HOT AIR BALLOON FLIGHT

By Charles Riley • Friday, July 23

Good morning. In today's newsletter: The global chip shortage could be causing havoc until 2023. Plus, India's first unicorn IPO delivers a massive pop, and the Delta variant menaces the global recovery.

Rising US stock futures suggest investors could head into the weekend with a smile on their faces. Markets in Europe were up sharply in early trading, while stocks in Asia closed mixed.

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MARKET FLASH

The global chip shortage could take years to fix

The global shortage of semiconductors that has hobbled the auto industry and made some consumer electronics more expensive could last until the middle of 2023, Intel has warned. 

"While I expect shortages to bottom out in the second half [of the year], it will take another one to two years before the industry is able to completely catch up with demand," CEO Patrick Gelsinger told analysts on Thursday.

Ouch. That's terrible news for carmakers, many of which have been forced to idle plants this year because they can't get enough chips, limiting the supply of new vehicles at a time when used car prices are soaring.

See here: General Motors will stop making most of its full-size pickup trucks for a week starting Monday. It's halting production at a Fort Wayne, Indiana plant that makes the Chevrolet Silverado 1500 and GMC Sierra 1500, and reducing production at a second plant that produces heavy-duty models.

Large pickups and SUVs are US automakers' best-selling and most profitable vehicles. General Motors and other companies have tried to keep making them, shifting their supply of available chips away from less popular vehicles.

"These most recent scheduling adjustments are being driven by temporary parts shortages caused by semiconductor supply constraints from international markets experiencing Covid-19-related restrictions," said General Motors. "We expect it to be a near-term issue."

Not so fast: While General Motors' supply troubles may ease in the coming weeks, the industry has to remain vigilant. Intel and other chipmakers are working to expand their production capacity, but it can take years for new plants to come online. 

Daimler, which owns Mercedes-Benz, said on Wednesday that it expects the chip crunch to persist into 2022, hampering its sales.

"The company assumes that the worldwide shortage of supply of semiconductor components will affect the business also in the second half of the year," it warned investors. "The company also recognizes that the visibility how the supply situation will actually develop further is currently low."

What's next: Smartphones could be the next industry to get walloped, according to ING Greater China chief economist Iris Pang.

"Taiwanese semiconductor companies are tailoring making chips for autos, so the chip shortage should be solved for autos in a few weeks, but other electronics' chip shortage problem persists," Pang told the Reuters Global Markets Forum this week.

VOICES

Time to raise the debt ceiling

"The last thing the economy needs is an artificial crisis."

JOE BRUSUELAS, CHIEF ECONOMIST AT RSM 

Read more from CNN Business

IPO MONITOR

India gets its first unicorn IPO

India's first billion-dollar tech startup to go public got off to a flying start on Friday, reports my CNN Business colleague Diksha Madhok.

Shares in Zomato gained about 65% on their first day of trading on Mumbai's stock exchange, giving the food delivery company a market value of roughly $13 billion. The listing comes a little over a week after the company launched its IPO to raise $1.3 billion.

"India is a tough market to operate in, but if you are building to succeed in India, you are already exceptional," Zomato founder Deepinder Goyal wrote in a blog post Friday. "We are going to relentlessly focus on 10 years out and beyond, and are not going to alter our course for short term profits at the cost of long term success of the company."

While Indian stock markets have been trading near all-time highs, Zomato's listing was a big test of investor appetite for loss-making tech startups. Zomato reported revenue of 19.93 billion rupees ($266 million) for the year to March 31, 2021, and a loss of 8.16 billion rupees ($109 million).

The country has a ton of so-called unicorns — tech startups valued at more than $1 billion — but none of them had ever gone public in India or overseas before. Analysts had previously expressed concern that the startups — many of which have raised hundreds of millions of dollars from private investors at extremely high valuations — needed to start showing consistent profits.

"The tremendous response to our IPO gives us the confidence that the world is full of investors who appreciate the magnitude of investments we are making, and take a long term view of our business," Goyal wrote.

UP NEXT

Earnings from American Express, Honeywell, Kimberly-Clark, NextEra Energy and Schlumberger are out before the opening bell.

Coming next week: What does the Federal Reserve think about the threat posed by the Delta variant? The central bank gives its next policy update on Wednesday.

WHAT WE'RE READING AND WATCHING

▸ The used car market may finally be cooling off (CNN Business)
▸ First look at Mars interior yields big surprise (WSJ)
▸ Thermal coal prices soar as demand for electricity rebounds (FT)
▸ GM halts most of its pickup production for a week (CNN Business)
▸ Once its strength, water now threatens Germany (Reuters)
▸ You may be waiting longer for your Domino's pizza (CNN Business)

FINAL WORD

Vaccines = economic recovery?

For the vaccinated, it's tempting to think of the pandemic as under control.

But that's not the case. In most of the world, the economic recovery still depends on getting more shots into more arms, and that's not happening quickly enough. Meanwhile, the Delta variant continues to spread, including among the fully vaccinated.

See here: IHS Markit has downgraded its global growth forecast for 2021 by 0.2 percentage points to 5.8%.

"In 2021 and 2022, economic growth will be linked to COVID-19 vaccination progress. Countries with low vaccination rates face increased risks from the Delta variant of the virus, adding to the urgency of stepping up international vaccination campaigns," said Sara Johnson, executive director of global economics at IHS Markit.

Warning, warning: July PMI data complied by IHS Markit showed Britain's economic recovery slowed dramatically as the Delta variant caused a sharp spike in cases and forced huge numbers of workers to stay home. That's despite one of the highest vaccination rates in the world.

"Those signalling a drop in output mostly commented on severe shortages of raw materials and the impact of COVID-19 isolation on staff availability," IHS said in its report.