Wall Street stocks are pushing ever further into uncharted territory as new data and corporate financials show that the economy and corporate America are still rebounding from the depths of the coronavirus crisis.
The S&P 500 has generated returns including dividends of 27 per cent so far this year as the blue-chip index has set record highs on more than 60 trading days, according to Goldman Sachs data.
Last week alone, US markets rallied 2 per cent, the best performance since June. Companies beaten down during the pandemic such as airlines, cruise operators and casinos advanced after Pfizer’s announcement on Friday that its antiviral pill successfully reduced hospitalisation rates stemming from Covid-19 by 90 per cent.
Evidence that the US economy is pulling itself out of the pandemic-induced downturn further bolstered sentiment, with the latest monthly jobs report showing a pick-up in job growth across nearly all sectors after several months of more lacklustre gains. More than 500,000 positions were created in October, and the unemployment rate fell to 4.6 per cent in a move that exceeded economists’ expectations.
The $1.2tn infrastructure spending bill passed late on Friday by the US House of Representatives could provide yet further fuel to the world’s biggest economy.
“We are on the train to normal,” said Kristina Hooper, chief global market strategist at Invesco. “We are not quite there yet but we are certainly moving in the right direction. Growth is re-accelerating and it’s helped by the new developments in Covid treatment.”
Michael Gapen, chief US economist at Barclays, also pointed to a report last week showing an uptick in US automobile sales and a survey indicating activity in the sprawling American services sector rising at an unprecedented pace. “We view incoming data this week as consistent with our expectation for improved economic momentum heading into year-end,” he said in a note to the investment bank’s clients.
Sentiment has also been bolstered by signs that large US companies are broadly managing to weather the surge in the prices of raw materials, supply chain bottlenecks and shortages in the labour market.
Earnings of companies listed on the S&P 500 rose about 40 per cent in the third quarter from the same period in 2020, according to data collated by FactSet on corporate reports issued in recent weeks.
Profit margins slipped to about 12.3 per cent from 12.6 per cent the previous quarter on aggregate, but that was still about 0.7 percentage points better than analysts had anticipated before the earnings season kick-off, according to Goldman Sachs.
“Despite lingering global supply chain disruptions and elevated inflation, companies have successfully navigated most margin headwinds by relying on pricing power,” the Wall Street investment bank noted.
The Pfizer announcement on Friday provided a further boost to investors’ confidence, with Scott Gottlieb, a former commissioner of the Food and Drug Administration and a member of Pfizer’s board, saying that the pandemic could be over by January.
Live Nation Entertainment, which puts on live concerts that have been curtailed by social restrictions during the pandemic, rose more than 20 per cent for the week, its biggest move higher since March 2020 when the Fed first stepped into financial markets to quell the downturn stemming from the pandemic. Cruise operator Royal Caribbean was also among the biggest risers for the week, up more than 14 per cent.
“We have moved into a new phase of the pandemic,” said Rebecca Patterson, director of investment research at Bridgewater, adding that the jolt higher in stock markets had also been underpinned by signals from central banks that they would only slowly unravel crisis-era stimulus measures.
The Federal Reserve took its first big step towards ending pandemic-era crisis support for financial markets on Wednesday, announcing that it would begin scaling back its $120bn-a-month asset purchase programme with an aim to end the stimulus altogether by the second half of next year.
However, Fed chair Jay Powell’s reassurance that the central bank was pursuing a patient approach when it came to raising interest rates helped to ease investors’ angst that a substantive move towards higher borrowing costs was soon forthcoming. “He is doing everything he can to avoid confusion,” said Hooper.
Additional reporting by Nicholas Megaw and Kate Duguid
What's Happening in the World Economy: Virus Fears Return – Bloomberg
Hello. Today we look at how coronavirus fears are rising again after the discovery of a new variant, the state of China’s economy and concerns about the outlook for trade.
Inflation, central bank tapering, supply chain snarls, a looming fiscal cliff — they all dropped a notch on the global economy’s list of concerns Friday as the Coronavirus shot back to the top.
A new variant called B.1.1.529 has been identified in South Africa and has already spread as far as Hong Kong, where it infected two travelers in hotel quarantine. See here for more details.
Stocks, Treasury yields and oil sank while the yen jumped — all hallmarks of investors bracing for uncertain economic times.
“What was expected to be another quiet day for markets, as U.S. activity is muted, is now likely to be rife with anxiety over the new variant and its implications for economic activity going forward,” Siobhan Redford, a Johannesburg-based analyst at FirstRand Bank, told clients in a report.
For South Africa’s economy, the news is a particular body blow especially for its already shaky tourism sector, which would have been eager to welcome foreigners chasing winter sun. The European Union, U.K. and Singapore have already curbed travel.
More broadly, there will be fears the new strain could fuel outbreaks in more countries, stretching health systems, potentially evading vaccines and complicating efforts to reopen economies and borders. The concern alone could dampen the confidence of consumers and companies, which had been showing signs of picking up.
Money markets are offloading bets on central bank interest-rate hikes in a hurry, as inflation fears give way to concerns that the variant may spread globally.
If contained, the new as-yet unnamed strain may prove to be just a scare for markets. The coming days and decisions from the World Health Organization will be closely watched for any broader spread.
At a minimum, however, it’s yet another reminder that Covid-19 is going to remain the wild card for the global economy and will continue to shape the recovery and what policy makers do next.
“Each new variant entails the risk of the vaccination progress being undone,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank. “The thoughts of a world post-Covid suddenly become all confused.”
The Economic Scene
China’s economy continued to slow in November with car and homes sales dropping again as the housing market crisis dragged on.
That’s the outlook from Bloomberg’s aggregate index of eight early indicators for this month. While the overall number stayed unchanged, under the surface there was a further deterioration in some of the real-time economic data.
Today’s Must Reads
- Thanksgiving binge | E-commerce spending by U.S. consumers on Thanksgiving Day will probably climb to a record, even though sales may not be as strong as initially expected.
- Supply chain worries | There’s limited evidence from U.S. companies that any major shift in inflation expectations is yet underway despite what economists and President Joe Biden are saying.
- Spending surge | Australian retailers recorded their best month of sales in nearly a year as consumers splashed out on everything from dining out to clothing, taking advantage of the easing of lockdowns.
- European stimulus | The future of European Central Bank stimulus is becoming clearer before December’s crunch meeting, with its pandemic bond-buying tool on track to be wound down but stay available
- Japan stimulus | Prime Minister Fumio Kishida delivered his first extra budget, funding Japan’s biggest-ever fiscal package, as he tries to secure an economic recovery before next year’s elections.
- El Salvador crypto | Bank of England Governor Andrew Bailey said the country’s decision to adopt Bitcoin as its currency was concerning because consumers probably will be caught out by its volatility.
“Faintly in the distance: the contours of a big export slump are becoming visible.”
That’s the ominous warning from HSBC’s co-head of Asian economic research Frederic Neumann in a research note. He notes that export volumes have contracted in recent months and new export orders are declining. And that’s set to continue as the shift away from goods demand towards services will knock down shipments from Asia.
“After powering through the pandemic, a trade hangover now looms,” he says.
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Ocean Economy: The Next Wave of Sustainable Innovation – Visual Capitalist
Exploring the Digital Asset Ecosystem
The digital asset sector has undergone a rapid expansion over the past couple of years, growing in value and functionality.
Beyond the price growth of popular cryptocurrencies, digital assets are powering innovative applications that enable value transfer beyond just payments. From tokens that grant dividend-like revenue to holders, to tokens backed by other digital and physical assets, the digital asset ecosystem is redefining asset and financial structures before our very eyes.
The Functions and Types of Digital Assets
Digital assets can be broken down into three different types of assets that fulfill three primary functions. The first two functions of digital assets, store of value and medium of exchange, are well established functions of digital and traditional assets.
However, a third functionality of being able to pass through values to holders has emerged, with benefits like discounted application fees, governance voting rights, and monetary rewards passed onto token holders.
These functions are fulfilled by three main types of digital assets:
- Currency: tokens that are a unit of account and medium of exchange
- Asset-backed tokens: tokens backed by hard assets like equity, debt, or physical assets
- Pass through tokens: tokens that grant revenues, rewards, and network benefits to holders
Many know of Bitcoin, the founding cryptocurrency that functions as a digital currency today. Along with this, tokens whose value is backed by other assets like Arca Lab’s ArCoin (Ticker: RCOIN) are also straightforward in nature and functionality.
Pass through tokens are where digital assets explore innovative concepts and structures unique to the blockchain networks that underpin the assets.
For example, cryptocurrency exchange FTX issued an exchange token (FTT) at launch, which provides holders with reduced trading fees on the platform. FTT holders can also stake, or lock up, their tokens to receive increased referral rebates, more votes in FTX polls, and more airdrop rewards (tokens exclusively given out to holders or stakers of another token).
Classifying Governance and Decentralization
Along with token types and their functionality, it’s important to understand the governing bodies and governance structures behind digital assets.
The governing body is the entity that issues and controls the function of a digital asset, ultimately defining the purpose and proposed value of a digital asset. These range from centralized governments and organizations, like the government of the Bahamas (issuer of the CBDC, the Bahamian Sand Dollar) to Decentralized Autonomous Organizations and blockchain protocols like Ethereum (ETH) and Solana (SOL).
|Governing Body||Governance Structure|
|Decentralized Autonomous Organizations (DAOs)||Decentralized|
|Protocols, Platforms, and Dapps||Typically decentralized|
Governance structures define the framework and procedures which decide and implement changes for a digital asset. These changes can be about anything, like the digital asset’s tokenomics, pass through values, or future development goals.
While some governing bodies like governments and organizations have centralized governance structures, centralization and decentralization isn’t all or nothing and can be seen as more of a spectrum.
Certain DAOs or protocols might have a core team of developers that propose certain features, which are then voted on and ultimately decided by the holders of the digital asset.
The Future of Traditional Assets in a Digital Framework
With an established taxonomy of digital assets, we can start to map out how traditional assets fit into this framework.
From tokenizing real estate and commodities for easier digital exchange and settlement to equity-like tokens issued by companies that provide holders with voting rights or non-financial rewards, digital assets will reshape the traditional asset structures of today.
By providing unbound and transparent asset structures, digital assets are providing people around the world with more freedom in storing, transferring, and accruing value.
Go to Ar.ca to learn more about digital assets today.
'Miracle on Saint-Laurent Street': Quebec economy sees country's strongest post-pandemic rebound – The Globe and Mail
Quebec’s economy is poised to outperform every other Canadian jurisdiction this year in a remarkable rebound from the pandemic that has put the province on track to record its highest annual GDP growth on record.
The provincial government will spend some of its windfall on cost-of-living bonuses and training programs to help fight the labour shortage and inflation that plagues the province, Finance Minister Eric Girard said during a press conference announcing his fall fiscal update on Thursday.
But the surprisingly strong revenues will also allow Quebec to continue reducing its deficit and debt burden as it continues to close the persistent wealth gap with Ontario that Premier François Legault has made a fixation.
After economic activity declined by 5.5 per cent in 2020, it is expected to bounce back by 6.5 per cent this year, leaving the province richer than before the pandemic, according to government projections. That is much faster growth than the 4.2 per cent expected and slashes $5.4-billion from the projected provincial deficit.
“The economic performance of Quebec in 2021 was exceptional,” Mr. Girard said.
Analysts largely agree with the Finance Minister’s rosy assessment. In a recent research paper titled Miracle on Saint-Laurent Street, Bank of Nova Scotia economist Marc Desormeaux observed that growth of 6.5 per cent would be an “all-time record” for Quebec. It would also outpace Ontario and Canada as a whole, a rare distinction for a province that has traditionally lagged the rest of the country in GDP growth.
Quebec’s rocketing fortunes were fuelled in part by the timing of public-health measures, which the Legault government rapidly eased in the summer of 2020 after the pandemic’s first wave that led to a “staggering” 80-per-cent rise in household consumption in the third quarter of that year, Mr. Desormeaux said. Generous federal and provincial aid also injected life into the economy.
But Quebec’s boom times precede the recent recovery, the bank report points out, with large increases in full-time jobs and wages between 2017 and 2019, along with a household saving rate before the pandemic that was significantly higher than in the rest of Canada. Those strong fundamentals have helped the province emerge from the COVID-19 crisis in good shape, Mr. Desormeaux said.
“There’s a whole lot of momentum in Quebec’s economy.”
In his fall update, Mr. Girard acknowledged anxieties about the twin afflictions of inflation and labour shortages facing much of the Canadian economy. To help Quebeckers with a rising cost of living, he announced single lump-sum payments for low- and middle-income households, amounting to $400 for couples and $275 for people who live alone.
The province will also spend $2.9-billion over five years “to combat the labour shortage” by paying for the training, requalification and recruitment of as many as 170,000 workers, with a focus on the health, education, and engineering and IT sectors.
Despite new spending, strong economic growth allowed Quebec to revise its deficit and debt projections downward. This year’s budget deficit is now pegged at $6.8-billion, fully $5.4-billion less than expected. The province will also be able to reduce its gross debt level faster than anticipated, from 46.8 per cent of GDP in March of this year to an expected 44.3 per cent next March. The acceleration “can be explained by the strength of the economic recovery,” according to the economic and fiscal summary.
The raft of good news has allowed Quebec to play catch-up in its quest to close the wealth gap with Ontario, a goal the Legault government has repeatedly emphasized in its three years in power. Between 2017 and this year, the gap shrunk from 16.4 to 12.9 per cent. On Thursday, the government stated its ambition of eliminating Ontario’s wealth advantage altogether by 2036.
Asked whether that was an excessively long timeline, Mr. Girard pointed out how persistently Quebec has trailed its richer neighbour. “Fifteen years to close a wealth gap that’s been there for almost 100 years, I think that’s realistic,” he said.
Despite the province’s strong showing, some critics charge that it is misspending its unexpected revenue bump. The Conseil du patronat du Québec, a business group, said the work force measures don’t go far enough and that it was surprised by the lack of immediate help finding employees, calling this the “most serious labour shortage in [Quebec’s] recent history.”
While praising the government for continuing on its path to cutting the deficit, Maria Lily Shaw, an economist with the conservative Montreal Economic Institute, said she would have preferred the government to balance the budget sooner.
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What's Happening in the World Economy: Virus Fears Return – Bloomberg
Ocean Economy: The Next Wave of Sustainable Innovation – Visual Capitalist
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