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Weekly investment update – 16 September 2020

Weekly investment update – 16 September 2020

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As the global COVID-19 caseload nears 30 million and the number of fatalities has now surpassed 930 000, the resurgence of the virus is gaining the markets’ attention again. The focus is now on western Europe where new case numbers have continued to rise across several countries, even if for the time being hospitalisations and fatalities remain relatively low.

While government-imposed restrictions do not currently appear overly strict in the eurozone, voluntary self-distancing and waning fiscal support are expected to hurt sentiment on consumer spending and capital expenditure. Encouraging updates from some candidate providers on the timeline of a vaccine are grounds for hope in the markets, even if the results are still months away.

In the eurozone, infections have been rising persistently – this is the case not only for major European economies such as Spain and France, but also for the broader EU-19. Currently, the rise in case numbers is mostly driven by the younger demographic, but the number of new cases among the older population have been increasing too.

If a reversal in these trends does not come soon, we cannot exclude the possibility of a lockdown in one or more of the major economies with the obvious negative implications for the economic recovery.

Markets and economic data

For the markets generally, central bank support, via the ongoing wall of liquidity, remains the mainstay of market stability and continues to ensure that the current liquidity stresses are alleviated. This has left financial conditions supportive.

However, while central banks can provide liquidity, renewed fiscal policy will be the key to stave off insolvencies and further job losses. Without more fiscal support, a rise in bankruptcies looks likely in the months to come.

FOMC meeting: on US economic forecasts, policy rate expectations…

On Tuesday, the US Federal Reserve’s Federal Open Market Committee (FOMC) began its first meeting since the recent monetary strategy review. It is also the last meeting before the US presidential elections on 3 November.

Chair Powell and his colleagues will be updating their economic forecasts and ‘dot plot’ of policymaker expectations on the course of interest rates and deciding what, if any, changes they want to make to their forward guidance around rates and quantitative easing (QE).

We expect the FOMC’s forecasts will show stronger economic growth and lower unemployment, but little change to the core inflation profile. The ‘dot plot’ is unlikely to show any interest rate hikes in the forecast, which will run to the end of 2023.

…and forward guidance

We see a reasonable chance the FOMC changes its forward guidance on interest rates and QE. It could adopt explicit criteria linking the earliest possible increase in interest rates to specific conditions on inflation (that, for example, core inflation should be above 2%) and the unemployment rate (lower than 4.5% perhaps?).

We also expect the FOMC to make it clear that QE will continue at some steady rate for years rather than months.

If these changes are not announced this month, the November and/or December meetings will likely be used to flag these changes. Such an announcement would mark a significant and proactive shift in the Fed’s transition from monetary stabilisation to accommodation.

Equity markets back on track

After the sell-off earlier this month, the NASDAQ tech market has started to rebound (see graph below), overall market volatility has settled and the S&P 500 VIX futures term structure has normalised.

The VIX future for October (pricing in US presidential election risk) had reached 40 and is now back at 30.6. The market continues to price in uncertainty around the outcome of the election, with October VIX futures continuing to trade at a premium.

If the election is closely fought, there is a risk that the contest becomes litigious, hence delaying the result and the removal of uncertainty for the markets. This could not only drive October VIX futures levels back up, but also November levels with an ensuing risk of a S&P 500 index correction.

Risky assets supported

Despite the recent correction in equity valuations, risky assets continue to benefit from US 10-year real interest rates trading near record lows and financial conditions remaining supportive.

In such an environment of accommodative central bank policy, a major sell-off in equity markets appears unlikely.

Moreover, in a low interest rate world, the equity risk premium (ERP) continues to make equities look attractive in spite of the V-shaped recovery we have seen in global equity indices in recent months. Europe remains a laggard, but we expect European equities to play catch-up into the year-end.

In bond markets, corporate issuers (especially the higher rated ones) are continuing to issue new debt at a robust pace. While defaults may continue if fiscal support slackens, the default cycle may be peaking. In this environment, dispersion will remain high as some of the weaker credits struggle to survive.

With the acceleration of M2 money supply and still accommodative central bank policies, continued USD weakness is likely. This backdrop is expected to continue to support commodities. Over the long term, in a world of debt monetisation, support for gold will persist.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Marina Chernyak. The post Weekly investment update – 16 September 2020 appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.

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Government

Federal Food Stamps Program Hits Record Costs In 2022

Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a…

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Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a large administrative state is the mischief agencies can get up to when no one is watching.

Specifically, they highlight the overreach of the Agriculture Department, which expanded food-stamp benefits by evading the process for determining benefits and end-running Congressional review.

Exhibit A in the over-reach is the fact that the cost of the federal food stamps program known as the Supplemental Nutrition Assistance Program (SNAP) increased to a record $119.5 billion in 2022, according to data released by the U.S. Department of Agriculture...

Food Stamp costs have literally exploded from $60.3 billion in 2019, the last year before the pandemic, to the record-setting $119.5 billion in 2022.

In 2019, the average monthly per person benefit was $129.83 in 2019, according to the U.S. Department of Agriculture. That increased by 78 percent to $230.88 in 2022.

Even more intriguing is the fact that the number of participants had increased from 35.7 million in 2019 to 41.2 million in 2022...

All of which is a little odd - the number of people on food stamps remains at record highs while the post-COVID-lockdown employment picture has improved dramatically...

Source: Bloomberg

If any of this surprises you, it really shouldn't given that 'you, the people' voted for the welfare state. However, as WSJ chided: "abuse of process doesn’t get much clearer than that."

In its first review of USDA, the GAO skewered Agriculture’s process for having violated the Congressional Review Act, noting that the “2021 [Thrifty Food Plan] meets the definition of a rule under the [Congressional Review Act] and no CRA exception applies. Therefore, the 2021 TFP is subject to the requirement that it be submitted to Congress.” GAO’s second report says “officials made this update without key project management and quality assurance practices in place.”

Abuse of process doesn’t get much clearer than that. The GAO review won’t unwind the increase, which requires action by the USDA. But the GAO report should resonate with taxpayers who don’t like to see the politicization of a process meant to provide nutrition to those in need, not act as a vehicle for partisan agency staffers to impose their agenda without Congressional approval.

All of this undermines transparency and accountability for a program that provided food stamps to some 41 million people in 2021. The Biden Administration is using the cover of the pandemic to expand the entitlement state beyond what Congress authorized.

The question now is, will House Republicans draw attention to this lawlessness and use their power of the purse to stop it to the extent possible with a Democratic Senate.

And don't forget, the US economy is "strong as hell."

Tyler Durden Sat, 01/28/2023 - 09:55

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Spread & Containment

A Royal Caribbean Cruise Line Adult Favorite Has Not Come Back

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

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Spread & Containment

What’s Still Missing on Royal Caribbean Cruises Post Covid

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

Published

on

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

Read More

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