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Europe’s false start with vaccine rollout



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European leaders are stumbling with their rollout of a coronavirus vaccine, which has been much slower than anticipated, damping down initial optimism for a fast immunisation campaign in the new year following successful vaccine approvals.

Governments across the continent including Germany, France and the UK are preparing to extend tough lockdown restrictions to control the spread of the virus, as the EU came under fire for its handling of vaccine procurement and distribution.

While the US has administered more than 4m vaccine doses and the UK has exceeded 1m, Germany has managed just 265,000. France is ramping up its immunisation campaign after its cautious, phased strategy — in which it managed only about 350 vaccinations — sparked anger.

Chart showing how the EU has been slow to initiate Covid-19 vaccinations relative to other countries such as China, the US and the UK

Markus Söder, the premier of Bavaria and leader of the Christian Social Union, one of Germany’s governing parties, said the EU had “ordered too few doses and relied on the wrong manufacturers”. He called for vaccination efforts to be “massively accelerated”.

The UK on Monday became the first country to administer the Oxford/AstraZeneca vaccine, amid criticism that its mass vaccination programme is too slow. The government was meeting today to agree on stricter lockdown rules, including a likely closure of schools and curfews to force the country to stay at home. 

The European Commission has hit back at criticism of its vaccine strategy, which was agreed by member states in June.

The EU has signed contracts with a total of six vaccine producers, and confirmed on Monday that it was in discussions with Pfizer and BioNTech to secure more doses of their vaccine, beyond the 300m shots covered by the current contract.

“We have actually signed contracts that would allow member states to get access to 2bn doses, largely enough to vaccinate the whole of the EU population,” said Eric Mamer, commission chief spokesman.

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European equities bounded into 2021 with indices up across the board, despite the worsening pandemic. China’s renminbi rallied to its highest level in more than two years, boosted by the country’s economic recovery from Covid-19, wiping out most of the losses suffered since the start of its trade war with the US. 

Line chart of renminbi per dollar showing how China’s currency has started 2021 on course to erase trade war losses

Governments and companies are expected to issue $500bn in green bonds in 2021, as policymakers seek a sustainable post-pandemic recovery. The EU has said it will launch €225bn worth of green bonds as part of the €750bn borrowing that will fund its Covid-19 recovery plan.

Oil prices dipped from earlier highs ahead of a meeting of ministers from Opec and Russia, as producer countries decide whether to unleash more barrels on to a market under threat from the latest coronavirus-related restrictions. 


Rolls-Royce will put its UltraFan engine programme “on ice” when testing finishes in 2022, according to chief executive Warren East, halting further investment until a new aircraft is launched. “I can’t force airframe manufacturers to invent new aeroplanes and if there is no demand for them, then there is no demand for the engines,” he said.

Law firms including Norton Rose Fulbright, listed DWF and London-based Fieldfisher are ditching trophy office moves as they look to slash space as much as 50 per cent because of the shift to remote working as a result of the pandemic.

The likes of Moderna, Zoom Video and Peloton were the business success stories in early stages of the pandemic, but a rebound in investor appetite means a broader range of stocks also ended the year higher. See the FT’s updated ranking of the top 100 companies that prospered during 2020.

Global economy

The UK is set to be one of the last high-income countries to recover from the pandemic — with the economy likely to take at least 18 months to return to its pre-crisis size — according to an FT survey of more than 90 leading economists.

The OECD’s chief economist Laurence Boone has warned governments to rethink their constraints on public spending due to concerns that fresh austerity or tax rises would risk a popular backlash.

Manufacturing activity across the eurozone is recovering, driven by strong foreign demand, reflecting the economic recovery across much of Asia where the virus is largely under control. Activity in Spain and Italy grew in the final weeks of 2020, which helped limit the economic impact of the fresh upsurge in coronavirus cases, according to a widely watched survey of businesses.

Line chart of purchasing managers' index (above 50 = majority of businesses reported increase in activity) showing how eurozone manufacturing activity is recovering

The essentials

To make flexible working successful, managers must look beyond the pandemic and develop long-term strategies to support employees, writes Emma Jacobs. The crisis has forced a rethink of what we value in business, says Ravi Mattu, and is a good moment to rethink business principles and put humans before profits.

In this video, FT journalists make their forecasts for how the world could change in 2021 as a result of the pandemic, US-China relations, key upcoming elections and Brexit.

Follow our coronavirus vaccine tracker, updated every week, as well as our global economic impact tracker and our coronavirus tracker on the spread of infection around the world.

The pandemic’s darkest hour is yet to dawn, writes Anjana Ahuja. Those who forecast that 2021 would feel different from 2020 have been proven correct — but not quite in the way that anyone wanted.

Final thought

© Jonathan McHugh 2020

As the year turns, there are good reasons to believe a decade of strong growth and social ebullience lies ahead, writes Martin Sandbu, who is looking forward to this century’s own Roaring Twenties. A pent-up desire to spend combined with vaccine-induced herd immunity mean that it may soon be time to party again.

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Vale chief rejects talk of iron ore supercycle




Iron ore is not on the cusp of a new supercycle, according to the head of one the world’s biggest mining companies, who expects demand for the steelmaking ingredient to flatten out after a couple of years of the current tightness.

Eduardo Bartolomeo, chief executive of Brazil’s Vale, said the record surge in iron ore prices over the past year was very different to the boom of the early 2000s, which was driven by China’s rapid industrialisation. 

“In the last supercycle we had urbanisation in China. It was a structural change. A shock in demand,” he told the Financial Times. “We are not talking about a huge shock in demand now. I would say it is marginal. It is not a shock.”

But he added that, with big global economies revving up and iron producers running at or near capacity, prices could remain elevated until 2023.

“Although there is strong talk about cuts, production is still going up in China and now you have Europe coming back and the US announcing a huge stimulus package. There are also restrictions on supply,” he said. “This market is going to be tight for a while. At least two years.”

Iron ore has spearheaded a broad-based rally in commodities over the past year, rising more than 150 per cent to a record high above $230 a tonne last week, mainly on the back of strong demand from steel mills in China, before paring gains and hitting $209.35 on Friday.

As China’s steel production continues to expand analysts believe prices can remain around current levels but say the market will be highly volatile.

Iron ore’s turbocharged performance has been a boon for big producers including Vale, which require a price of only about $50 a tonne to break even.

It has fanned talk of a new commodities supercycle — a prolonged period where prices remain above their long-term trend, usually triggered by a structural boost to demand to which supply is slow to respond.

Following a deadly dam disaster two years ago that killed 270 people, mainly company employees and contractors, Vale was forced to curtail production.

Its output fell from a planned 400m tonnes a year to about 300m tonnes in 2019 and 2020, and the company lost its position as the world’s largest iron ore producer to Rio Tinto, which has managed to produce about 330m tonnes in each of the past two years.

Bartolomeo said Vale eventually needed to increase production to 400m tonnes because iron ore was a “high fixed-cost business”. However, he said the company would do so in a “very paced way”, mindful of safety.

Erik Hedborg, analyst at the CRU consultancy, said Vale’s journey to 400m tonnes would take time because it required the “restart of many mines, which will go through several complex licensing processes”.

Over the medium term — from 2025 to 2030 — Bartolomeo said Vale expected diminishing demand for iron ore from China because of increasing use of scrap in electric arc furnaces.

“Everybody talks about the circular economy. Scrap is going to come to China. It has to. We see it diminishing demand for iron ore from China.”

Bartolomeo said there would also be a shift to higher-quality iron ore as the steel industry sought to reduce emissions by moving to less polluting methods of steelmaking such as hydrogen-based production.

“All the roads lead to high-quality iron ore and Vale is very well positioned for that,” he added. 

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US banks could cut 200,000 jobs over next decade, top analyst says




US banks stand to shed 200,000 jobs, or 10 per cent of employees, over the next decade as they manoeuvre to increase profitability in the face of changing customer behaviour, according to a banking analyst. 

“This will be the biggest reduction in US bank headcount in history,” Wells Fargo analyst Mike Mayo told the Financial Times. If his forecast bears out, this year would mark an inflection point for the US banking sector, where the number of jobs has remained roughly flat at 2m for the past decade.

The jobs most at risk are those in branches and call centres as banks prune their sprawling networks to match the new realities of post-pandemic banking, Mayo’s report found. That is consistent with Department of Labor statistics that predict a 15 per cent decline in bank teller jobs over the next decade.

Historically, lay-offs, particularly for lower-paying jobs, have been a contentious issue for the banking industry, which is often held up by progressive politicians as an example of a wealthy industry prioritising profits over people.

But the threat of technology companies and non-bank lenders chipping away at the business of payments and lending, which have traditionally been dominated by banks, has intensified over the past year, making job cuts necessary, Mayo said.

“Banks must become more productive to remain relevant. And that means more computers and less people,” he said.

Most of the reductions can be achieved through attrition over the next 10 years rather than cuts, reducing the risk of a backlash, Mayo said.

The new research, reported first by the FT, comes on the heels of disappointing jobs data that showed the US economy added just 266,000 jobs last month, sharply missing estimates of 1m. Structural elements of unemployment like accelerated automation that took place during the pandemic could pose stronger than anticipated headwinds to a recovery in the labour, economic officials said following the report. 

Pandemic activity pushed headcount up roughly 2 per cent last year as banks hired staff to meet the sudden demand for labour-intensive mortgages and government-backed small-business loans. But that trend is likely to be reversed in the near-term as lenders refocus on efficiency to compete more effectively with technology companies that increased their share of business during the health crisis. 

Increased competition from unregulated companies such as PayPal and Amazon entering financial services was one of the principal concerns JPMorgan Chase chief executive Jamie Dimon outlined in his annual letter to shareholders last month. 

Mayo estimates that banks currently represent just a third of the overall financing market.

“Digitisation accelerated and that played to the strength of some fintech and other tech providers,” Mayo said. 

Many of the bank branches that were closed during the pandemic will probably stay that way, and even those that remain open are likely to be more lightly staffed as branches become more focused on providing advice than facilitating transactions. A large amount of back-office roles also stand to be automated but those numbers are harder to quantify, the report said. 

Mayo said his team 20 years ago was twice as large and responsible for half as much. Doing more with less was the new norm across the industry.

“If I was giving advice to my kids, I’d say you probably don’t want to go into the financial industry,” Mayo said, adding that technology and customer or client-facing roles are probably the only areas that will see growth. “It’s likely to be a shrinking industry.”

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Inflation wild card unsettles markets




Regime changes usually take a while to fully register among investors. The big talking point in markets at the moment surrounds the potential return of a more troublesome level of consumer price inflation and what protective action investors should take.

The underlying trend of inflation matters a great deal for financial markets and investor returns. The rise in both equity and bond prices in recent decades has occurred during a long period of subsiding inflation pressure and from recent efforts by central banks to arrest disinflationary shocks since the financial crisis. 

A year after the global economy abruptly shut down, activity is duly picking up speed. The logical outcome has been a surge in readings of inflation and this week, a measure of US core prices recorded its largest annual gain since 1996, running at a pace of 3 per cent*.

Core readings exclude food and energy prices and are deemed a smoother gauge of underlying inflation pressure, a point that many people outside finance find baffling when budgeting the cost of groceries and petrol.

So the significant jump in the core measure, and even accounting for the base effect of the pandemic’s brief deflationary shock a year ago, has understandably generated plenty of noise.

This will remain loud in the months ahead as activity recovers from lockdowns with a hefty tailwind of fiscal stimulus working its way through the broad economy.

But muddying the waters for investors is that the outlook for inflation is still difficult to judge at this stage.

“There is so much dislocation in the economy from the reopening and base effects from a year ago that it will take at least six to 12 months before we get a clear view of the underlying inflation trend,” said Jason Bloom, head of fixed income and alternatives ETF strategies at Invesco.

Investors who are now worried about an inflation shock face a dilemma. Some assets seen as traditional hedges against such a risk, like inflation-protected bonds and commodities, have already risen appreciably. Effectively a period of inflation running hot has been priced in to some degree.

And history does provide a cautionary note for those moving late to buy expensive inflation protection.

Past inflationary alarms, as economies recovered in the wake of the dotcom bust in the early 2000s and the financial crisis of 2008, proved false dawns. After a mercifully brief pandemic recession, the powerful and well entrenched disinflationary trends of ageing populations and falling costs associated with technological innovation are by no means in retreat.

For such reasons, a number of investors and the US Federal Reserve expect inflationary pressure this year will prove “transitory”. But stacked against deflationary forces is the immense scale of the monetary and fiscal stimulus of the past year.

The effects of monetary and fiscal stimulus means “inflation may settle into a pace of 2.5 per cent (annualised) and that would be different from the average of 1.5 per cent before the pandemic”, said Jason Pride, chief investment officer of private wealth at Glenmede Investment Management. “Inflation will be higher. At a dangerous level? No.”

In an environment of firmer growth and moderate inflation pressure, equities will benefit, led by companies that have earnings more influenced by the economic cycle. Investors also will seek companies that have the ability to pass on higher prices to customers in the near term and offset a squeeze on profit margins.

Still, a troublesome period of elevated inflation cannot be easily dismissed. The “transitory” argument could be challenged if economic growth continues to run hot into next year, accompanied by a trend of higher wages from companies finding it hard to attract workers.

Before reaching that point, expected inflation priced into the bond market may well push past the peaks of the past two decades and enter uncharted territory in the US and also for other developed markets in the UK and Europe.

Bond market forecasts of future inflation pressure over the next five to 10 years have already risen sharply in recent months. But the rebound is from a low level and for now, expected inflation is not far beyond the Fed’s long-term target of 2 per cent.

“It is the change in inflation expectations that drives asset returns,” said Nicholas Johnson, portfolio manager of commodities at Pimco. Assessing almost 50 years of data, a portfolio holding equities and bonds underperforms during bouts of elevated inflation, while real assets including inflation-linked bonds and commodities prosper, according to the asset manager.

“Most investors have not experienced a period where inflation surprised to the upside,” added Johnson. Clients are asking more questions about insulating their portfolios, but their present exposure to commodities and other assets show that in broad terms investors are “not paying much of an inflation premium”.

That can change and the prospect of inflation regime change remains a wild card for investors.

*The value of core inflation has been changed since first publication.

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