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Markets cheered by third dose of good news over Covid vaccine trials



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Latest news

  • Rating agency Moody’s said US companies were hoarding record amounts of cash in response to the pandemic

  • The new lockdown in England caused activity in the UK services sector in November to fall to its lowest level since the spring, pointing to a double-dip economic downturn at the end of the year

  • The number of US daily air travellers topped 1m on Sunday ahead of this week’s Thanksgiving holiday, despite official advice urging people not to fly

Concerns raised over vaccine contract secrecy

Investors enjoyed a good start to the week with news of another potential coronavirus vaccine with positive trial results, fuelling hopes that, as one strategist put it, “the end of the pandemic is on the horizon and that life, the global economy, and markets can return to normal”. 

Oxford university and AstraZeneca said their candidate had an average efficacy of 70 per cent, with the possibility of reaching 90 per cent if a half dose was followed up by a full dose. At $3 to $4 a jab, it looks likely to be much cheaper than other vaccines and can be stored at normal fridge temperatures, making distribution much easier — especially for developing countries.

Bar chart of Covid-19 shots under contract (doses) showing AstraZeneca's vaccine has hopes for low-income countries

The dollar fell to its lowest level in three months as a result of the news and investors sold off US government bonds as demand waned for safe-haven assets.

AstraZeneca shares fell, however — partly due to headlines implying it was less beneficial than the vaccines offered by Pfizer and Moderna, with their 90 per cent or more efficacy — but also acting as a reminder that vaccines are generally not as profitable as other drugs. Astra has already promised not to make a profit on the product during the pandemic.

A French minister, meanwhile, revealed the EU would have six contracts with different vaccine producers in place by the end of the month. But as trial results begin to materialise, discontent is growing about the secrecy of such deals in view of the fact that producers have received huge injections of public funds. 

The dispute highlights why trust and transparency, not just in the pharma industry but in wider society, is so critical in defeating the virus, a point emphasised in his column today by management editor Andrew Hill.

“In the case of the current crisis, while a virus is the cause, trust — in science, in business, in governments and, critically, in each other — is fundamental to the solution,” he writes.


The rift between the Federal Reserve and the US Treasury over extending the central bank’s emergency pandemic measures is concerning investors. “This is a policy error, there’s no question around that,” said one analyst. “These are facilities that provided an emergency backstop [and] as far as we know the emergency is not over. It is prematurely thinning out the Fed’s toolkit. Megan Greene of Harvard Business School writes for the Financial Times today about how central banks “are still fighting the last war”.

Chart showing assets ($bn) of the Federal Reserve's ‘alphabetti spaghetti’ of emergency measures, as of November 18

A stress indicator from the US Treasury department shows global financial conditions back at pre-pandemic levels. The index tracks corporate credit spreads, valuations of equities and safe-haven assets and funding volatility.

Chart of OFR Financial Stress index showing that market conditions have loosened to levels last seen in late February

Hopes of a vaccine-led economic recovery are helping riskier groups tap capital markets as investors hunt for returns in the face of low interest rates. “Portfolio managers have accumulated so much cash, and they are looking for places to put it to work,” said one fund manager.


The pandemic shake-up of labour markets is throwing up some serious inequalities, writes economics reporter Valentina Romei. New jobs in tech, automation and digital are going largely to men, while female-dominated sectors such as services have been badly hit. In the US, African-Americans have been disproportionately hit by cuts in public sector jobs, writes our new labour and equalities correspondent Taylor Nicole Rogers.

Qantas said it would demand proof of vaccination from international passengers before flying once air travel returns. In the interim, British Airways, Delta, Airbus and easyJet ramped up their calls for pre-flight passenger testing as an alternative to quarantine. Delta separately poured cold water on the idea of a New York-London “air corridor”.

Shares in cinema chain Cineworld jumped after the world’s second-biggest operator secured a new $450m funding lifeline. The company and its rivals have been hit badly by the postponement of Hollywood blockbuster releases and the enforced closure of venues by local authorities during the pandemic.

Global economy

Our “Lessons from Japan” series began with a Big Read examining the country’s experience of the past three decades and how it can teach the rest of the world to adapt to low interest rates and inflation — a likely outcome for many big economies after the pandemic.

Chart shows official interest rates (%) for Japan and US showing Japan has grown accustomed to persistently low rates

Eurozone business activity has hit a six-month low as the bloc’s services sector is hammered by pandemic restrictions. Rare bright spots include German manufacturing enjoying a rebound in exports.

Line chart of purchasing managers' index (below 50 = a majority of businesses reporting a contraction) showing that eurozone services activity has plummeted

The extent of the pandemic shock to the UK economy will be revealed in this week’s spending review when big tax rises are expected to be announced. Here are five things to watch.

Readers respond

How is your workplace dealing with the pandemic? How are you dealing with it as a professional or a manager? And what do you think business and markets — and our daily lives — will look like after we eventually emerge? Also — tell us what you think about this newsletter and how we can make it more useful to you. Email us at We may publish your contribution in an upcoming newsletter. Thanks.

Athanase comments on Vaccine contracts shrouded in secrecy despite massive public funding

Now is the time to start disclosing the agreements reached with vaccine producers. Everything needs to be done to convince the public that this is not a gigantic act of gouging. Everything needs to be done to explain that safety and liability conditions have not been waived. In fact, they need to be explained to the public, over and over again. Fear often comes from ignorance, and nothing feeds conspiracy theories like fear and ignorance. At a time like this, people must be convinced that taking a vaccine makes sense, and is not an act where their health is put at risk so big corporations can make money. 

The essentials

European governments are planning a “cautious” easing of lockdowns for the Christmas period. UK prime minister Boris Johnson has confirmed that England’s “stay at home” national lockdown will end on December 2, but his new toughened “tier system” of regional restrictions has been strongly criticised by the hospitality sector.

Chart of seven-day rolling average of new Covid-19 cases and deaths in UK, France, Italy, Spain and Germany, showing that cases have slowed down in Europe after the second reimposition of lockdowns

Consumer editor Claer Barrett will host a live Q&A with industry experts on UK help for entrepreneurs and the self-employed — many of whom have been excluded from coronavirus support schemes — at midday UK time on Tuesday.

Final thought

One of the most notable cultural shifts during the pandemic has been the disappearance of the tie, writes US editor-at-large Gillian Tett. One reason might be its symbolic link to rigid company hierarchies. “The key point about the corporate world is that most executives know it pays to look flexible, open-minded and relaxed right now,” she argues.

© Shonagh Rae

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Why it might be good for China if foreign investors are wary




Chinese economy updates

The writer is a finance professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center for Global Policy

The chaos in Chinese stock markets last week was exacerbated by foreign investors selling Chinese shares, leaving Beijing’s regulators scrambling to regain their confidence while they tried to stabilise domestic markets. But if foreign funds become more cautious about investing in Chinese stocks, this may in fact be a good thing for China.

In the past two years, inflows into China have soared by more than $30bn a month. This is partly because of a $10bn-a-month increase in the country’s monthly trade surplus and a $20bn-a-month rise in financial inflows. The trend is expected to continue. Although Beijing has an excess of domestic savings, it has opened up its financial markets in recent years to unfettered foreign inflows. This is mainly to gain international prestige for those markets and to promote global use of the renminbi.

But there is a price for this prestige. As long as it refuses to reimpose capital controls — something that would undermine many years of gradual opening up — Beijing can only adjust to these inflows in three ways. Each brings its own cost that is magnified as foreign inflows increase.

One way is to allow rising foreign demand for the renminbi to push up its value. The problem, of course, is that this would undermine China’s export sector and would encourage further inflows, which would in turn push China’s huge trade surplus into deficit. If this happened, China would have to reduce the total amount of stuff it produces (and so reduce gross domestic product growth).

The second way is for China to intervene to stabilise the renminbi’s value. During the past four years China’s currency intervention has occurred not directly through the People’s Bank of China but indirectly through the state banks. They have accumulated more than $1tn of net foreign assets, mostly in the past two years.

Huge currency intervention, however, is incompatible with domestic monetary control because China must create the renminbi with which it purchases foreign currency. The consequence, as the PBoC has already warned several times this year, would be a too-rapid expansion of domestic credit and the worsening of domestic asset bubbles. 

Many readers will recognise that these are simply versions of the central bank trilemma: if China wants open capital markets, it must give up control either of the currency or of the domestic money supply. There is, however, a third way Beijing can react to these inflows, and that is by encouraging Chinese to invest more abroad, so that net inflows are reduced by higher outflows.

And this is exactly what the regulators have been trying to do. Since October of last year they have implemented a series of policies to encourage Chinese to invest more abroad, not just institutional investors and businesses but also households.

But even if these policies were successful (and so far they haven’t been), this would bring its own set of risks. In this case, foreign institutional investors bringing hot money into liquid Chinese securities are balanced by various Chinese entities investing abroad in a variety of assets for a range of purposes.

This would leave China with a classic developing-country problem: a mismatched international balance sheet. This raises the risk that foreign investors in China could suddenly exit at a time when Chinese investors are unwilling — or unable — to repatriate their foreign investments quickly enough. We’ve seen this many times before: a rickety financial system held together by the moral hazard of state support is forced to adjust to a surge in hot-money inflows, but cannot adjust quickly enough when these turn into outflows.

As long as Beijing wants to maintain open capital markets, it can only respond to inflows with some combination of the three: a disruptive appreciation in the currency, a too-rapid rise in domestic money and credit, or a risky international balance sheet. There are no other options.

That is why the current stock market turmoil may be a blessing in disguise. To the extent that it makes foreign investors more cautious about rushing into Chinese securities, it will reduce foreign hot-money inflows and so relieve pressure on the financial authorities to choose among these three bad options.

Until it substantially cleans up and transforms its financial system, in other words, China’s regulators should be more worried by too much foreign buying of its stocks and bonds than by too little.

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Square to acquire Afterpay for $29bn as ‘buy now, pay later’ booms




Square Inc updates

Payments company Square has reached a deal to acquire Australian “buy now, pay later” provider Afterpay in a $29bn all-stock transaction that would be the largest takeover in Australian history.

Square, whose chief executive Jack Dorsey is also Twitter’s CEO, is offering Afterpay shareholders 0.375 shares of Square stock for every share they own — a 30 per cent premium based on the most recent closing prices for both companies.

Melbourne-based Afterpay allows retailers to offer customers the option of paying for products in four instalments without interest if the payments are made on time.

The deal’s size would exceed the record set by Unibail-Rodamco’s takeover of shopping centre group Westfield at an enterprise value of $24.7bn in 2017.

The transaction, which was announced in a joint statement from the companies on Monday, is expected to be completed in the first quarter of 2022.

Afterpay said its 16m users regard the service as a more responsible way to borrow than using a credit card. Merchants pay Afterpay a fixed fee, plus a percentage of each order.

The deal underscored the huge appetite for buy now, pay later providers, which have boomed during the coronavirus pandemic.

“Square and Afterpay have a shared purpose,” said Dorsey. “We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles.”

Adoption of buy now, pay later services had tripled by early this year compared with pre-pandemic volumes, according to data from Adobe Analytics, and were particularly popular with younger consumers.

Rivalling Afterpay is Sweden’s Klarna, which doubled its valuation in three months to $45.6bn, after receiving investment from SoftBank’s Vision Fund 2 in June. PayPal offers its own service, Pay in 4, while it was reported last month that Apple was looking to partner with Goldman Sachs to offer buy now, pay later facilities to Apple Pay users.

Steven Ng, a portfolio manager at Afterpay investor Ophir Asset Management, said the deal validated the buy, now pay later business model and could be the catalyst for mergers activity in the sector. “Given the tie-up with Square, it could kick off a round of consolidation with other payment providers where buy now, pay later becomes another payment method offered to their customers,” he said.

Over the past two years Afterpay has expanded rapidly in the US and Europe, which now account for more than three-quarters of its 16.3m active customers and a third of merchants on its platform. Afterpay said its services are used by more than 100,000 merchants across the US, Australia, Canada and New Zealand as well as in the UK, France, Italy and Spain, where it is known as Clearpay.

Square intends to offer the facility to its merchants and users of its Cash App, a fast money transfer service popular with small businesses and a competitor to PayPal’s Venmo.

“It’s an expensive purchase, but the buy now, pay later market is growing very rapidly and it makes a lot of sense for Square to have a solid stake in it,” said retail analyst Neil Saunders.

“For some, especially younger generations, buy now, pay later is a favoured form of credit. Afterpay has already had some success with its US expansion, but Square will be able to accelerate that by integrating it into its platforms and payment infrastructure — that’s probably one of the justifications for the relatively toppy price tag of the deal.”

Square handled $42.8bn in payments in the second quarter, with Cash App transactions making up about 10 per cent, according to figures released on Sunday. The company posted a $204m profit on revenues of $4.7bn.

Once the acquisition is completed, Afterpay shareholders will own about 18.5 per cent of Square, the companies said. The deal has been approved by both companies’ boards of directors but will also need to be backed by Afterpay shareholders.

As part of the deal, Square will establish a secondary listing on the Australian Securities Exchange to provide Afterpay shareholders with an option to receive Square shares listed on the New York Stock Exchange or the ASX. Square may elect to pay 1 per cent of the purchase price in cash.

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Biden puts workers ahead of consumers




US economy updates

For the past 40 years in America, competition policy has revolved around the consumer. This is in part the legacy of legal scholar Robert Bork, whose 1978 book The Antitrust Paradox held that the major goal of antitrust policy should be to promote “business efficiency”, which from the 1980s onwards came to be measured in consumer prices. These were considered the fundamental measure of consumer wellbeing, which was in turn the centre of economic wellbeing.

But things are changing. A White House executive order on competition policy, signed last month, contains some 72 discreet measures designed to stamp out anti-competitive practices across nearly every part of the US economy. But it isn’t about low prices as much as it is about higher wages.

Like the Reagan-Thatcher revolution, which took power from unions and unleashed markets and corporations, Biden’s executive order may well be remembered as a major economic turning point — this time, away from neoliberalism with its focus on consumers, and towards workers as the primary interest group in the US economy.

In some ways, this matters more than the details of particular parts of the order. Many commentators have suggested that these measures, on their own, won’t achieve much. But executive orders aren’t necessarily about the details — they are about the direction of a government. And this one takes us completely away from the Bork era by focusing on the connection between market power and wages, which no president over the past century has acknowledged so explicitly.

“When there are only a few employers in town, workers have less opportunity to bargain for a higher wage,” Biden said in his announcement of the order. It noted that, in more than 75 per cent of US industries, a smaller number of large companies now control more business than they did 20 years ago.

His solutions include everything from cutting burdensome licensing requirements across half the private sector to banning and/or limiting non-compete agreements. Firms in many industries have used such agreements to hinder top employees from working for competitors, as well as to make it tougher for employees to share wage and benefit information with each other — something that Silicon Valley has done in nefarious ways.  

This gets to the heart of the American myth that employees and employers stand on an equal footing, a falsehood that is reflected in such Orwellian labour market terms as the “right to work”. In the US this refers not to any sort of workplace equality, but rather to the ability of certain states to prevent unions from representing all workers in a given company.

But beyond the explicitly labour-related measures, the president’s order also gets to the bigger connection between not just monopoly power and prices, but corporate concentration and the labour share.

As economist Jan Eeckhout lays out in his new book The Profit Paradox, rapid technological change since the 1980s has improved business efficiency and dramatically increased corporate profitability. But it has also led to an increase in market power that is detrimental for people in work.

As his research shows, firms in the 1980s made average profits that were a tenth of payroll costs. By the mid 2000s that ratio had jumped to 30 per cent and it went as high as 43 per cent in 2012. Meanwhile, “mark-ups” in profit margins due to market power have also risen dramatically (though it can be difficult to see this in parts of the digital economy that run not on dollars but on barter transactions of personal data).

While technology can ultimately lower prices and thus benefit everyone, this “only works well if markets are competitive. That is the profit paradox,” says Eeckhout. He argues that when firms have market power, they can keep out competitors that might offer better products and services. They can also pay workers less than they can afford to, since there are fewer and fewer employers doing the hiring.

The latter issue is called monopsony power, and it is something that the White House is paying particularly close attention to.

“What’s happening to workers with the rise in [corporate] concentration, and what that means in an era without as much union power, is something that I think we need to hear more about,” says Heather Boushey, a member of the president’s Council of Economic Advisors, who spoke to the Financial Times recently about how the White House sees the country’s economic challenges. 

The key challenge, according to the Biden administration, is that of shifting the balance of power between capital and labour. This accounts for the emerging ideas on how to tackle competition policy. There are many who regard the move away from consumer interests as the focus of antitrust policy as dangerously socialist — a reflection of the Marxian contention that demand shortages are inevitable when the power of labour falls.

But one might equally look at the approach as a return to the origins of modern capitalism. As Adam Smith observed two centuries ago, “Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.” Reprioritising it is a good thing.

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