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Jobs (US) and Inflation (EMU) Highlight the Week Ahead

The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new…

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The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new mutation means and the efficacy of the current vaccination and pill regime.

The initial net impact has been to reduce risk, as seen in the sharp sell-off of stocks.  Emerging market currencies extended their losses.  The JP Morgan Emerging Market Currency Index has fallen in eight of the nine sessions.  Among the major currencies, the currencies used to fund the purchase of other financial assets, namely the yen, Swiss franc, and euro, strengthened in response to the covid news.  The currencies that are seen levered to growth,  like the dollar bloc and Scandis, fell. 

Although it may not always seem that way, there are few sure things.  We occupy a probability world.  What is known and not known about the new variant leads market participants to reduce the odds that the old trajectory would continue unabated.  In the context of the sensitivity of foreign exchange prices to monetary policy, that trajectory was characterized by an elevated risk of a BOE hike next month and for Fed to accelerate the pace of tapering.  The sharp rally in the fed funds and Eurodollar near-term futures contracts reflect the market reassessing the odds.  The implied yield of the December 2021 short-sterling interest rate futures contract fell to its lowest level since September 23.  

The week ahead features the US November jobs report and the eurozone's preliminary estimate of November CP, which are the stuff that moves markets typically.  Yet, the new variant may overshadow the economic data.   

Before the emergence of the new variant, the rising infections in Europe seemed to be having a minimal economic impact.  The flash composite eurozone PMI rose in November, the first increase in four months, and at 55.8 suggest output remains robust even if not as much as in Q3 (average composite PMI was 58.5) and Q2 (average composite PMI was 56.8). Moreover, the eurozone Sentix expectation survey for November rose for the first time in May.  Indeed, it fell more in July and August than it did in September and October.  

That said, economists have been anticipating a sharp slowdown in EMU growth in Q4.  Recall that after contracting in Q4 20 and Q1 21, the eurozone economy expanded by 2.1% in Q2 and 2.2% in Q3 (quarter-over-quarter). The median forecast in Bloomberg's survey sees 0.8% quarterly expansion through the first half of next year.  It is bound to be more volatile than that, and the risks are on the downside in Q4 21 and into Q1 22. 

On the other hand, the US economy is accelerating after the disappointing 2% annualized pace in Q3.  Nearly all of the high-frequency monthly data was stronger than the median (Bloomberg) forecast in October.  Rising consumption is a critical factor.  Consumer durable purchases are important, and next week's news is expected to include the second consecutive increase in auto sales after a collapse from April (18.5 mln vehicles seasonally adjusted annual rate) through September (12.18 mln).   

Two main forces drive US consumption. First, the wealth effect is captured in rising financial assets and house prices.  It is arguably what has let many people retire early since the pandemic struck.  Then there is the income effect.  Government transfer payments are essential even in "normal" times.  While some programs, like the federal supplemental unemployment compensation, have expired, others, such as the enhanced child-earned tax credit, have only recently begun.  Still, wages and salaries are key, which brings us to the November jobs report on December 3.  

From a high level, the US labor market is sizzling.  It filled an average of 582k jobs a month through October.  Economists look around another 500k people to have joined the payrolls in November.  The ADP private-sector jobs estimate has been lower than the national estimate by an average of 23k a month over the past three months and about 51k a month so far this year.  The median forecast in Bloomberg's survey projects that about 525k private sector jobs were filled in November.  Manufacturing employment, which surged by 60k in October, the most since last June, is expected to have slowed to 45k, which is still about 50% higher than this year's average pace. 

Unemployment is expected to fall to 4.4% from 4.6%.   Recall that it was above 6% until May.  The underemployment rate is also falling.  While much of the labor market has evolved as Fed officials, investors, and households had hoped, a problem remains.  The (relatively) low participation rate remains problematic.  Before the tech bubble burst in 2000, it hovered around 67% and was bouncing around 66% when the Great Finance Crisis hit.  It fell to about 62.5%, and 2014-2019 appears capped approximately 63%, though, in late 2019, it reached an eight-year peak of 63.4%.  Covid saw the rate plummet to 60.2%.  It has recovered, but it has been 61.6%-61 since April.7%, first seen in August 2020.   

Outside of regulatory issues and where climate change and monetary policy intersect, this is one of the few issues that seem to separate Powell and Brainard.  Given the trade-offs, theFed Chair seems open-minded about it but is unsure that the previous participation rate can be achieved. Dr. Brainard also seems open-minded but tilts in the other direction.  This appears to be one of the few issues that former Treasury Secretary Summers agrees with Bernanke.  

The eurozone is in a difficult position.  While the preliminary composite PMI ticked up to rise for the first time since July, the news has been overshadowed by the rising pandemic in Europe.  Some new social restrictions have been implemented, spurring large-scale protests in some countries.  It may take a little while for the impact to be seen in the real sector data. However, sentiment indicators may detect it first.  The November German IFO assessment of the overall business climate, reported last week, fell to its lowest level since April.  It had been pulling back since recording the cyclical peak in June.  

At the same time, price pressures are accelerating.   Higher energy prices, a weaker euro, and the base effect point to the risk of a large rise when the preliminary estimate of this month's aggregate CPI is reported on November 30.  The statement that accompanied the preliminary November PMI noted that the selling price in the manufacturing and service sectors accelerated to almost 20-year highs.  Brent crude oil is off slightly this month, but natural gas prices have soared by more than 40% since the end of October.  

The euro was having a poor month, falling more than 3% against the US dollar to levels not seen since July 2020.  It pared some of these losses ahead of the weekend, leaving it off about 2.3%.  And to aggravate the situation, recall that EMU CPI fell by 0.3% in November 2020.  When this drops out of the 12-month comparison, the chances of a shockingly strong number rises. The median forecast in Bloomberg's survey for CPI to rise to 4.3% from 4.1% seems too cautious.   The report will provide fodder for the debate at the December 16 ECB meeting.  

The meeting is expected to confirm that the Pandemic Emergency Purchase Program will end in March as currently planned.  The "modalities" of the Asset Purchase Program will also be announced.  The size,  flexibility, and duration are of prime interest.  The hawks may crow about the high inflation. Still, the ECB's leadership appears to have majority support that the price pressures are temporary and mostly related to the distortions around the pandemic.   While a surge in CPI could embolden the hawks, the virus wave works against looking past the emergency too early.   

Three other events will draw attention in the week ahead.  The first is China's November PMI.  We don't think the details matter so much.  It is manufacturing PMI has fallen without interruptions since March and has been below the 50 boom/bust level in September and October.    The non-manufacturing PMI recovered from the drop below 50 in August (47.5) but slipped in October and is expected to have fallen in November.  The composite has been trending lower this year.  It peaked last November at 557. and stood at 50.8 in October.  Officials are dissatisfied with the growth and the risks to the economy.  Beijing is encouraging lending, including to the property market, and wants local governments to step up their spending.  Word cues by the PBOC have renewed speculation about a cut in reserve requirements (the last reduction was in July). 

Second, on November 30, Treasury Secretary and Federal Reserve Chair Powell testify before the Senate Banking Committee on the CARES Act, the first (of several) fiscal responses to the pandemic.  It was a $2.2 trillion effort approved in March 2020.  The Federal Reserve welcomed the initiative, and Powell has often recognized the importance of fiscal support. To the extent that either official talks about the current economic conditions, investors will take notice.  

Third, OPEC+ meets next week to set policy.  It had been set to boost output by another 400k barrel per day in December, but several countries announced intentions to sell some of their oil reserves, which may change their calculus.  It looks like the consumer nations may release 65-70 mln barrels.  It was led by a 50 mln barrel commitment by the US, which includes accelerating the sale of 18 mln barrels that it had previously planned, which was related not to an emergency but a previous budget deal.  

The remaining 32 mln barrels are not entirely sold, more like lent out and would be returned. It could take several months for the operation to be completed.  Reports indicated that China would provide more oil, but it seemed to cast doubt on a coordinated effort. The UK offered 1.5 mln barrels of oil but conditioned it on the willingness of the private sector to participate.  

The oil that the US is making available is the heavy sour crude that needs more refining and is not desired by US refiners. A gasoline shortage remains.  Reports suggest India and China refiners have been the beneficiaries of the sales of US crude this year.  Paradoxically,  the US wants to deter Chinese companies with military ties while selling it oil used to fuel tanks, ships, and planes.  Lenin's quip about capitalists selling the rope that will be used to hang them comes to mind, despite the Trump tariffs remaining in place.    

OPEC+  may want to send a signal that it will avoid another devastating price war. Investing in crude capacity and carbon, more generally, is not in vogue.   Ironically, the risk is that the reluctance to invest in the old economy may deter the transition to the new economy.  Several OPEC+ members do not have the capacity to boost output and therefore have been falling shy of their 400k barrels a day increases, but the members who have the capacity have not made up for it. January WTI peaked a month ago near $83.85.  Before the weekend, amid the volatility unleashed by the new variant, it tumbled to $67.40, a 13% decline and more than a three-sigma move.  It is slightly above the 200-day moving average, which it has not traded below this year.    


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AMC CEO Looks To Refinance Debt Amid Dip In Stock Price

A skittish stock market and a struggling box office are complicating the theater chain’s attempts to turn around its debt situation.

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A skittish stock market and a struggling box office are complicating the theater chain’s attempts to turn around its debt situation.

Let’s give credit where it’s due. Most people don’t follow through with their New Year’s Resolutions, but at least AMC Entertainment (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report CEO Adam Aron is trying.

Following a Tweet earlier this month in which the head of the beleaguered movie theater chain announced plans to “refinance some of our debt to reduce our interest expense, push out some debt maturities by several years and loosen covenants,” he’s now making moves to try to get the job done. 

Aron has reportedly been “in advanced talks with multiple parties” about refinancing, according to The Wall Street Journal. But the ongoing volatility of the stock market, amongst other factors, is complicating matters.

Irfan Khan / Los Angeles Times via Getty Images

Rough Years For AMC

To make it through the pandemic, AMC ended up having to take on a great deal of debt. It reportedly owed $5.5 billion as of last September and also owed $376 million worth of lease payments, which were deferred for a while during the pandemic. 

But as we’ve previously mentioned, the past few years have been tough for theater chains such as AMC. Even before the pandemic put a pause on theater-going in 2020, leading to an absolutely brutal total box office gross drop of 81.4%, general audiences were increasingly only heading out to movie theaters for blockbuster films and franchise installments, often from the Marvel Cinematic Universe or the “Fast & Furious.”

AMC had a reported net loss of $13.5 million in 2019, even as total revenue was up 2.4% to $1.44 billion from the year before. Things improved for the company last year once people felt safe returning to the theaters, as access to vaccines helped unlock some pent-up demand, and the box office rose by 112.5% to $4,468,850,254. 

A big chunk of that rebound is due to the jaw-dropping success of “Spider-Man: No Way Home,” which recently returned to the top of the box office, on its way to making $1.69 billion worldwide. (Will Peter Parker eventually conquer the blue aliens from “Avatar” to become the highest-grossing film of all time? Stay tuned.) 

But you can’t turn around a struggling industry based on the success of one film, and even Marvel and Disney  (DIS) - Get Walt Disney Company Report can’t put out a general-audience pleasing blockbuster every week. 

Even with a new “Scream” film out, last weekend’s box office total barely totaled more than $43 million, a far cry from five years ago. “That's down from a pre-pandemic $105 million in 2020, $73 million in 2019, $102 million in 2018, and $111 million in 2017, according to data from Box Office Mojo.”

Memes Saved AMC (For A Little While)

Last year AMC received an unexpected lifeline when it became the subject of an internet-driven rush that turned it into a short-lived meme stock. 

After a Reddit-incubated army of internet investors, who dubbed themselves “apes,” began buying shares in AMC through trading applications such as Robinhood, shares of the company temporarily rose to a robust $62.55 a share. Prices would eventually return to earth, hitting $35 a share after the hype dropped down. But the boost allowed Aron to buy the company some time. 

AMC used the cash infusion to repurchase $35 million worth of debt that carried a minimum interest rate of 15%, according to Yahoo! Finance. The deal cost $41.3 million, but it is expected to reduce the overall annual interest on its debt by about $5.3 million.

This year Aron is stepping up his efforts to refinance AMC’s debt, but it’s rough out there at the moment. 

Amid Wall Street’s current market contraction, AMC’s stock has dropped by 41% this year, erasing the meme stock gains, and AMC’s $1.5 billion in secured 10% bonds “traded as low as 92 cents on the dollar, down from 99.5 cents at the start of the year,” according to The Wall Street Journal. 

AMC isn’t looking to refinance all of its debt. Instead, it is targeting some of the bonds with especially high interest, as a way to cut expenses even as bond prices continue to drop.

But it seems like the meme stock rush has turned out to be a double-edged sword. 

AMC was able to stay in business by “selling new shares, taking on new debt, and getting landlords to agree to delay collecting rent payments.” But meme investors have objected to Aron’s plans to allow more AMC shares to be sold, out of fear that it would dilute what they’ve already purchased. 

Aron and AMC have a skittish-at-best stock market and an industry that is struggling to get people into theaters for all but event films. On the other hand, it has a loyal group of investors that are nonetheless limiting the company’s options. 

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About 35% of People Who Received Placebo in Vaccine Trials Report Side Effects and More COVID-19 News

According to a recent study conducted by researchers at Harvard Medical School and Beth Israel Deaconess Medical Center, 76 percent of the adverse side effects (such as fatigue or headache) that people experienced after receiving their first COVID-19…

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About 35% of People Who Received Placebo in Vaccine Trials Report Side Effects and More COVID-19 News

The placebo effect is where a person who received a placebo instead of a drug or vaccine shows clinical signs, positive or negative, associated with the actual treatment. Much has been made about the side effects of the COVID-19 vaccines, but a new study found a startlingly high number of adverse events associated with people who received placebos in clinical trials. For that and more COVID-19 news, continue reading.

COVID-19 Vaccine Side Effects: Real or Placebo Effect?

A recent study out of Harvard Medical School and Beth Israel Deaconess Medical Center evaluated 12 COVID-19 vaccine trials with a total of 45,380 participants. The study found that 76% of the adverse side effects reported, such as fatigue or headache, after the first shot were also reported by participants who received a placebo. Mild side effects were more common in people receiving the vaccine, but a third of those given the placebo reported at least one adverse side effect. The statistics from the study showing that 35% of placebo recipients reported adverse side effects is considered unusually high. Several experts suspect that there’s such a high report of adverse events because of the amount of misinformation found on social media about the dangers of the vaccines and the amount of media coverage.

This is not to say that the adverse side effects felt by people who received the vaccines are all in their heads. People do have side effects to vaccines, but this study reports on an unusually high level of the placebo effect. Nocebo is used to describe a negative outcome associated with the placebo.

Source: BioSpace

“Negative information in the media may increase negative expectations towards the vaccines and may therefore enhance nocebo effects,” said Dr. Julia W. Haas, an investigator in the Program in Placebo Studies at Beth Israel Deaconess and the study’s lead author. “Anxiety and negative expectation can worsen the experience of side effects.”

Four Factors for Long COVID

A study published in Nature Communications identified specific antibodies in the blood of people who developed long COVID. Long COVID is not well understood and has a range of up to 50 different symptoms, and it is difficult to diagnose because there is no one test for it. The study, conducted by Dr. Onur Boyman, a researcher in the Department of Immunology at University Hospital Zurich, compared more than 500 COVID-19 patients and found several key differences in patients who went on to present with long COVID. The most obvious was a significant decrease in two immunoglobulins, IgM and IgG3. The study found that a decrease in these two immunoglobulins, which generally rise to fight infections, combined with other factors, such as middle age and a history of asthma, was 75% effective in predicting long COVID.

75% of COVID-19 ICU Survivors Show Symptoms a Year Later

A study out of the Netherlands found that a year after being released from an intensive care unit (ICU) for severe COVID-19, 75% of patients reported lingering physical symptoms, 26% reported mental symptoms, and up to 16% noted cognitive symptoms. The research was published in JAMA. The research evaluated 246 COVID-19 survivors treated in one of 11 ICUs in the Netherlands. The mental symptoms included anxiety (17.9%), depression (18.3%), PTSD (9.8%). The most common new physical symptoms were weakness (38.9%), stiff joints (26.3%), joint pain (25.5%), muscle weakness (24.8%), muscle pain (21.3%) and shortness of breath (20.8%).

Pennsylvania Averaging Most COVID-19 Deaths Per Day in a Year

In general, COVID-19 deaths are dropping across the country. However, in two states, Pennsylvania and New Jersey, the numbers are increasing. Pennsylvania is averaging 156 COVID-19 deaths per day over the past seven days, which is a 17% uptick compared to two weeks ago. The number of deaths per day in Pennsylvania is below what was hit in January 2021, largely due to the availability of vaccines. New Jersey averages 111 deaths from COVID-19 per day, an increase of 61% over the last two weeks and the highest since May 2020. Similarly, New Jersey cases and hospitalizations are declining.

Omicron Surge: Shattering Cases and Hospitalizations, but Less Severe

According to the CDC, although the current Omicron surge is setting records for positive infections and hospitalizations, it’s less severe than other waves by other metrics. Omicron has resulted in more than 1 million cases per day in the U.S. on several occasions, and reported deaths are presently higher than 15,000 per week. However, the ratio of emergency department visits and hospitalizations to case numbers is lower compared to COVID-19 waves for Delta and during the winter of 2020–21. ICU admissions, length of stay, and in-hospital deaths were all lower with Omicron. They cite vaccinations and booster shots as the likely cause. Although the overall result is that Omicron appears less severe, it’s not completely clear if that’s because the viral variant doesn’t infect the lower lung as easily as other variants, or because so much of the population has either been vaccinated or exposed to the virus already. It is clearly far more infectious than other strains, which is placing a real burden on healthcare systems. The number of emergency department visits is 86% higher than during the Delta surge.

J&J Expects Up to $3.5 Billion in COVID-19 Vaccine Sales This Year

Johnson & Johnson projected annual sales of its COVID-19 vaccine for 2022 to range from $3 billion to $3.5 billion. This was noted during the company’s fourth-quarter 2021 report. In December 2021, the U.S. Centers for Disease Control and Prevention recommended the PfizerBioNTech or Moderna shots over J&J’s due to a rare blood condition observed with the J&J shot. By comparison, Pfizer and BioNTech project their vaccine will bring in $29 billion in 2022, after having raked in almost $36 billion in 2021. Moderna expects approximately $18.5 billion this year, with about $3.5 billion from possible additional purchases. Although final figures for Moderna aren’t in yet, they projected 2021 sales between $15 and $18 billion.

BioSpace source:

https://www.biospace.com/article/about-35-percent-of-people-receiving-placebo-in-vaccine-trials-report-side-effects-and-more-covid-19-news

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Spread & Containment

COVID-19 cases at highest ever in Americas – regional health agency

New cases of COVID-19 in the Americas in the past week were the highest since the pandemic began and the very contagious Omicron variant has clearly become the predominant strain, the Pan American Health Organization said on January 26.

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COVID-19 cases at highest ever in Americas – regional health agency

BRASILIA, Jan 26 (Reuters) – New cases of COVID-19 in the Americas in the past week have been the highest since the pandemic began in 2020 and the very contagious Omicron variant has clearly become the predominant strain, the Pan American Health Organization said on Wednesday.

There were more than 8 million new cases, 32% higher than the previous week, while fatalities throughout the region also increased by 37%, with 18,000 new deaths caused by COVID-19.

The United States continues to have the highest number of new infections, although cases decreased by nearly 1 million over the last week, the regional health agency said.

Mexico’s southern states have seen new infections triple and Brazil has seen new cases surge 193% over the last seven days, PAHO said in weekly briefing.

Medical workers take care of patients in the emergency room of the Nossa Senhora da Conceicao hospital that is overcrowding because of the coronavirus outbreak, in Porto Alegre, Brazil, March 11, 2021. REUTERS/Diego Vara

Children in the Americas are facing the worst educational crisis ever seen in the region, with millions of children yet to return to classes, according to PAHO, which recommended that countries try to get them safely back to school to protect their social, mental and physical wellbeing.

It urged parents to get their children vaccinated.

Many countries have already authorized and are safely administering COVID vaccines to adolescents, PAHO said.

Last week, the WHO’s expert group on immunization authorized the COVID vaccine developed by Pfizer Inc (PFE.N) for children aged 5 to 12 years, offering a roadmap for countries to roll out vaccines for them, the regional agency said.

Reporting by Anthony Boadle; Editing by David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

 

Reuters source:

https://www.reuters.com/world/americas/covid-19-cases-highest-ever-americas-says-regional-health-agency-2022-01-26

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