Monday Morning Reads

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Implied moves for companies reporting earnings (Nov. 29th – Dec. 3rd)




The newly discovered Omicron coronavirus variant has the world on edge, with a lot of questions surrounding its infectiousness, ability to cause serious disease and to what degree it's able to evade the immune response from prior infection or vaccination. The strain first identified in South Africa was dubbed a "variant of concern" last week by the World Health Organization, sparking fresh worries it could prolong the nearly two-year COVID-19 pandemic. While no cases of this variant have yet been identified in the U.S., the CDC is "continuously monitoring" the situation and many say it is only a matter of time.

Snapshot: The Omicron variant has about 50 mutations, more than 30 of these are on the spike protein that allows the virus to bind to human cells. The receptor-binding domain (i.e. the part of the virus that first makes contact with our cells) also has 10 mutations, which is far greater than just two for the rapidly spreading Delta variant. The high level of mutation means that Omicron likely came from a single patient who could not clear the virus, giving it the chance to genetically evolve (a similar hypothesis was proposed for the Alpha strain).

Meanwhile, the first South African physician to raise the alarm over Omicron has called its symptoms unusual but mild. For example, none of her patients experienced a loss of taste or smell, considered as hallmarks of the disease, but rather showed up with body aches and "feeling so tired," according to Dr. Angelique Coetzee. Other South African scientists and health officials have also said there were no signs so far that Omicron led to more serious illness.

Travel restrictions

Even before Omicron, many European countries began reimposing pandemic restrictions in response to rising coronavirus cases. Austria shut down, Germany flirted with another national lockdown, while Belgium announced it would close nightclubs and prohibit private parties except for weddings and funerals. The focus is now turning to travel restrictions as countries seek to slow the spread of the Omicron variant, which has so far been detected in Australia, Belgium, Britain, Canada, Denmark, France, Germany, Hong Kong, Israel, Italy, the Netherlands and Scotland.

What's happening: In the most far-reaching effort, Japan joined Israel in banning the entry of all foreigners. Meanwhile, Morocco said it would suspend all incoming flights for two weeks starting Monday, Australia reversed its border reopening plans, while the Philippines ditched an idea to let in vaccinated tourists. Over in the U.S., travel will be restricted for non-U.S. citizens from South Africa and seven other countries starting today, though there is no indication of how long the ban will remain in place.

"I've decided we're going to be cautious," President Biden told reporters. "We don't know a lot about the variant except it is a great concern, seems to spread rapidly."

Outlook: The new restrictions come just as airlines and jet manufacturers like Boeing (BA) expressed optimism about a resurgence in demand. While flights between the U.S. and South Africa are limited compared with other global destinations, sudden changes in travel rules could further delay the return of lucrative international business travel. Delta Air Lines (NYSE:DAL) and United Airlines (NASDAQ:UAL), the two airlines that fly direct to Johannesburg, said they are not adjusting their schedules, but it remains to be seen how many of the 122 flights scheduled for December will end up running or are booked enough to be profitable.

Market effects

Futures for the three major U.S. stock averages rose overnight as investors considered the potential effects of the Omicron variant. Stocks previously sold off on Friday, with Wall Street suffering its worst day in more than a year, in an echo of panic that swept through markets when COVID was spreading in early 2020. The frantic response has more to do with fears of lockdowns and restrictions on the economy, as well worries that the variant could stall the global recovery.

Other movement: WTI crude oil prices (CL1:COM) rebounded more than 5% this morning to retake the $70 level, while travel industry shares inched up after a bloodbath before the weekend. A flight to safety also saw the 10-year Treasury yield tumble 15 bps to 1.49% on Friday, but it regained the 1.54% level overnight. Cryptocurrencies are in the green, with Bitcoin (BTC-USD) rising 4.5% to $57,187 and Ether (ETH-USD) up 4.9% to $4,302 in the past 24 hours.

"While central bank commentary has been focused on upside risks to inflation, this [new COVID variant] highlights that there are significant downside risks and we are in a significant phase of uncertainty for the economy," noted Chris Scicluna of Daiwa Capital Markets.

What it means: Volatility is likely to ensue as more details about Omicron emerge as the market heads into December. The macro backdrop will be important to watch, specifically the jobs report on Friday, as well as if the inflationary environment continues to gain steam. Investors are also eager to assess coming rate hikes from the Federal Reserve, but Omicron could put a dent in the central bank's plans if new risks arise to economic activity.

Scientists scramble

Vaccine makers have thus far been hesitant to tweak existing coronavirus jabs due to fears it could become a game of whack-a-mole, but a super strain may change that sentiment. Testing involving Omicron is already underway among the big manufacturers, with several saying it would take about two weeks to establish whether the new variant renders their shots less effective. On Friday, South Africa's health minister said he expects current jabs to still offer protection against severe illness and death from Omicron, though they might be less effective at preventing infections and milder disease.

In case it doesn't: Pfizer (NYSE:PFE) and partner BioNTech (NASDAQ:BNTX) said they would be able to adapt their vaccines within six weeks and ship initial batches within 100 days. Moderna can meanwhile get a new construct into human trials in less than 60 days, though manufacturing would take a few months. Any new candidates would also need to clear the regulatory process, getting a green light from the Food and Drug Administration.

In terms of therapeutics, Pfizer's (PFE) Paxlovid and Merck's (NYSE:MRK) molnupiravir are expected to target parts of the virus that are not changed in Omicron, and could be all the more important if vaccine-induced and natural immunity are threatened. Both drugmakers have licensed their antiviral pills to other manufacturers, so they should be widely available if needed. The Biden administration has even ordered 13M courses of the two drugs after seeing significant success in trials at preventing severe illness in high-risk groups.

Outlook: Regarding manufactured antibodies, Omicron's mutations are likely to render some treatments ineffective, according to Dr. David Ho, professor of microbiology and immunology at Columbia University. Investors are particularly worried about antibody drugs from Regeneron (NASDAQ:REGN) and Eli Lilly (NYSE:LLY), but some think Vir Biotechnology (NASDAQ:VIR) and AstraZeneca's (NASDAQ:AZN) could hold up better against this variant due to the way the antibodies are constructed to target the spike proteins. The new variant might also dull the impact of monoclonal antibody treatment because of those same mutations, declared Dr. Wendy Barclay, head of the G2P-UK National Virology Consortium.

Today's Markets

In Asia, Japan -1.6%. Hong Kong -1%. China flat. India +0.3%.
In Europe, at midday, London +1.2%. Paris +1.2%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.7%. S&P +0.9%. Nasdaq +1%. Crude +5.1% at $71.63. Gold +0.6% at $1796.30. Bitcoin +4.5% at $57187.
Ten-year Treasury Yield +5 bps to 1.54%

Today's Economic Calendar

10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing Survey
3:00 PM Fed's Williams Speech

Companies reporting earnings today »

What else is happening...

Black Friday sales growth reverses for first time - Adobe Analytics.

Thermo Fisher (NYSE:TMO) confirms its COVID tests accurately detect Omicron.

OPEC no longer has incentive to maintain oil production increases.

Biden to seek federal oil lease reforms like higher fees and climate focus.

Macau stocks on watch after Suncity (OTCPK:SCGHF) CEO detained by authorities.

Nissan (OTCPK:NSANY) to spend $17.6B over five years to ramp up EV production.

Peloton (NASDAQ:PTON) sues Lululemon (NASDAQ:LULU) as legal spat heats up.

Apple (NASDAQ:AAPL) may have AR headset for sale by late 2022 - MacRumors.

Tesla (NASDAQ:TSLA) forced to turn down €1.1B in subsidies for Germany battery factory.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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