Brief: The U.S. will soon allow entry to most foreign air travelers as long as they’re fully vaccinated against Covid-19 -- while adding a testing requirement for unvaccinated Americans and barring entry for foreigners who haven’t gotten shots. The measures announced Monday by the White House are the most sweeping change to U.S. travel policies in months, and widen the gap in rules between vaccinated people -- who will see restrictions relaxed -- and the unvaccinated. The new rules will replace existing bans on foreigners’ travel to the U.S. from certain regions, including Europe. While the move will open the U.S. to millions of vaccinated people and was celebrated by the airline industry, the White House cast the measure as a crackdown, pointing to stricter testing rules and a new contact tracing regime. The new policy will take effect in “early November,” according to the White House, though the precise date isn’t yet clear.
Brief: While the UK is making plans to protect itself from another Covid crisis it is easy to forget that some nations are in the middle of fighting the deadly virus. Vietnam is one such country. Up until the end of April it was a world leader in virus containment. However, since then a deadly fourth wave has caused significant disruption and markets have noticed. All three investment trusts that cover Vietnam are trading on double-digit discounts, despite achieving hefty returns across one and five years, according to figures from Association of Investment Companies (AIC) and FE fundinfo. Vietnam Enterprise Investments (VEIL) has returned 62.7% in one year and is trading on a 14.1% discount, VietNam Holding (VNH) has returned 88.7% and is trading on a 17.9% discount and VinaCapital Vietnam Opportunity (VOF) has returned 40.9% and is trading on a 20.6% discount.
Brief: U.S. and European companies have marked another milestone in their road to recovery from COVID-19, seeing their debt levels relative to profits tumbling to the lowest since before the pandemic erupted in 2020. Net leverage, an important gauge of a company's financial health, refers to net debt as a proportion of EBITDA - earnings before accounting for interest, taxes, depreciation and amortization. At U.S. companies rated investment-grade, it fell in the second quarter to the lowest since 2018, according to BNP Paribas, while European leverage is the lowest since 2019.The trend is a good sign for corporate debt markets, where the lowest-rated segments are outperforming this year, signalling normalising credit quality.
Brief: On the lower floors of HSBC Holdings Plc’s Canary Wharf headquarters, the desks are filling up. Traders, salespeople and close support staff not currently in the office have been told they are expected to be at their workstations on the second to fourth floors of the tower five days a week, according to people familiar with the matter. The only exceptions will be for domestic emergencies and unavoidable family commitments.It's a sign that, after several false starts, the City of London's return to the office is at last gathering pace. At times over the past two weeks, trains have been at their busiest since the pandemic broke out, while the streets have been thronged with workers again.
Brief: The United Arab Emirates central bank sees increased risks of illicit financial flows emerging from the COVID-19 pandemic, including money-laundering and terrorism financing, it said in a report published on Sunday. The use of unlicensed money service providers for money laundering has increased during the coronavirus crisis last year, the report said, as well as the use of e-commerce to launder money. "Widespread lockdowns have resulted in a significant surge in e-commerce. Due to limited ability to move funds and goods during the pandemic, illicit actors are turning to e-commerce as a money laundering tool", it said. The number of so-called "money mules" - people who receive illicit funds into their bank accounts to hold or withdraw and wire elsewhere, taking a commission for their services - increased, the bank said, with accounts in the majority of cases belonging to low income individuals from Africa and Asia.
Brief: Abundant liquidity, soaring stock markets and accommodating tax policies have been favorable for growing dynastic wealth. The world’s 25 richest families are worth US$1.7 trillion, a 22 per cent increase from a year ago. The Waltons of Arkansas, who own nearly half of retailer Walmart Inc., top the list for the fourth year running with a net worth of US$238.2 billion. Their fortune grew by US$23 billion in the past 12 months, despite the family selling US$6 billion worth of stock since February. New names on the ranking include the Dassaults of France, a third-generation technology and aviation empire, and the New York-based Lauders of cosmetics-maker Estee Lauder. One notable dropoff is the Lees, the family owners of South Korea’s Samsung. They fell from the list after paying an US$11 billion inheritance tax following last year’s death of patriarch Lee Kun-hee.
Brief: The private equity industry is on a spending spree like never before. Buyout barons Blackstone Group Inc., Apollo Global Management Inc., KKR & Co. and others account for a record 30% of global transactions this year, with deal flow and fundraising close to all-time highs. Investors are flush with cash and looking to put the money to work. In the U.S., a private equity consortium recently announced one of the biggest leveraged buyouts of all time. And in the U.K., PE funds have been at their busiest since the financial crisis, targeting household names including grocery chain Wm Morrison Supermarkets Plc. By mid-2021, the sector had amassed a record $3.3 trillion of unspent capital, including $1 trillion held by buyout funds, giving it significant fire power for fresh acquisitions.
Brief: Frictions in the world economy, Covid-19 and a shift in thinking about monetary and fiscal policy augur a new era of greater volatility, according to economists at Societe Generale. The French bank expects more bottlenecks and spikes in demand for certain skills because of a synchronized acceleration of the transitions to a digital and low carbon economy, accompanied by changes in lifestyles after the pandemic. At the same time, major central banks are modifying strategies to tolerate inflation overshooting, and governments are embracing fiscal stimulus while worrying less about high debt. “All these movements are happening together, at the same time, on a global level -- for us, that in itself is a source of friction,” Societe Generale Chief Economist Michala Marcussen said.
Brief: Investors should reject Zoom Video Communications Inc.’s planned purchase of Five9 Inc., according to influential advisory firm Institutional Shareholder Services Inc. Zoom’s offer to acquire Five9, valued at $14.7 billion when it was announced, exposes the software maker’s shareholders to “a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment,” ISS said in a note published Friday. The all-stock deal, announced in July, took advantage of Zoom’s soaring stock price during the pandemic. Zoom would use the deal to expand into an adjacent market that could bolster revenue as lockdowns end.
Brief: The stock market selloff in early 2020 took with it a number of high-profile volatility-trading funds that were designed to do the opposite: provide a source of uncorrelated returns. Now Markov Processes International has produced new research indicating that at least one fund was behaving as though it was selling risky hedges, or insurance in simple terms, against a stock selloff to other market participants. That’s the opposite of many of the funds’ objectives, according to investors familiar with the funds. It’s unlikely that investors intended to be in the business of providing tail-risk hedges. But that may be exactly what they did, according to the findings of MPI, which used its proprietary, returns-based style analysis to delve into what drove the behavior of volatility funds, including Infinity Q, Malachite, Parplus Partners, and others, that blew up last year.
Brief: Professional trustees’ appetite for taking risk has increased since pre-pandemic, according to a new study of Professional DB Trustees, conducted by Charles Stanley Fiduciary Management. Almost half (47 per cent) of professional DB trustees revealed that their appetite for investment risk overall has increased, with around one in five (18 per cent) saying that it has increased significantly. Just 14 per cent said it had reduced. But the research also found that they feel their investment decisions are hampered by onerous regulation and a lack of knowledge.Professional Trustees want to take more risk across the board – in equities, credit markets and alternatives - as well as relaxing liability hedging. But burdensome regulation coupled with a lack of confidence in their investment knowledge mean it is unclear whether trustees have the freedom to enact their views.
Brief: When it comes to making investment decisions in the European, Middle Eastern, and African markets, investors want the real thing. “In emerging markets, the human touch as ever is very important to have the pulse of the markets and, ultimately, make more informed decisions,” said Camille Asmar, head of equity sales for CEEMEA at HSBC. “You have to walk around the streets of Istanbul and Johannesburg or go to Riyadh and see exactly what is happening on the ground, how the population is behaving and thinking.” For much of the past 18 months, as the world grappled with Covid-19, this due diligence by investors was rendered nearly impossible due to lockdowns causing business travel to cease. But fortunately, the top equity sales and corporate access providers in the regions were there to step up.
Brief: A boom in corporate dealmaking, surging input costs and a focus on short-term cash flows in the pandemic have sent companies rushing to hedge their currency exposures this year, giving a boost to banks that sell foreign exchange products. Corporate treasurers say the pandemic, which sent revenues tanking in 2020 before this year's sharp rebound, has encouraged many to hedge currency risks more frequently. Relentless supply chain pressures, and a sharp rise in raw material and other input costs that are mostly denominated in U.S. dollars, are reasons for companies to lock in prices too. And a surge in mergers and acquisitions as the recovery takes hold is also lifting corporate demand for foreign currencies. Global dealmaking is running at a record high this year, with $3.9 trillion of deals already transacted by early September, according to Refinitiv data.
Brief: The World Economic Forum will return to the Swiss ski resort of Davos in 2022, after the pandemic forced organizers to shift to Singapore and then cancel their meeting altogether this year. The in-person event is scheduled for Jan. 17-21 and designed “to address economic, environmental, political and social fault lines exacerbated by the pandemic,” the group said on Thursday. It is working with the Swiss government and health experts to establish the appropriate safety measures. The meeting usually feature heads of states as well many of the world’s top executives, bankers and economic policy makers. “The pandemic has brought far-reaching changes,” WEF Founder Klaus Schwab said. “In a world full of uncertainty and tension, personal dialog is more important than ever.”
Brief: Toronto-Dominion Bank said a broad return of workers to its offices has been delayed until at least next year as Covid-19’s delta variant upends employers’ plans across North America. The lender, Canada’s largest by total assets, had said in March that employees working from home would likely continue to do so into the summer or potentially longer. Toronto-Dominion now doesn’t “currently expect a broader return to TD locations before calendar 2022,” Kenn Lalonde, the bank’s chief human resources officer, said in a memo to employees Wednesday. “We are monitoring the evolving situation and will update you when we have new information to share,” Lalonde said in the note. “In the meantime, we are making the necessary preparations for colleagues to be able to return to work on TD premises or third-party locations when conditions allow.”
Brief: Toronto-Dominion Bank’s top U.S. executive said the American economic recovery has hit some speed bumps over the past month and a half, with COVID-19’s Delta variant spreading and businesses finding it difficult to hire qualified workers. “We’ve seen sort of a pause and in some spaces or industries -- a little bit of a tapping on the brakes,” Greg Braca, Toronto-Dominion’s head of U.S. retail banking, said at a Barclays Plc conference Wednesday. “And we’re watching how this plays out.” The U.S. economy gained 235,000 jobs last month, the smallest increase in seven months. Still, the large amount of cash that consumers have stockpiled along with a low level of loan defaults are keeping the bank “bullish” for the remainder of the year, Braca said at the virtual event.
Brief: Inflation rates are now higher for top-earning U.S. households than those on low incomes, reversing the trend that took hold earlier in the pandemic, according to research by Harvard economist Alberto Cavallo. Covid-19 has caused headaches for price statisticians because it’s changed the way people spend. Headline measures of U.S. inflation use a basket of goods and services that’s based on pre-pandemic shopping habits -- so it doesn’t always capture the higher prices that Americans have been paying in the past 18 months or so. Cavallo, an inflation specialist, has come up with baskets weighted according to what consumers actually spent money on since the pandemic began. He found that the inflation rates experienced by different income groups, which were broadly similar in 2019, have diverged since then. In the pandemic’s first year, prices were rising faster for low-earners. In the last few months the opposite is true.
Brief: The head of the largest European value fund in the world believes the European value rotation has further to go as the threat of further lockdowns and new variants keeps Covid-related stocks underpriced. Andreas Wosol, Amundi's head of value who manages around €5bn in European equity value strategies, told Investment Week both Covid-related stocks and cyclicals are trading below pre-pandemic levels, creating opportunities for investors. "People are talking about a fourth lockdown, another wave of the Delta variant coming into play this autumn or winter so these stocks are still not fully back to their pre-Covid situation, making them an area in the market where you might expect recovery potential," he said. Wosol sees a lot of opportunities in the more consumer-focused areas of the market, including the automotive industry, media, and entertainment, as well as cyclical consumer areas, such as the retail that are trading "significantly low".
Brief: The global economy is expected to undergo its fastest recovery in almost five decades this year, but deepening inequities between advanced and developing countries threaten to undermine this, the United Nations warned. Following last year’s 3.5% contraction, world gross domestic product will likely surge 5.3% in 2021 due to “radical” policy interventions and a successful, if incomplete, vaccine rollout in advanced economies, the UN Conference on Trade and Development said in a report Wednesday. Expansion may slow to 3.6% next year, taking the estimated cumulative income loss since 2020 to $13 trillion, it said. Many countries in the southern hemisphere have been hit especially hard during the pandemic, and fiscal constraints, a lack of monetary autonomy and poor access to Covid-19 vaccines could escalate economic stress on developing nations, according to the report.
Brief: Office workers probably won’t return to their desks full-time as companies learned to live with flexible arrangements during the coronavirus pandemic, according to European Central Bank President Christine Lagarde. “We’re heading toward a hybrid movement, where part of the week will be spent in the office so that people can meet, can see each other, can hold regular meetings and have face-to-face contact,” she said on “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television. “But the rest of the week will likely be working from home.” While the exact design of these new arrangements still needs to be determined, “people have learned during the pandemic, and those learnings will be bottled in and used for the future way of working,” Lagarde said.
Brief: Inflation pressures and a resurgence in coronavirus cases due to the Delta variant are hampering the recovery of small businesses across the U.S., according to a Goldman Sachs Group Inc. report. Among the 1,145 respondents surveyed around the end of August, about 75% worry about the impact of rising Covid infection rates on their businesses, Goldman Sachs said Tuesday in its report. Some 86% said they’re concerned about inflation, with 81% seeing an increase in pricing pressures since the firm’s last survey in June. The number of small-business owners who think the U.S. is moving in the right direction has declined in the period.“There’s been a big sentiment shift when it comes to inflation and workforce challenges,” Joe Wall, national director of Goldman Sachs 10,000 Small Business Voices program, which conducted the survey, said in an interview. Hiring conditions have also deteriorated since June. “Those themes are becoming more and more pronounced in terms of the challenges in addition to access to capital that we consistently hear from small businesses.”
Brief: Wells Fargo & Co. delayed its return-to-office plans by another two weeks to early November. The firm, which has the biggest workforce of any U.S. bank, will now begin bringing back employees who have been working remotely starting Nov. 1, according to an internal memo Tuesday from Chief Operating Officer Scott Powell. The bank had previously planned on beginning the process Oct. 18. President Joe Biden announced a plan last week to issue rules requiring large private employers to mandate shots or testing. Wells Fargo is evaluating how that might affect its return-to-office plans, Powell wrote in the memo. “We are studying these proposed requirements to better understand how they apply to our RTO plans, and will share more information when it is available,” Powell said.
Brief: Global debt rose to a new record high of nearly $300 trillion in the second quarter, but the debt-to-GDP ratio declined for the first time since the start of the pandemic as economic growth rebounded, the Institute of International Finance (IIF) said on Tuesday. Total debt levels, which include government, household and corporate and bank debt, rose $4.8 trillion to $296 trillion at the end of June, after a slight decline in the first quarter, to stand $36 trillion above pre-pandemic levels. "If the borrowing continues at this pace, we expect global debt to exceed $300 trillion," said Emre Tiftik, IIF's director of sustainability research.The rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion.
Brief: More people are back at their desks in the City of London than at any time since the pandemic forced the government to impose a lockdown 18 month ago. In the financial district, more than half of staff were back in their offices on Thursday, according to data compiled by Google, which tracks the locations of its users. The number of people returning has gradually ticked up in recent months, but the start of the school term is now accelerating the process. Many employers are pushing staff to come into work for at least a few days a week. Their return has boosted the local economy, with bars, coffee shops and restaurants last week appearing to be the busiest they’ve been since the pandemic struck. Traffic congestion and public transportation usage has also increased markedly.
Brief: Manulife Financial Corp. will require employees in Canada to provide proof of their vaccination status by the end of October and will force unvaccinated staff to undergo regular Covid-19 testing before they work in its offices. Employees who can’t be vaccinated for medical reasons must provide a note from a licensed health care professional, Manulife Canada Chief Executive Officer Mike Doughty said in a memo Monday. Those refusing the shots for religious reasons must make a written attestation. The life insurer’s move follows similar policies announced last month by top Canadian banks to make vaccines mandatory, with limited exceptions.
Brief: A marquee Wall Street conference returns this week, but much like everyone's pandemic-era plans, the event hosted by hedge fund executive and former White House communications director Anthony Scaramucci, will be a little different this year. The SALT event, one of the premier hedge fund industry conferences, kicks off Sunday at the Jacob K. Javits Convention Center in New York, rather than the Bellagio Hotel in Las Vegas where organizers hosted the event 10 times before. The annual conference in Las Vegas was famous for pool parties, private rock concerts, and exclusive dinners as managers tried to get commitments for big checks from pension funds or other institutional investors. The Delta variant — a more infectious version of the original coronavirus — will force changes at this year's event in New York where roughly 3,000 signed up after Scaramucci sent "save the dates" a few months ago.
Brief: UK households reduced their spending by an average of £109.10 ($150.85) per week during the coronavirus pandemic, while they also struggled with a fall in income, new research has shown. According to data from the Office for National Statistics (ONS), richer households saw a bigger cut to spending than poorer households during the year to March 2021. Restrictions on buying certain goods and services during the pandemic were part of the cause of the 19% spending drop across the country, as well as a fall in household income, and a shift to home working. At the height of the spring 2020 lockdown, more than one-fifth of usual spending was largely prevented, the ONS said. Lower spending on international holidays, which included accommodation, travel and food, accounted for half of reduced spending in the highest income households, compared with just a third for the lowest income households.
Brief: U.S. equity funds faced an outflow in the week to Sept. 8, on concerns the spread of the Delta coronavirus variant could slow economic growth and uncertainty over the timeline for the Federal Reserve to pull back its accommodative policies. Data from Lipper showed U.S. equity funds faced an outflow of $1.85 billion in the week to Wednesday, compared with an inflow worth $11.18 billion in the previous week. Investors also assessed data that showed the U.S economy created the fewest jobs in seven month in August, which affected risk sentiment. U.S. equity growth funds faced net selling of $4.72 billion, their biggest outflow in seven weeks, while value funds saw outflows for a third straight week, worth a net $541 million. Among equity sector funds, real estate funds lured a net $2.29 billion, the biggest since at least mid-October 2019. However, financials, industrials and materials sectors faced outflows of $1.05 billion, $857 million and $512 million respectively.
Brief: Markets are on tenterhooks for critical U.S. inflation data that could buffet stocks and bonds if they shift expectations about Federal Reserve stimulus withdrawal and the timing of interest-rate hikes. A backdrop of slower reopening in pandemic-stricken economies due to the delta strain, and price pressures stoked by supply snarls led to declines in both global stocks and Treasuries last week. Some measures of producer prices released Friday topped expectations, with a gauge of final demand jumping 8.3% year-over-year amid persistent disruptions in supply. That’s coming against a backdrop of tenacious inflation concerns, with central banks pumping in stimulus, and inventory issues cropping up just as the labor market adjusts to a new reality of work. Here’s what some strategists and investors are saying now.
Brief: Asset managers used to depend on in-person conversations to strike deals, but that’s no longer the case as managers and clients across the globe shift to remote work. That’s one reason 75 percent of asset managers showed a strong appetite for digital transformations, according to a recent survey from KPMG. KPMG got 1,300 global respondents to its survey, including 112 asset management CEOs. Of the U.S. participants, 63 percent were from private equity, 22 percent were brokers or financial advisors, 9 percent were from wealth managers, 3 percent were from hedge funds, and another 3 percent were multi-strategy alternative investors.
Brief: BlackRock Inc. is re-assessing its plans for U.S. employees to return to offices in early October, saying the spread of the Covid-19 delta variant calls for a more flexible approach. The world’s largest asset manager is now telling employees that it hasn’t decided when it would like to see them at their desks at least a few days a week, according to a memo seen by Bloomberg Thursday. The New York-based firm said it would give staff 30 days’ notice before moving to that hybrid work model.“We will be measured in our approach to return to the office,” executives including Chief Operating Officer Rob Goldstein said in the memo. “At this time, we are assessing our return-to-office plans for October and beyond.”
Brief: The European Central Bank is set to slow the monthly bond purchases under its crisis programme as the economic outlook improves. "Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters," the ECB said this Thursday (9 September). While it will buy fewer bonds for the rest of the year the ECB stated it could increase its stimulus again if the eurozone outlook worsens. UBP macro strategist Mohammed Kazmi said the decision is in line with expectations. "There would have been some fears over a more hawkish announcement coming into today, taking purchases back to Q1 levels, especially after Lane's speech.
Brief: The U.K. economy barely grew in July, suggesting the recovery from the coronavirus recession is rapidly levelling off as consumer spending weakens and supply disruptions hamper production. Gross domestic product expanded just 0.1% -- a tenth of the pace posted in June, the Office for National Statistics said Friday. Economists surveyed by Bloomberg had expected 0.5% growth. The figures left output 2.1% below the level in February 2020, before the pandemic struck. The slowdown heralds a return to more normal growth rates after pent-up demand following the lifting of restrictions in the spring saw the economy surge by almost 5% during the second quarter.
Brief: North American stock markets were weaker for at least a third-straight day over concerns about the Delta variant and the potential scaling back of monetary stimulus in Canada and the U.S.Investors remained anxious about the impact of rising COVID-19 infections on economic growth and demand for commodities such as energy. A new pandemic low in first-time U.S. benefit claims also raised anticipation that the U.S. Federal Reserve might pull back its stimulus earlier than expected. The number of Americans seeking unemployment benefits fell last week to 310,000. That's below expectations and is approaching the pre-pandemic level of about 225,000. “Because things are mending on the labour front, the U.S. Federal Reserve could move sooner than anticipated to scale back some of its COVID pandemic accommodative monetary policies,'' said Anish Chopra, managing director with Portfolio Management Corp.
Brief: Several U.S. airlines on Thursday lowered their financial forecasts, citing weaker bookings amid a rise in Covid-19 cases in recent weeks. United Airlines said weaker revenue will mean adjusted pretax losses in the third and fourth quarters of this year. The Chicago-based carrier said in July it expected to post pretax profits for that period. It plans to further trim capacity this year because of weaker demand. United said the spike in Covid cases over the summer, however, has had less of an impact on demand than previous increases in infection rates. Air travel generally falls in late summer as schools reopen, but airline executives in recent weeks have warned that the fast-spreading delta variant has exacerbated the drop in demand.
Brief: As the world slowly begins to shake off the unprecedented effects of the Covid-19 pandemic, corporate executives around the globe have been forced to grapple with challenges that even the most forward-thinking business leaders couldn’t have imagined just two short years ago. For many of the top-scoring chief executives in Institutional Investor’s 2021 All-Europe Executive Team, supply-chain issues top the list. “Supply chains around the world are in significant disarray,” said Nestlé’s Ulf Mark Schneider, the top-ranked chief executive in the food sector. “The consequences are rising raw material and freight costs.” Schneider said that the secret to overcoming these issues — and coping with an uncertain geopolitical environment — lies in increased agility and flexibility. For him, that’s not about knowing all the answers, but knowing he can delegate decisions to those who do: “We rely strongly on our people in the markets to know the best way to deliver for consumers, the company and society.”
Brief: Stocks rose on Thursday, with Wall Street hoping to stave off a 4th consecutive day off losses as investors struggle to reconcile a still hot jobs market with an economy that's had its momentum dented by soaring COVID-19 infections. On Wednesday, the Dow Jones Industrial Average and S&P 500 Index posted their 3rd consecutive day of losses, and the technology-laced Nasdaq fell for the first time since last week. The market has mostly taken disappointing news in stride, but August's jobs data falling far short of market expectations last week tempered hopes for the fourth quarter.Separately, however, Labor Department data showed that open jobs hit yet another series record, with workers quitting their jobs en masse, and nearly 11 million positions unfilled. On Thursday, new jobless claims set a new pandemic era low at 310,000, temporarily allaying fears about the economy.
Brief: Goldman Sachs Group Inc. is dropping social distancing rules in its London office and will return to full occupancy starting next week. With the “vast majority” of staff in the U.K. fully vaccinated, Goldman is already seeing about half of its London workers in the office each day, according to an internal memo seen by Bloomberg News. “We encourage those of you who have not yet had the opportunity to be in the office to speak to your manager about doing so,” the memo said. The bank will keep mask wearing in common areas and a mandatory testing program in place. Goldman is also ending free meals in the office from Sept. 20 “ to encourage support of the local restaurants and businesses reopening around us.” The move was first reported by Financial News.
Brief: In 1837 Hans Christian Andersen wrote a folktale entitled The Emperor's New Clothes which always seems to come to the forefront when modern day markets' behaviour deviates from academic investment reason. Since March of 2020, when markets reeled from the pending pandemic effect on global economies, world governments have used record amounts of monetary and fiscal stimulus to attempt to shore up the world economy. While market crises have largely been avoided, the sheer size of the coordinated effort has led asset prices to surge, in some cases diverging from any fundamental valuation, at least relative to historical levels/multiples.
Brief: The persistence of the pandemic is dealing a fresh financial hit to corners of the municipal-bond market. As the strength of the tourism revival is restrained by the surge in the delta variant, S&P Global Ratings this month downgraded bonds partly backed by hotel-room revenue in Anaheim, California, the home of Disneyland. Bonds issued for New York’s Jacob K. Javits Convention Center had their rating cut by Moody’s Investors Service, with the trade association business plunged back into uncertainty. And Fitch Ratings knocked down its grade of the subway system serving San Francisco, the tech industry hub where companies have been kicking back the timeline for returning to the office.“Whether you take a vacation is one of the most discretionary choices you have,” said Dora Lee, director of research at Belle Haven Investments, which oversees $15.4 billion in investments.
Brief: Morgan Stanley cut its recommendation on U.S. equities to underweight and its call on global stocks to equal-weight, citing “outsized risk” to growth through October. Rising cases of the delta strain of Covid-19, and tension between elevated inflation expectations and low yields and easy monetary policy are at play during a time “that has historically poor seasonality,” strategists including Andrew Sheets wrote in a note on Tuesday. The investment bank’s caution on U.S. equities comes as the S&P 500 Index has outperformed global equities this year to make new records, even as coronavirus infections have started rising again in many parts of the world, and as the U.S. Federal Reserve edges closer to setting a path toward tapering stimulus.
Brief: More than a year and half since the Covid-19 pandemic plunged Europe into lockdown and ushered the equity research industry into a virtual environment, there are some changes on the near horizon. The region’s vaccine effort — sluggish at first — has now reached 70 percent of adults in Europe, according to European Union officials, and the end of the summer signals a return to the office for many employees, despite the looming Delta variant. This shift is poised to recalibrate the industry and its relationships once again — and finding the right balance for both research teams and their institutional investor clients will be key.
Brief: Stocks fell on Tuesday, with Wall Street indices retreating from last week's record highs, with analysts closely watching the labor market as rising COVID-19 infections cloud the outlook. Last week, the S&P 500 Index set an all-time high, and the Nasdaq Composite briefly hitting an intraday record, despite August's jobs data falling far short of market expectations. While payrolls showed the economy creating a relatively slim 235,000 new positions, the data stoked speculation that the Federal Reserve's Open Market Committee (FOMC) could alter its timetable for scaling back its stimulative bond-buying, which has propped up investor confidence. “On balance, we expect the September FOMC statement to confirm the July minutes that tapering can begin later this year," wrote Marc Chandler, chief market strategist at Bannockburn Global Forex, in a morning research note.
Brief: European equities fell Tuesday as investors assessed how soon pandemic stimulus could potentially be withdrawn and the effects of rising inflation. The Stoxx Europe 600 Index was 0.5% lower by the close in London, weighed down by chemicals, health-care and utilities shares. Luxury shares outperformed, with Switzerland’s Swatch Group AG and Gucci-owner Kering SA gaining after Hong Kong moved toward reopening the border with China. European stocks are hovering near a record high reached mid-August on the back of strong corporate earnings and economic growth potential. But the focus has now shifted to the risks of inflation and monetary policy, with investors awaiting the European Central Bank meeting on Thursday for clues on how soon it will move dial down emergency stimulus.
Brief: Deutsche Bank AG is calling the end of the honeymoon phase for employees’ relationship with remote work. A growing number of workers report feeling isolated from colleagues, Deutsche Bank said in a report to clients. Women are increasingly likely to develop musculoskeletal problems due to inadequate remote-work setups. Nearly 40% of workers in the U.S. say they feel exhausted after a full week of virtual meetings. “Despite our initial honeymoon, people are starting to realize that the freedom of work-from-home does have some downsides: dilution of company culture, coordination issues, and even the mental wellbeing of some workers,” Marion Laboure, an analyst at Deutsche Bank, said in the report.
Brief: A strong month for equity funds saw inflows rise to GBP1.3 billion in August, according to the latest Fund Flow Index (FFI) from global finds network Calastone. Since the sea change in sentiment towards equity funds that accompanied the announcement of successful clinical trials of Pfizer’s, Moderna’s and AstraZeneca’s Covid-19 vaccines in November 2020, investors have added GBP17.2 billion to their equity holdings. This means more than a third of the net inflows to equity funds (35 per cent) since 2015 has taken place in the last ten months alone. Global funds saw the largest net inflows in August (GBP1.1 billion), much of this targeted at ESG offerings. Most other categories saw only modest inflows, though funds focused on UK equities, equity income and Asia-Pacific all suffered outflows.
Brief: The planned autumn 2021 return to the office is being delayed. Until January, purportedly. That’s when Apple Inc., Amazon.com Inc., Facebook Inc., Alphabet Inc. subsidiary Google, Microsoft Corp. and some other major employers of knowledge workers now say they expect people back at their desks, 22 months after sending everybody home at the outset of the Covid-19 pandemic. Given the current high U.S. levels of Covid cases, hospitalizations and in some places deaths, it’s understandable that companies don’t want to do a big return-to-office right now. Less clear is why they all thought early fall would be such a great time for RTO in the first place, or why they think the coast will be so much clearer in January.
Brief: The Dow Jones and S&P 500 fell on Tuesday, as worries over the slowing pace of economic recovery overshadowed hopes that the Federal Reserve would maintain its accommodative stance a little longer after a soft U.S. payrolls report. Amgen Inc and Merck & Co dropped about 2.5% each as the drugmakers dragged down the Dow Jones index, after Morgan Stanley cut its rating on the stocks to "equal-weight" from "overweight". Industrial heavyweight Boeing Co also slipped 1.9% after Ireland's Ryanair said it had ended talks with the planemaker over a purchase of 737 MAX 10 jets worth tens of billions of dollars due to differences over price. Ten out of eleven sub-indexes fell in early trading with economy-sensitive sectors like industrials, real estate and materials leading declines.
Brief: The total value of mergers and acquisition (M&A) activity taking place across the UK has gone up significantly in the second quarter of 2021 compared to the first, as lockdown restrictions eased, government data has revealed.According to the Office for National Statistics (ONS), the total value of inward M&A — foreign companies abroad acquiring UK companies — was £27.7bn ($38bn) in Q2, £19.4bn more than the previous quarter. The value of domestic M&A — UK companies acquiring other UK companies — was £10.6bn in Q2, an increase of £6.1bn.Two notable domestic acquisitions were National Grid's (NG.L) £8bn acquisition of British firm Western Power Distribution; and water giant Pennon Group (PNN.L) buying the company behind Bristol Water from its US, European and Japanese owners for £425m.
Brief: Global central bankers trying to gauge the threat posed by surging inflation have another puzzle to solve too: whether the pandemic has shifted their policy bearings. The disruption caused by Covid-19 has been so extensive that economists including Kristin Forbes at the Massachusetts Institute of Technology are now wondering if one repercussion could be an increase in advanced economies’ neutral level of interest rate -- the setting at which growth is neither stimulated nor constricted. If that equilibrium point -- sometimes called R* -- has drifted higher, that would mean central banks’ already ultra-easy monetary policy is looser than generally thought.While that offers the prospect that officials may need to repeatedly raise interest rates in due course to brake the economy, it also holds the risk that they misjudge how stimulative their stance is. Such a policy error could open the door to an enduring bout of inflation.
Brief: Stocks gained Thursday as investors awaited more labor market data, which will serve as crucial information in determining the path forward for the monetary policies underpinning risk assets over the past year. Ahead of a key monthly report on job gains, a new print on weekly unemployment claims came in lower than expected, underscoring further improvements in the economic recovery. The S&P 500 advanced to an all-time high. The Nasdaq also gained to set a fresh intraday record. The indexes' latest march to record highs has been powered by technology stocks, with the Nasdaq extending a run of outperformance from August. This has in turn signaled investors' concerns over the status of the economic recovery given the Delta variant's spread, with growth and technology stocks seen as more of a defensive trade amid a coronavirus resurgence.
Brief: As the global economy recovers from the impact of the Covid-19 pandemic, some investors are questioning the case for a balanced portfolio of stocks and bonds, including the classic 60/40 model – particularly if bonds suffer a period of weakness due to rising inflation and interest-rate expectations. Although bond yields remain close to historic lows, they have trended higher since August 2020 as prices have fallen. At the time of writing, the 10-year US Treasury yield is up more than 40 basis points (bps) in 2021, with the 10-year gilt yielding around 39bps more than at the start of the year. The downward pressure on bond prices stems from recent economic data.
Brief: CMC Markets Plc slumped the most since 2016 after warning of a slowdown in activity as the pandemic-fueled retail trading boom eases. “Reduced volatility in markets has resulted in lower trading activity across both the newly acquired and existing cohort of clients,” the London-based firm said in an unscheduled update, sending the stock down as much as 29%. CMC, a provider of contract-for-difference products that allow traders to speculate on price movements without owning the underlying securities, was one of a raft of companies that benefited from people stuck at home during the pandemic being enticed to markets by a spike in volatility. The so-called “meme-stock” craze in early 2021 further aided business.
Brief: Covid test maker Cue Health Inc. filed for an initial public offering, showing a sharp turn to profitability this year. The San Diego-based company in its filing Wednesday listed the size of the offering as $100 million, a placeholder that will change when terms of the share sale are set. For the first six months of the year, Cue Health said its product revenue increased to $202 million, up from $15 million in 2020 -- all of it the second half of the year. It also erased its $47 million annual loss to log net income of $33 million in the first half of 2021, according to its filing with the U.S. Securities and Exchange Commission. Cue Health’s tests were used last year by the National Basketball Association to help limit the spread of the coronavirus among team members who played and lived in a so-called bubble in Florida.
Brief: Representative Mark Takano (D-Calif.) recently introduced a bill into the House which would reduce the standard work week to 32 hours. In an interview with Yahoo Finance Live, Takano explained the rationale behind the bill. “The main problem we're trying to solve with it is the work-life balance,” Takano said. “I think that is what resonates with so many people, who during this pandemic experienced neighbors, family members, loved ones, dying. And they also experienced being able to work from home.” H.R. 4728: Thirty-Two Hour Workweek Act would reduce most workers’ standard work week by setting 32 hours as the new maximum amount of hours worked before employees are allowed to earn overtime pay.
Brief: August marked the seventh straight month of gains for the S&P 500 (^GSPC) as investors ignored softening U.S. economic data at the hands of the COVID Delta variant. But investors may be wise to stop ignoring the data, and position for a September rife with market volatility, says the team at Goldman Sachs. "General mobility statistics have weakened, full-service restaurant indicators have softened, travel intentions appear to have faded and retail traffic declines (off of 2019 levels) have re-accelerated," Goldman Sachs strategist Jason English pointed out in a new research note on Wednesday.English said his colleague at Goldman is now recommending loading up on options to profit from renewed concerns on the economic recovery. "The setback has injected a higher degree of uncertainty into the fundamental outlook for many sectors that our options analyst, John Marshall, does not believe is fully reflected in the options market.
Brief: Business travel as we’ve known it is a thing of the past. From Pfizer Inc., Michelin and LG Electronics Inc. to HSBC Holdings Plc, Hershey Co., Invesco Ltd. and Deutsche Bank AG, businesses around the world are signaling that innovative new communications tools are making many pre-pandemic-era trips history. Take Akzo Nobel NV, Europe’s biggest paint maker, for instance. At its Amsterdam headquarters, Chief Executive Officer Thierry Vanlancker has spent the past year watching his manufacturing head, David Prinselaar, flap his arms, madly gesticulate and seemingly talk to himself while “visiting” 124 plants by directing staff with high-definition augmented-reality headgear on factory floors. A task that meant crisscrossing the globe in a plane before is now done in a fraction of the time — and with no jet lag. For Vanlancker, there’s no going back.
Brief: Raymond James Financial Inc. has pushed back its return-to-office date to the middle of October as the coronavirus surges in its home state of Florida. The St. Petersburg-based firm has told workers they don’t have to return to the office until Oct. 11, according to people familiar with the matter. The firm had initially wanted some workers to return to work next week, one person said, asking not to be identified discussing private information. A spokesman for the company declined to comment. Florida, which has become the epicenter of the coronavirus oubreak in the U.S., reported a record number of Covid-19 deaths last week. The spread of virus variants has spurred banks to enact more stringent precautions after initially leading the push to get people back to their desks.
Brief: The bosses of the world's biggest companies are back to their pre-pandemic levels of confidence in the global economy's prospects and most expect to make acquisitions to boost growth, a survey showed on Wednesday. While uncertainty remained due to the Delta variant of COVID-19, 60% of corporate leaders were confident about the global economy over the next three years, up from 42% in a similar survey in early 2021, accountancy firm KPMG said. Almost nine out of 10 senior executives said they were seeking out takeover deals over the next three years. "Despite the continued uncertainty around the pandemic, CEOs are increasingly confident that the global economy is coming back strong," Bill Thomas, KPMG's global chairman and chief executive, said.
Brief: The Street is unclear on how to value Zoom as its growth slows with people returning to offices and schools, despite the lingering pandemic. So the only course of action right now it seems — sell Zoom's stock (ZM) and wait for more stable waters. "We are wary of a potential demotion for Zoom from hyper-growth to growth at a reasonable price,” said Citi analyst Tyler Radke, following Zoom's underwhelming second quarter results Monday evening. Radke called the earnings report disappointing. Zoom saw slowing sequential growth rates in customers spending in excess of $100,000 a year with the company (131% in the second quarter versus 160% in the first quarter) and spending with 10 or more employees (36% growth in the second quarter versus 67% growth in the first quarter). "I think we were talking about most of us are probably socializing in person now, doing fewer things like Zoom Happy Hours, and that's where we are starting to see some of the challenges," acknowledged Zoom CFO Kelly Steckelberg on an earnings call with analysts.