This article may be of interest to subscribers. Here is a section:
“It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat,” Yellen, a former Federal Reserve chair, said in an interview with the Atlantic recorded Monday that was broadcast on the web on Tuesday. “It could cause some very modest increases in interest rates.”
This article from the Wall Street Journal may be of interest to subscribers. Here is a section:
Michael Schacht, 70 years old, is a typical German saver. Risk-averse, the clothing-shop owner kept the equivalent of $300,000 in a local bank in a small town near Hamburg.
Then, earlier this year, Mr. Schacht’s bank told him it wanted to charge him a negative 0.5% interest rate to hold his money.
Furious, Mr. Schacht did something he never considered: He put it all in the market. His portfolio includes investments in stocks and corporate bonds from Europe and elsewhere through funds, plus gold and silver.
“I don’t want to make lots of money, I just want a low-risk investment that provides a reasonable return on capital, like 2%, 4%,” Mr. Schacht said. “That has always been realistic in the past.”
This article from Bloomberg may be of interest to subscribers. Here is a section:
EBay Inc. warned investors that its sales boost tied to the pandemic and government stimulus checks may be coming to an end.
Shares tumbled as much as 7% in extended trading Wednesday after the online marketplace issued a revenue forecast for the current quarter suggesting spending on the site could recede as more people get vaccinated, businesses reopen and stimulus checks dry up.
Investors are watching to see which companies can build on their pandemic gains and which will fade. Google parent Alphabet Inc., Facebook Inc. and Shopify Inc. all hinted at lasting momentum in their earnings reports this week, sending their shares higher. EBay joined social media platform Pinterest Inc. as a potentially short-lived pandemic phenom.
“This is a relative challenge for EBay to not be able to fully hang on to the gains from the pandemic,” said Ygal Arounian, an analyst at Wedbush Securities Inc.
Thanks to a subscriber for this detailed article from Schroders which may be of interest. Here is a section:
Houses have rarely been more expensive relative to earnings than they are today in more than 120 years. Prices are stretched everywhere but London and the south of England stand out. Things look even less affordable for women.
The last time there was a sustained decline in the house price-earnings multiple was the second half of the 19th century. Average house prices fell for more than 50 years thanks to substantial building of houses, many of which were smaller than existed before. At the same time earnings rose.
How likely or even desirable would that be today? The UK’s heavily mortgaged consumers would struggle to cope with 50 years of falling house prices. It would also be political suicide for whoever was deemed responsible. A shift towards the building of smaller houses would also seem unlikely – research has found that houses are smaller today than at any point since at least the 1930s[1]. Hobbit homes cannot be ruled out entirely but I’m not sure how positive an outcome that would be.
Which leaves us with earnings. Earnings growth has been weak since the financial crisis but has recently picked up strongly – average earnings in the final quarter of 2020 were 4.7% higher than the same period of 2019. A period of stronger pay growth may represent the best hope of improving affordability (with the caveat that stronger earnings may result from a stronger economy which could result in a stronger housing market).
The elephant in the room here is interest rates. A Bank of England working paper[2] concluded that nearly all of the rise in average house prices relative to incomes between 1985 and 2018 can be seen as a result of “a sustained, dramatic, and consistently unexpected, decline in real interest rates as measured by the yield on medium-term index-linked gilts”[3]. The Bank doesn’t rule out other factors, but concludes that they have had more of a short-term impact. It furthermore concludes that: “An unexpected and persistent increase in the medium-term real interest rate of 1 percentage point from its level as at end 2018 could ultimately generate a fall in real house prices (over a period of many years) of just under 20%.”
However, depending on whether you are a current home owner or a prospective buyer, you are likely to be encouraged and discouraged in equal measure by the Bank of England’s scepticism that this is likely to materialise. Just because house prices are expensive relative to earnings does not mean there is a good reason to expect them to cheapen materially.
This article from NewAtlas may be of interest to subscribers. Here is a section:
There is still a long road ahead before this new vaccine comes close to large-scale use. A phase 3 trial is commencing now, spanning four African countries and enrolling close to 5,000 children.
However, the importance of developing an effective malaria vaccine cannot be understated. Over 400,000 people still die from malaria every year. Lynsey Bilsand, from vaccine research charity Wellcome, calls this new breakthrough “significant and exciting” in the ongoing battle against this major global health problem.
‘Despite global efforts against malaria, too many lives are still lost to this disease, especially babies and young children,” says Bilsand. “Vaccines could change this. This is an extremely promising result showing high efficacy of a safe, low-cost, scalable vaccine designed to reach the huge numbers of children who are most at risk of the devastating impact of Malaria.”
Here is a section from a JPMorgan report focusing on shipping costs.
Global liners are stepping up de-carbonization efforts and experimenting with alternative fuels
To achieve the industry target, many global liners such as A.P. Moller Maersk (viewed an industry bellwether) are stepping up de-carbonization efforts, recently unveiled plans to fast-track its de-carbonization efforts, with a target to put the world’s first vessel powered by carbon-neutral fuel into operation in 2023, seven years ahead of its original schedule. Specifically, Maersk will install its smaller feeder vessels (capacity of around 2,000 TEUs) with dual fuel technology, power them using alternative fuels including methanol (produced from plant waste) while retaining the option to use VLSFO if necessary. Maersk is also currently experimenting with other alternative fuels including ammonia. Looking ahead, Maersk targets to operate more methanol-fueled vessels in the future and expects methanol and ammonia to emerge as more viable future fuel options.Adoption of new technology and alternative fuels will take time to achieve commercial feasibility. There are inherent limitations towards adopting alternative fuels. Referencing remarks made by Mr. Morten Bo Christiansen (Maersk head of de-carbonization), methanol has the potential to reduce CO2 emissions by up to 15% vs conventional marine fuels while enjoying other advantages including having well-established infrastructure and manageable vessel retrofitting cost. Having said that, methanol has inherent limitations including low energy density and certain safety-related challenges. With respect to ammonia, Maersk expects ammonia to be an ideal replacement from a net zero carbon perspective, but overall technology capability remains at a nascent stage and no vessels today are equipped to utilize this fuel type. Maersk also takes a contrarian view compared to its peers and does not view Liquefied Natural Gas (LNG) as a viable alternative, given its upstream and onboard emissions.
This report from the San Francisco Fed may be of interest to subscribers. Here is the conclusion:
Summing up our findings, the great historical pandemics of the last millennium have typically been associated with subsequent low returns to assets, as far as the limited data allow us to conclude. These responses are huge. Smaller responses are found in real wages, but still statistically significant, and consistent with the baseline neoclassical model.
Measured by deviations in a benchmark economic statistic, the real natural rate of interest, these responses indicate that pandemics are followed by sustained periods—over multiple decades—with depressed investment opportunities, possibly due to excess capital per unit of surviving labor, and/or heightened desires to save, possibly due to an increase in precautionary saving or a rebuilding of depleted wealth. Either way, if the trends play out similarly in the wake of COVID-19 then the global economic trajectory will be very different than was expected only a few months ago.
Should we expect declines of 1.5%–2% in the real natural rate, however? There may be at least three factors that could possibly attenuate the decline of the natural rate predicted by our analysis, but their presence and magnitude is uncertain and unknowable until therapies to fight COVID-19 are more developed. First, the death toll of COVID-19 relative to the total population might be smaller than in the worst pandemics of the past, but we cannot know for sure at this point. Second, COVID-19 primarily affects the elderly, who are no longer in the labor force and tend to save relatively more than the young, so the demographic channels could be altered, although the recent pick up in infections is now affecting younger individuals. Third, aggressive counter-pandemic fiscal expansion will boost public debt further, reducing the national savings rate and this might put upward pressure on the natural rate, even though our analysis suggests that this expansion of public debt should be easier to sustain in the long-run.
This article may be of interest to subscribers. Here is a section:
“Sticker shock over some of these tax figures will be hard to shake off for some investors,” Edward Moya, senior market analyst at Oanda Corp, wrote in a note. “Some traders are looking for an excuse to lock in profits and they might choose to use this tax story as their catalyst.”
This note from Bloomberg may of interest to subscribers.
Frankfurt, we have a communication problem. And that could feed into a growing ECB credibility issue –- even as European bond markets are shrugging off details of today’s confab.
Markets crave clarity on pandemic bond buying, and instead are getting ambiguity. Madame Lagarde again warned against reading too much into weekly PEPP purchases. They are not the most relevant -- what matters more are the monthly numbers, she said, and accounting for redemptions, those reveal that “significant” increase pledged in March. They have “readily implemented” that ramp up as of March 16 -- and are continuing to do so clearly and without any wavering, according to Lagarde.
Except the data suggests otherwise looking at the recent run-rate. There is no “normal” pace of bond purchases given the need for flexibility and the ongoing pledge to preserve favorable financing conditions -- no wonder ECB-watchers are exasperated. Sure, risks to the outlook remain balanced in the medium-term and Europe remains an “economy on crutches” -– but so much for any clarity on the semantics around “significant” and what exactly front-loading means.
At least Lagarde confirmed that policy won’t be in tandem with the Fed. That much seemed obvious. As for significant PEPP purchases, guidance remains a case of constructive ambiguity -- let’s wait for those monthly numbers, and maybe more excitement in June.
