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Our briefing for Friday May 7, 2021:
May 7, 2021 4:10:13 PM
- In the United States, President Joe Biden reflected on the lower than expected job growth totals released on Friday noting it reveals the economy is still struggling to recover from the coronavirus pandemic. The Labor Department’s latest numbers for April revealed that 266,000 jobs were added with the unemployment rate rising to 6.1%. Dow Jones estimates before the numbers were released had been for close to one million jobs created and an unemployment rate of 5.8% “This month’s job numbers we are on the right track,” said President Biden. “But we still have a long way to go. My laser focus is on growing the nation’s economy and creating jobs. My laser focus is on vaccinating, and my laser focus is on one more thing: making sure that hard working people in this country are no longer left out in the cold.” President Biden rejected the idea that federal unemployment benefits were removing the incentives for people to return to the labour force.
- Bloomberg is reporting one of Canada’s largest airline carriers is calling on the federal government to lay out a plan for reopening its borders as vaccinations progress. Air Canada’s CEO Michael Rosseau said it’s now “essential” for officials to follow the United States in easing rules that have stopped most air travel. “Starting with replacing blanket restrictions with science-based testing and limited quarantine measures where appropriate, Canada can reopen and safely ease travel restrictions as vaccination programs rollout,” Rosseau said. Elsewhere in the country, Nova Scotia set another single day record with 227 new COVID-19 cases on Friday and the province’s chief medical officer noting there were “more than 200 other cases” that needed to be entered into the system. With now more than 1,400 active cases in a province of close to one million people, government is extending school closures, tightening border restrictions, changing isolation requirements for rotational workers and putting limits on shoppers.
- In the United Kingdom, scientists believe people should still work from home if they can even after the coronavirus lockdown is lifted in June. Prime Minister Boris Johnson said the country remains on track to lift all legal limits on social contact by June 21st after a dramatic drop in cases in recent months thanks to lockdown measures and a ramped up vaccination program. Scientists' concern is that encouraging people back to work in office settings would risk a resurgence of the virus when many other countries in the world, such as India, are still battling dangerous levels of infections.
- China’s Sinopharm vaccine became the first inoculation developed by a non-Western country to receive emergency approval from the World Health Organization (WHO). The Sinopharm vaccine has already been given to millions of Chinese citizens and elsewhere around the world, including the United Arab Emirates. The WHO had only granted emergency approval to vaccines made by Pfizer, AstraZeneca, Johnson & Johnson and Moderna. The green light from the WHO is a guideline for other national regulators that a vaccine is safe and effective and also means China’s vaccine can be used in the global Covax program, which aims to provide about two billion vaccines to developing countries.
- Multiple media outlets are reporting the calls are getting louder in Japan to cancel the upcoming Tokyo Olympics as the government prepared to extend the state of emergency in the host city. A Change.org petition titled “Cancel the Tokyo Olympics to protect our lives” had gained more than 200,000 supporters by late Friday afternoon – Japan time. Prime Minister Yoshihide Suga and his government are determined to press ahead with the Olympics after cancelling last summer due to the pandemic and believes it would be a sign of victory over the virus. Not helping the matter this week is learning Pfizer will donate vaccinations to all incoming athletes while Japan has only vaccinated less than 2% of its total population.
- Australia’s international borders might be closed longer than expected, according to their trade minister, which would be a further blow to the airline and tourism industries. Speaking with Sky News on Friday, Trade Minister Dan Tehan said his best guess when Australia’s borders might reopen would be the second half of 2022. The Australian government had hoped to have its vaccination drive of its citizens completed by October, but that timeline was pushed into early 2022 due to medical complications tied to the AstraZeneca inoculation. Australia’s borders have been closed since early in 2020 due to the pandemic and as noted in Thursday’s Castle Hall COVID-19 Diligence Briefing, had to halt its quarantine-free travel with New Zealand via New South Wales on news of a new COVID-19 case that was stumping local health officials.
Covid-19 – Due Diligence And Asset Management
Wall Street Giants Get Swept Up by India’s Brutal Covid Wave
Brief : About 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, sits what was once the heart of the global financial industry’s back office. Before the pandemic, this cluster of glass-and-steel towers housed thousands of employees at firms like Goldman Sachs Group Inc. and UBS Group AG who played critical roles in everything from risk management to customer service and compliance. Now the buildings are eerily empty. And with case counts soaring across Bangalore and much of India, work-from-home arrangements that have sustained Wall Street’s back-office operations for months are coming under intense strain. A growing number of employees are either sick or scrambling to find critical medical supplies such as oxygen for relatives or friends. Standard Chartered Plc said last week that about 800 of its 20,000 staffers in India were infected. As many as 25% of employees in some teams at UBS are absent, said an executive at the firm who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and reward programs is running behind schedule, an executive said.
Hedge Funds Boost Shorts on European Bonds to Cushion Rate Risks
Brief: Fears of rising interest rates and warnings over bond valuations have made junk- and investment-grade rated bonds a popular short bet among hedge funds. Speculators are predicting fresh pain for the bond market, especially for longer-dated bonds with sovereign yields being tipped to rise due to an increase in inflation forecasts. This comes amid warnings from market experts regarding the “over-extended” valuations of CCC-rated bonds, the riskiest class of debt. Global high-yield bonds worth as much as $55 billion are on loan to traders seeking to profit if prices drop, according to data from IHS Markit Ltd., by a narrow margin the largest balance since the fall of 2008. This compares with about $35 billion at the start of the year. In the euro-denominated investment-grade market, roughly $30 billion equivalent of bonds have been borrowed, the largest loan balance since early 2014. “I would expect that list to get bigger as spreads tighten and/or people get worried about rates rising,” said Tim Winstone, a portfolio manager at Janus Henderson, which oversees 294 billion pounds ($409 billion). “At these levels of valuations, I’m not surprised more people, such as hedge funds, are setting shorts.”
Tech Sector M&A Activity Hit Record High in Q1
Brief: A new report from technology-focused investment bank ICON Corporate Finance, has revealed record-breaking tech deal activity in the first quarter of 2021, up 28 per cent on Q1 2020, with 268 deals announced. Evidencing resilience within the sector and a huge appetite for Vertical and Enterprise Software organisations, ICON believes M&A activity is yet to see its peak, and could easily surpass the UK total of 711 tech M&A deals completed last year. Digital transformation, fast-tracked by lockdowns across the world, has created a plethora of new digital solution providers that are grabbing the attention of overseas PE backed acquirers. Among these, UK Vertical Software providers are proving flavour of the month as PE houses look to buy, build and eventually sell. Corporate acquirers too are playing their part in an effort to gain an edge over rivals or to provide new revenue streams. The result has been valuations rising to near record levels. ICON believes that Digital Transformation across all industry sectors, including Vertical and Enterprise Software will continue to accelerate, boosted in no small part by appetite from overseas investors. Last year a record-breaking 48% of all UK deals involved cross-border backing, a figure which could yet be surpassed in 2021.
Economy Lost 207,000 Jobs in April, Unemployment Rate Rises, Statistics Canada says
Brief: Canada's labour market lost 207,000 jobs last month as a spike in COVID-19 variant cases led to renewed public health restrictions and raised concerns about longer-term economic consequences from the pandemic. The unemployment rate rose to 8.1 per cent from 7.5 per cent in March, Statistics Canada reported. It would have been 10.5 per cent had it included in calculations Canadians who wanted to work but didn’t search for a job. Ontario led the way on losses regionally with a drop of 153,000, and British Columbia witnessed its first decrease in employment since a historic one-month plunge in the labour market in April 2020. Nationally, losses were heavier in full-time than part-time work, with retail and young workers hit hardest as a resurgence of the virus and its variants forced a new round of restrictions and lockdowns. With lockdowns continuing into May, CIBC senior economist Royce Mendes said more losses this month are possible. Leah Nord, senior director of workforce strategies with the Canadian Chamber of Commerce, said the latest setback in the labour market will carry a long-term impact on the workers and businesses affected, particularly in high-touch sectors that are falling further behind.
Abu Dhabi’s Mubadala Posts Record Annual Income and Investment
Brief: Abu Dhabi state investor Mubadala's total income rose nearly 36% to a record high last year, driven by growth in its public equities portfolio and funds while it accelerated investment during the COVID-19 pandemic. Mubadala Investment Co posted total comprehensive income attributable to the owner of 72 billion dirhams ($19.60 billion), up from 53 billion dirhams a year earlier, it said in a statement. Comprehensive income includes net income and unrealised gains such as hedges on financial instruments or foreign currency transactions. Assets under management rose 4.8% to 894 billion dirhams. It also invested 108 billion dirhams of capital in 2020, the most it has invested in a single year. Deals included 4.3 billion dirhams in Reliance Industries-owned Jio, 2.7 billion dirhams in private equity investor Silver Lake and 7.5 billion dirhams through partnerships with CVC, Citadel, iSquared Capital and Apax Partners. "We navigated our portfolio through the dramatic macroeconomic decline of early 2020 and decided to accelerate the pace of our capital deployment, ending the year with record profit and growth," said Mubadala CEO Khaldoon al-Mubarak.
The Pandemic Caused a ‘Major Step Back’ For Women in Financial Services
Brief: For women in the financial services industry, the Covid-19 pandemic exacerbated the challenges they face in their jobs, resulting in a significant exodus from the field. In a survey conducted by Accenture, a global technology and business consulting firm, 29 percent of women working in financial services said they left their job either permanently or temporarily during the pandemic, while 34 percent of women who hadn’t left their jobs said they were considering leaving their current firms. Almost half of the women who were considering leaving their firms held entry-level positions, meaning they have fewer than five years of industry experience. In an already male-dominated sector, improving gender diversity is a priority for many firms, but current initiatives may not have been effective enough to combat the pandemic’s toll on non-male employees. Across all career levels — senior, supervisory, and entry-level — over half of the women in the survey said they faced “increased pressure” as the main caregivers in their households, a dynamic they attributed to the pandemic. Among the most affected by the pandemic were executive and senior management respondents, 59 percent of whom believed the pandemic had adversely affected their career progression. As Gema Zamarro, a professor at the University of Arkansas, senior economist at the University of Southern California Dornsife Center for Economic and Social Research, and mother of two kids, summed it up: “You’re doing three jobs: mom, teacher, and your own work.”
