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Did US labour market begin rebounding after a grim December?

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Did US employers resume hiring after the jobs recovery sputtered in December?

US jobs figures for January, out on Friday, are expected to show the nation’s economy has resumed hiring, but that it will take longer to recover from the Covid-induced losses than many had expected.

The number of long-term unemployed, or those who have been jobless for 27 weeks or more, jumped to almost 4m in December from 1.1m in February, before the pandemic. Overall, about 18.3m Americans are on unemployment aid and the US has 9.8m fewer jobs than it had in February.

Economists surveyed by Bloomberg estimate that this week’s non-farm payrolls will show that the US added just 55,000 jobs in January. It follows a loss of 140,000 in December — the first monthly decline since the early days of the pandemic in April — owing to increased restrictions to curb the spread of the virus.

“There will be no material improvement in the jobs market until containment measures are eased, and that won’t happen soon given the slow rate of vaccination,” said Padhraic Garvey, regional head of research Americas at ING.

The jobs figures, alongside a rapidly slowing economic rebound, outline the monumental task for Joe Biden, the new US president, whose success will be measured by his handling of the pandemic and the economy.

Mr Biden has stressed the importance of pushing through his $1.9tn stimulus plan, which remains in a Congressional deadlock but has shown signs of progress in recent days after the president signalled he was willing to make concessions. Mamta Badkar

Will the Bank of England signal further easing is on the horizon?

The Bank of England’s Monetary Policy Committee faces a balancing act with Thursday’s interest rate decision.

On the one hand, an economically damaging lockdown has been extended for longer than the central bank had anticipated and there remains the risk of a double-dip recession. However, the prospect of an economic rebound has been brightened by the UK’s rapid rollout of the vaccine, bolstering chances that restrictions can start to be lifted in the spring.

With the base interest rate at a record low of 0.1 per cent, the BoE has minimal room for manoeuvre before it enters the contentious territory of negative interest rates.

Debate continues inside and outside the central bank as to whether it should follow its European counterpart down such a path. MPC external member Silvana Tenreyro said in a speech on January 11 that negative rates “should with high likelihood boost UK growth and inflation”. However, governor Andrew Bailey said the following day that there were “a lot of issues” with the policy.

For now, at least, the market expects the BoE to hold its fire.

“If they were to vote to cut rates . . . it would be a huge surprise,” said Anthony Carter, fixed-income manager at Sarasin & Partners. The market is pricing almost no chance of a cut this week, but expects marginally negative rates early next year, he said.

Oxford Economics’ Martin Beck concurs. “We think the MPC will look through the economic pain of the current lockdown to the promise offered by the rollout of vaccines.” Laurence Fletcher

Will BlackRock’s call for emissions cuts have any effect?

BlackRock told companies last week that they needed to commit to cutting their carbon emissions to net-zero by 2050 or risk being dropped from its active funds. The call to action by the world’s largest asset manager came directly from its boss, Larry Fink, in his annual letters to clients and chief executives. 

Mr Fink, who has faced criticism for what some saw as his company’s lack of action on climate change, has focused more closely on the topic over the past two years. 

Last year, he made waves after announcing that BlackRock would put climate risk at the centre of its investment decisions. This year he doubled down, saying that the market was seeing a “tectonic shift” towards sustainable investing that was moving faster than he had expected. 

In addition to threatening to expel companies from its discretionary funds, Mr Fink also said BlackRock would vote against management of companies in its index funds that did not articulate a credible plan to emit no more carbon than they pulled out of the atmosphere.

As BlackRock controls nearly $8.7tn, companies will surely take notice. But it is not the first asset manager to make such a request. Last year, a group of 30 of the world’s biggest asset managers that collectively oversee $9tn called on companies to slash emissions to net zero, also by 2050.

And while Mr Fink’s letters were full of lofty rhetoric, they were light on detail. He did not explain what a satisfactory net-zero plan should look like, nor did he specify what would cause BlackRock to take action against a company. Billy Nauman



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European stocks stabilise ahead of US inflation data

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European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.



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Potash/grains: prices out of sync with fundamentals

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The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue

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Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.



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