HOT AIR BALLOON FLIGHT

By Julia Horowitz • Thursday, December 2

Good morning. In today's newsletter: Could the biggest SPAC deal ever reignite the Wall Street fad? Plus, the latest policy decision from OPEC and friends is a big one for markets, and Square is changing its name to "Block."

 

US stock futures are up after the Dow, S&P 500 and Nasdaq Composite finished in the red again on Wednesday. Markets in Europe pulled back in early trading, following most indexes in Asia.

 

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MARKET FLASH

Grab, WeWork and the fate of the SPAC

 

SPACs started out the year with a bang that soon became a fizzle. But don't count the Wall Street fad out just yet.

 

What's happening: Grab is set to start trading Thursday on the Nasdaq after raising $4.5 billion, giving the Singaporean startup a market value of nearly $40 billion.

 

The deal, which involved merging with a special-purpose acquisition company, or SPAC, is the biggest of its kind on record, according to data provider Dealogic.

 

It's a sign that companies that want to take the SPAC route to public markets can still do so, and cash in — even as regulators step up scrutiny of the process.

 

Remember: Billionaires, celebrities and athletes raced to create SPACs in late 2020 and early 2021. These are "blank check" firms that raise money from investors and then go hunting for takeover targets. The frenzy was flagged as a sign of unchecked euphoria on Wall Street.

 

Activity slowed down as Washington indicated it could crack down. The Securities and Exchange Commission has tightened its accounting guidance for SPACs, while lawmakers in Congress held a hearing on the matter.

 

Rep. Maxine Waters, chair of the House Financial Services Committee, said she had "deep concerns about the lack of transparency and accountability that is a hallmark of the SPAC process," while Andrew Park, senior policy analyst at Americans for Financial Reform, warned that SPACs have more leeway to make ambitious projections for future growth that can then generate hype among everyday investors.

 

The attention caused SPAC activity to plummet. The number of public offerings that occurred by merging with SPACs fell to a one-year low in the second quarter, according to FactSet.

 

Bills to tighten rules around SPACs are currently making their way through Congress. Earlier this month, the House Financial Services Committee advanced a proposal that would compel blank check firms to disclose to retail investors the risks of backing shell companies. Another bill could boost their liability for making false or misleading forward-looking statements.

 

But SPACs aren't out of the picture. There were 60 SPAC IPOs in the third quarter, up from 46 in the second, FactSet found.

 

A successful public debut for Grab could spark more deals, with hundreds of blank check firms still searching for acquisitions — though shares of Altimeter Growth, the SPAC it's merging with, have been rocky.

 

On the radar: Regulators may also latch onto WeWork's disclosure on Wednesday that it plans to restate the financial results of BowX Acquisition Corp., the SPAC it merged with to go public, after finding "a material weakness in internal control over financial reporting."

 

Shares of WeWork are down 3% in premarket trading on Thursday.

VOICES

CEOs brace for impact from Omicron variant

"If it does turn out to be as dramatic a shift as the Delta variant was, that will definitely put a damper on things."

 

BUSINESS ROUNDTABLE CEO JOSHUA BOLTEN

 

Read more from CNN Business.

OIL MONITOR

OPEC's power was waning. Not anymore

The year before Covid-19 hit, the United States became a net exporter of energy for the first time since 1952, sending a strong message to the rest of the world: The country would not be beholden to foreign oil producers.

 

But with demand for crude surging as the impact of the pandemic fades, that no longer feels like the case.

 

Watch this space: OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies like Russia, is once again flexing its muscle. The group's refusal to accede to US President Joe Biden's calls to boost output — a move that would have helped ease upward pressure on gasoline prices — precipitated the decision by the United States and other major energy-consuming nations last week to tap strategic oil reserves.

 

The episode displayed the group's market power, even as the energy transition gathers pace. Demand for oil could peak soon if countries meet their net-zero emissions targets, but OPEC producers and Russia are quick to note it's not going away entirely. Under climate pledges made through early October, the world is still expected to need 75 million barrels of oil per day by 2050, according to the International Energy Agency.

 

"This is definitely a period where OPEC and the wider OPEC+ group is finding it has a lot of influence over oil markets," Richard Bronze, head of geopolitics at the consultancy Energy Aspects, told me.

 

Coming up: OPEC+ will have another opportunity to demonstrate its clout on Thursday, when it's set to announce its latest policy decision. The group was reportedly considering halting an increase in output planned for January to hit back at the US decision to release reserves.

 

With the Omicron coronavirus variant in the equation, this looks even more likely. Brent crude futures are trading near $69 per barrel after plummeting 16% in November. There's even some chatter that slashing production could be on the table again to avoid accidentally oversupplying the market and tanking prices.

 

"The meeting on Thursday is now very much in the spotlight," Bronze said. "I think they are going to have very limited information. ... It's likely to come down to whether to pause planned increases in January or cut."

 

Not so fast: Iraq's oil minister told the country's state news agency on Wednesday he expects OPEC to stick with its planned output increase of 400,000 barrels per day next month.

 

The takeaway? At an uncertain moment, it's not clear what the group will do — but the route it chooses could have big market consequences. Oil prices are little changed Thursday in anticipation of the announcement.

UP NEXT

Dollar General, Kroger and Signet Jewelers report results before US markets open. Smith & Wesson and Ulta Beauty follow after the close.

Also today: Initial US jobless claims post at 8:30 a.m. ET after hitting their lowest level since 1969. 

 

Coming tomorrow: The US jobs report for November is a crucial data point for the Federal Reserve as it considers taking steps to rein in inflation.

WHAT WE'RE READING AND WATCHING

▸ Omicron could make supply chains even messier (CNN Business)
▸ Capital One ditches overdraft fees, a big bank first (CNN Business)
▸ World food prices climb for the fourth straight month (Reuters)
▸ How Amazon, Walmart worsen the situation at ports (CNN Business)
▸ You could be waiting a while for the next hot IPO (CNN Business)
▸ Top official says Fed will 'grapple' with faster taper (NYT)

FINAL WORD

Square is changing its name to 'Block'

Square wants people to know that its business is now about more than just payment platforms. So much so that it's changing its name, just days after CEO Jack Dorsey stepped down as the head of Twitter, which he also led.

 

The latest: Square will officially become "Block" on Dec. 10. The move is intended to separate the parent company — which also owns Cash App and music streaming service Tidal — from the business that provides software and services to sellers, which will still be called "Square."

 

"We built the Square brand for our Seller business, which is where it belongs," Dorsey said. "Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy."

 

Investor insight: Shares of Square have struggled this year, falling 11% after rocketing up almost 250% in 2020 as retailers scrambled to roll out digital payments services during the pandemic. But Wall Street appears to be shrugging off the name change.

 

Of course, corporate overhauls are all the rage these days. Square (er, Block) follows Facebook, which changed its name to "Meta" in late October.

 

Block appeared to nod to the move on Twitter.

 

"Not to get all meta on you… but we're going to! Block references the neighborhood blocks where we find our sellers, a blockchain, block parties full of music, obstacles to overcome, a section of code, building blocks, and of course, tungsten cubes," the company tweeted.