Texas, for $17 Billion Chip-Making Factory

Samsung Electronics Co. plans to build a roughly $17 billion chip-making plant in Taylor, Texas, according to people familiar with the matter, a mega investment by the South Korean tech giant, as the Biden administration pushes for an expansion of U.S. semiconductor production.

An announcement could come as early as Tuesday, people familiar with the matter said. Gov. Greg Abbott is scheduled to make an "economic announcement" Tuesday at 5 p.m. local time.

Mallinckrodt Drug Purchasers Denied Probe of Chapter 11 Asbestos Votes

A creditor group claiming bankrupt drugmaker Mallinckrodt PLC took actions that resulted in price-gouging lost its bid to have an examiner appointed to investigate certain chapter 11 claims and votes related to asbestos exposure.

Judge John Dorsey of the U.S. Bankruptcy Court in Wilmington, Del., at a hearing on Monday declined to appoint an examiner to look into ballots cast on Mallinckrodt's plan to exit chapter 11 bankruptcy on behalf of thousands of asbestos-injury victims represented by personal injury lawyer Thomas Bevan and other law firms.

Macy's Turns Thanksgiving Day Parade Balloons Into NFTs

Macy's Inc., better known for hawking clothing, luggage and jewelry, is selling NFTs for the first time.

The retailer is auctioning off 10 digital images of its Thanksgiving Day parade balloons, including a floating firefighter from the 1940s and a gold Macy's star from the 1970s. NFTs, or nonfungible tokens, are digital collectibles that are authenticated using blockchain technology and are usually bought with cryptocurrencies. They can be saved, shared or sold.

Hellman, Bain Lead $17 Billion Deal for Athenahealth

Bain Capital and Hellman & Friedman are leading an investor group to buy athenahealth, a healthcare technology company, in a deal valued at $17 billion, including debt.

The investor group includes GIC, Singapore's sovereign-wealth fund, and the Abu Dhabi Investment Authority, a statement said. Veritas Capital and Evergreen Coast Capital, the sellers, are retaining minority stakes in the Watertown, Mass. company. The transaction is expected to close in the first quarter of 2022.

Zoom Shares Skid as Sales Growth Slows

Zoom Video Communications Inc. sales growth slowed last quarter as the extra demand for remote work and the company's videoconferencing application eased, along with a pullback in the Covid-19 pandemic.

The San Jose, Calif.-based company said its sales rose 35% from a year earlier to $1.05 billion for the three months ended Oct. 31. In the previous quarter, the company's sales rose 54%. A year earlier, its sales jumped more than 360%.

Target, Walmart and More Stores Will Be Closed Again This Thanksgiving

Many retail employees will be able to eat turkey with their families this year as merchants from Target Corp. to Walmart Inc. keep physical locations closed on Thanksgiving Day for at least another year.

(MORE TO FOLLOW) Dow Jones Newswires

11-23-21 0551ET

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