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Weekly investment update – Against all hawks

As inflation continues to run at multi-decade highs, especially in developed markets, major central banks have stepped up the pace of removing policy accommodation….

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As inflation continues to run at multi-decade highs, especially in developed markets, major central banks have stepped up the pace of removing policy accommodation. One exception is China, where the central bank has adopted an easing stance to fight weakening growth.  

Hawks in the West

Last week, the Bank of Canada (BoC) and the Reserve Bank of New Zealand both raised their policy rates by 50bp. The BoC also announced the end of reinvestments under its bond-buying programme, marking the start of quantitative tightening. The 50bp rate rises were the biggest for both central banks in more than two decades as policymakers intensified their fight against soaring inflation.

The market also anticipates that the Bank of England (BoE) to raise rates again in May. The US Federal Reserve (Fed) is expected to announce a 50bp interest rate increase at its next policy meeting.

These actions will likely increase the pressure on the European Central Bank (ECB) to publish a firm interest-rate action plan. This has been missing so far.

Behind these hawkish stances is soaring inflation. In the UK, consumer price inflation hit 7% year-on-year (YoY) in March on the back of rising food and energy prices. Some market players foresee it increasing to 9% soon due to a planned 54% rise in regulated energy prices this month. Core inflation rose at a robust 5.7% YoY, also owing to rising services inflation.

While the BoE is expected to retain a tightening policy bias, it is caught between two conflicting concerns: High inflation (which requires monetary tightening) and threats to economic growth from reduced purchasing power (which require policy easing).

There are also signs for continued vigorous inflation in Europe, with German CPI inflation soaring to 7.6% YoY in March (February inflation in the eurozone was 5.9% YoY). 

The price pressures have led to heated debate at the ECB with last week’s policy meeting ending with a hawkish tone. In particular, the ECB noted that incoming data had ‘reinforced’ its expectation that net bond purchases under its asset purchase programme (APP) should end in the third quarter.

However, it did not signal a clear acceleration in the pace of policy normalisation or specify the exact timing for ending APP purchases. If the ECB does not clarify its policy soon, policy tightening elsewhere will start to put downward pressure on the euro, adding to inflationary pressures on the eurozone and forcing the ECB to eventually take action that is more drastic.

US inflation has risen faster than at any point since the early 1980s (see Exhibit 1). The headline CPI and PPI rates for March surged by 8.5% YoY and 11% YoY, respectively.

To date, the Fed’s policy reaction function has been univariate – focused on just one variable, inflation. This means that the near-term path for rate rises depends almost entirely on the trajectory of inflation. The market expects the sharp rise in inflation to keep the Fed on track to raise rates by 50bp in May and start shrinking its USD 9 trillion balance sheet after the May meeting.

The dove in the East fighting growth weakness

One significant concern hanging over financial markets is a worsening of inflation shocks in developed markets fusing with a sharp slowdown in China’s growth to disrupt the global economic recovery. Data on first-quarter growth in China has underscored this worry. GDP grew by 4.8% YoY, mainly on the back of a strong performance in January and February ahead of Covid-related shutdowns. On a quarter-on-quarter basis, however, growth slowed from the end of 2021.

The number of new Covid cases has remained at over 25 000 a day, the highest since the pandemic started in 2020 (see Exhibit 2). As Omicron hit, economic activity in March and April decelerated sharply.

The risk of faltering growth momentum threatening the government’s 5.5% growth target this year is rising. The Covid-related drag appears to be building as lockdowns in high-risk areas, notably Jilin province and Shanghai, were extended over the past week. The slowdown can already be seen in the sharp fall in the purchasing managers’ indices for March and weak import growth. China’s weak growth aggravates existing supply-chain bottlenecks, dragging on growth in other regions and boosting inflation.

Last week, the People’s Bank of China cut the required reserve requirement ratio (RRR) by 25bp – less than markets had expected. The cut took the average RRR for financial institutions to 8.1% from 8.4% and effectively released RMB 530 billion in liquidity. Before the RRR cut, the central bank had also cut mortgage interest rates by an average of 40bp to alleviate the pressures on the property market.

However, with the Fed poised to raise rates faster and the US 10-year Treasury yield already above the 10-year Chinese government bond yield, the PBoC’s room to manoeuvre is constrained.

Further action will likely come in the form of quantitative easing, such as more RRR cuts, the relaxation of prudential regulations, and the buying of foreign exchange to curb the strength of the renminbi and inject liquidity into the system.

Disclaimer

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. The views expressed in this podcast do not in any way 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 Chi Lo. The post Weekly investment update – Against all hawks appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Economics

CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment

CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment
PR Newswire
NEW YORK, June 28, 2022

NEW YORK, June 28, 2022 /PRNewswire/ — Today, CED released the fourth and final installment of its unique 2022 series that ana…

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CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment

PR Newswire

NEW YORK, June 28, 2022 /PRNewswire/ -- Today, CED released the fourth and final installment of its unique 2022 series that analyzes the role of paid child care in the economy—including its impact on labor force participation. The new report serves not only as a road map for researchers to build on CED's findings. The report is also useful to policymakers as they consider key questions related to the use of paid child care—especially for women—and its connection to the workforce and economic growth.

Specifically, the new report details how researchers can effectively leverage the underlying data from the Census Bureau's Current Population Survey (CPS), which CED used as the basis for its report series about paid child care. As detailed in the primer, the CPS is a monthly survey of US households jointly sponsored by the Census Bureau and the Bureau of Labor Statistics. As part of its Annual Social and Economic Supplement (ASEC), the survey includes questions about the use of paid child care since 2001 and about such expenditures since 2010.

"Our work uncovered several groundbreaking insights, including that boosting women's labor force participation by one percent—which more paid child care could help achieve—would generate nearly $73 billion of additional income for women," said Dr. Lori Esposito Murray, President of CED. "CED's series examines data more extensively and over a long a time period than any previous work. This fourth and latest report provides a foundation for the research community to discover additional insights, which will help inform public policies that generate more prosperity for the nation's families and the economy more broadly."

The report, The Economic Role of Paid Child Care in the U.S., Part 4: Child Care Data in the Current Population Survey, a Primer, covers five key aspects of the CPS data:

  • The design of the CPS and its Annual Social and Economic Supplement;
  • What specific data the survey captures;
  • The sources from which that data comes;
  • Best practices for using the data; and
  • Likely technical issues which come with the data and how to handle them

The series is the first deep analysis of paid child care usage mined from the CPS data. Findings highlighted from the first three installments in the series include:

  • A high price tag: In 2020, the average income of families using paid child care was $149,926.
  • COVID-19's impact on participation: From 2019 to 2020, children in paid child care dropped by nearly 20 percent.
  • The primary drivers of paid child care usage are labor force attachment, household income, and educational attainment.
  • Despite declining labor force attachment across all genders, men participate in the labor force at a higher rate than women.
  • Paid child care usage is directly impacted by maternal labor force participation trends.
  • A one percent increase in the labor force participation of women ages 18-54 would produce multiple economic benefits, including an additional income of approximately $73 billion.
  • Short-term changes in paid child care correspond with three key factors: labor force participation, actual hiring of mothers, and increased income.
  • Long-term changes in paid child care correspond with three different key factors: maternal labor force, real income, and the overall total of the male and female labor force.

The prior three reports as part of this series focus on 1) the link between paid child care and income; 2) the link between child care access and mothers' workforce participation; and 3) the economic benefits of increasing women's participation in the labor force. More information on the series, which was produced with funding from the W.K. Kellogg Foundation, can be found here.

About CED

The Committee for Economic Development (CED) is the public policy center of The Conference Board. The nonprofit, nonpartisan, business-led organization delivers well-researched analysis and reasoned solutions in the nation's interest. CED Trustees are chief executive officers and key executives of leading US companies who bring their unique experience to address today's pressing policy issues. Collectively they represent 30+ industries, over a trillion dollars in revenue, and over 4 million employees. www.ced.org 

About The Conference Board

The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/ced-releases-report-on-using-census-bureau-data-to-boost-child-care--employment-301576752.html

SOURCE Committee for Economic Development of The Conference Board (CED)

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Copado’s Third Annual State of Salesforce DevOps Report Finds Teams Recovered from Last Year’s Dip in Quality but Struggle to Maintain Speed

Copado’s Third Annual State of Salesforce DevOps Report Finds Teams Recovered from Last Year’s Dip in Quality but Struggle to Maintain Speed
PR Newswire
CHICAGO, June 28, 2022

The longest running Salesforce DevOps report shows teams rebounding to p…

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Copado's Third Annual State of Salesforce DevOps Report Finds Teams Recovered from Last Year's Dip in Quality but Struggle to Maintain Speed

PR Newswire

The longest running Salesforce DevOps report shows teams rebounding to pre-pandemic levels for change fail rate and time to recover 

Research shows how high-performing teams use commercial low-code DevOps tools to release more often, recover faster and achieve business value

CHICAGO, June 28, 2022 /PRNewswire/ --  Copado, the global leader in low-code DevOps, today released the findings from its third annual "State of Salesforce DevOps" report, which collects data and insights on the key trends in low-code software delivery. Based on thousands of data points collected from over 450 global Salesforce customers using DevOps to accelerate and improve the speed and quality of their implementations, the report highlights the improvement in quality, examines the possible causes of the decline in velocity, identifies the qualities of the teams that are thriving, and makes recommendations on how teams can maximize their development resources.

Adopting key principles from DORA, the report analyzed performance across Salesforce teams in terms of the dual goals of innovation velocity and release quality and security. Using the four metrics of lead time for change, deployment frequency, change failure rate and mean time to recovery, the report categorized respondents into four performance profiles that can be used to identify and measure the characteristics of both high and low performance.

Key takeaways from the Copado 2022 State of Salesforce DevOps report include:

Quality-first DevOps is increasing

The 2021 report found a significant reduction in quality and stability as evidenced by increased change failure rate and mean time to recover. Copado attributed that to the 2020 COVID pandemic and the ensuing disruption to team workflows. In 2022, that trend seems to have reversed, with stability returning to the 2019 levels.

Teams showed 8x shorter time to restore (96 hours in 2021 compared to 12 hours in 2022) and reported 50% lower change fail rate (38% in 2021 compared to 20% in 2022). In 2022, the change failure rates and recovery times were roughly the same as in 2019.

Salesforce teams tapped the brakes in 2022

Teams may have overcompensated for stability over the last year by reducing their velocity. This year's report shows a reduction in deployment frequency which dropped by half compared to the two previous years, from 475 per year to 230 per year on average. Elite performers continue to release faster with an average lead time of 8 days, compared to 50 days for low performers. Since 2019 the percentage of teams with lead times less than a week has declined from 69% to 49% and the number of users able to deploy on demand has shrunk from 23% to 10%.

Overall, compared to low performers, elite performers have:

  • 4x shorter lead times
  • 46x more deployments, 94% of elite performers release at least weekly vs. only 13% of low performers
  • 5x fewer production failures
  • 8x faster time to recover, less than four hours for elite performers and more than 18 days for low performers

"The last three years of research has taught us a lot about the challenges that Salesforce teams face and where they excel," said Andrew Davis, senior director of research and innovation at Copado. "Last year, the report showed the impact of a global pandemic and shift to remote work on the ability to ensure quality and stability. This year we've seen quality and stability trends bounce back. This points to the resilience and commitment of the community of Salesforce developers, admins, and business users who find a way. We've reached a point in time where the level of customization that can be built into the Salesforce platform makes it necessary to adopt DevOps tools and practices to manage software delivery well."

Salesforce teams continue to grow in size and complexity
For the second year in a row, Copado found that Salesforce teams are growing. This year, 46% of respondents report that their teams have grown, 41% have remained steady and just 13% report their team decreased in size. The continued growth in the size of development teams means a continued increase in the complexity of the Salesforce orgs they are building.

For the third year in a row, Copado found a strong correlation between team size and lead time. This year, there was also a correlation between team size and change failure rate and time to recover. All of these metrics worsened as teams grew in size.

Traditional use cases for low-code application development have been largely for internal business applications with limited business impact. In 2022, 72% of respondents use Salesforce for building internal applications, but now 60% are using the platform to build business-critical apps, and 66% are using the platform to build customer-facing apps, while 37% are building all three types. A much more rigorous release process should be applied to customer-facing and business-critical applications than needs to be applied to internal business apps. It should also be noted that these types of apps are usually much more sophisticated than internal apps.

Performance improves with commercial low-code DevOps tools
Low-code application development on Salesforce is the fastest way to translate ideas into innovation, but without enterprise software delivery capabilities in place, the power of low-code is undone by quality issues, manual processes and orchestration challenges. The report found that teams using DevOps tools designed specifically for Salesforce release 50% more frequently than teams using build-your-own platforms like Jenkins.

Copado also found that those who are highly involved in Enterprise Agile Planning (74% of respondents) and also use a commercial Salesforce tool for DevOps are 39% more likely to work at a company that is exceeding its goals. Given the current economic environment and growing importance of proving ROI and value realization for technology investments, teams that are investing in process improvements are better able to ensure that they're getting the greatest benefit.

Change failure rates can be reduced with automated testing
Teams need to shift to faster, more automated ways of ensuring quality. Automated testing of Salesforce applications is an opportunity area now that the Salesforce platform is used more often for external customer-facing and business-critical applications. Yet if there is any testing in the development process, manual testing is the most common method. One-third of Salesforce development teams use manual testing, 29% have minimal to no testing and 21% automate critical tests, while only 19% are practicing test-driven development.

The full report with a forward written by Peter Coffee, vice president of strategic research for Salesforce, can be found at: https://www.copado.com/devops-hub/ebooks/2022-state-of-salesforce-devops-report

Methodology
Copado surveyed over 450 executives, managers, and members of Salesforce delivery teams to learn about their development lifecycles. Conducted in April 2022, the survey included companies ranging in size from one employee to more than 1 million employees. Sixty percent of these companies have more than 500 Salesforce users. The goal was to better understand the challenges of innovating on the Salesforce platform. The analysis was done on the Tableau Analytics platform including data visualization, cross tab analysis, and core BI. 

Salesforce and others are among the trademarks of salesforce.com, inc.

Follow Copado

LinkedIn: https://www.linkedin.com/company/copado-solutions-s.l/

Twitter: https://twitter.com/CopadoSolutions

Blog: https://www.copado.com/learning/blog/

About Copado
Copado is the leading DevOps and testing solution for low-code SaaS platforms that run the world's largest digital transformations. Backed by Insight Partners, Salesforce Ventures and SoftBank Vision Fund, Copado accelerates multi-cloud, enterprise deployments by automating the end-to-end software delivery process to maximize customers' return on their cloud investment. More than 1,000 companies rely on Copado to drive digital transformation with speed, quality and value including Boston Scientific, Coca-Cola, Fair Trade, Linde, MassMutual, Schneider Electric and Shell. Copado DevOps 360™ processes over 50 million DevOps transactions per month and is rated with a 100% score on the Salesforce AppExchange. More information can be found at: http://www.copado.com.

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SOURCE Copado

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China Stocks Outperform On Unexpected COVID Shift

China Stocks Outperform On Unexpected COVID Shift

Update (0920ET): China’s move to ease quarantine rules for inbound travelers from three…

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China Stocks Outperform On Unexpected COVID Shift

Update (0920ET): China's move to ease quarantine rules for inbound travelers from three weeks to just one week has bolstered sentiment for Chinese equities. 

Bullish calls are rising on Chinese stocks as the CSI 300 Index inches near a bull market. 

Fred Hu, the founder of China-based investment firm Primavera Capital Group, told Bloomberg that he believes Chinese tech firms have turned the corner after a $2 trillion rout sparked by Beijing's yearslong technology crackdown. 

NASDAQ Golden Dragon China Index plunged more than 76% since its peak in early 2021, coinciding with Beijing's crackdown start. The index hit a low in March and has since bounced 67% -- because the crackdown fears show signs of softening. 

Hu believes "this could be the beginning of a new era for China tech ... There's a lot of value to be discovered," adding that investors still need to be selective in picking stocks. 

Adding to support is the People's Bank of China's accommodative monetary policy, which is the opposite of global central banks that aggressively tighten interest rates to prevent the surge in inflation from turning into dreaded 1970s-style stagflation. Today's quarantine reduction news, tech crackdown abating, and PBOC easing have produced a more optimistic outlook for Chinese stocks. 

However, a lingering threat of a US slowdown could be problematic for all investors. 

Lorraine Tan, director of equity research at Morningstar, told Bloomberg TV: "Even if we do get some China recovery in 2023, which could be a buffer for this region, it's not going to offset the US or global recession."

* * *

China unexpectedly slashed quarantine times for international travelers, to just one week, which suggests Beijing is easing COVID zero policies. The nationwide relaxation of pandemic restrictions led investors to buy Chinese stocks.

Inbound travelers will only quarantine for ten days, down from three weeks, which shows local authorities are easing draconian curbs on travel and economic activity as they worry about slumping economic growth sparked by restrictive COVID zero policies earlier this year that locked down Beijing and Shanghai for months (Shanghai finally lifted its lockdown measures on May 31). 

"This relaxation sends the signal that the economy comes first ... It is a sign of importance of the economy at this point," Li Changmin, Managing Director at Snowball Wealth in Guangzhou, told Bloomberg

At the peak of the COVID outbreak, many residents in China's largest city, Shanghai, were quarantined in their homes for two months, while international travelers were under "hard quarantines" for three weeks. The strict curbs appear to have suppressed the outbreak, but the tradeoff came at the cost of faltering economic growth. 

The announcement of the shorter quarantine period suggests a potentially more optimistic outlook for the Chinese economy. Bullish price action lifted CSI 300 Index by 1%, led by tourism-related stocks (LVMH shares rose as much as 2.5%, Richemont +3.1%, Kering +3%, Moncler +3%). 

"The reduction of travel restrictions will be positive for the luxury sector, and may boost consumer sentiment and confidence following months of lockdowns in China's biggest cities," Barclays analysts Carole Madjo wrote in a note. 

CSI 300 is up 19% from April's low, nearing bull market territory. 

Jane Foley, a strategist at Rabobank in London, commented that "this news suggests that perhaps the authorities will not be as stringent with Covid controls as has been expected." 

"The news also coincides with reports that the PBOC is pledging to keep monetary policy supportive," Foley pointed out, referring to Governor Yi Gang's latest comment. 

She said, "this suggests a potentially more optimistic outlook for the Chinese economy, which is good news generally for commodity exporters such as Australia and all of China's trading partners." 

Even though the move is the right step in the right direction, Joerg Wuttke, head of the European Chamber of Commerce in China, said, "the country cannot open its borders completely due to relatively low vaccination rates ... This, in conjunction with a slow introduction of mRNA vaccines, means that China may have to maintain a restricted immigration policy beyond the summer of 2023." 

Alvin Tan, head of Asia currency strategy in Singapore for RBC Markets, also said shortening quarantine time for inbound visitors shouldn't be a gamechanger, and "there's nothing to say that it won't be raised tomorrow." 

Tyler Durden Tue, 06/28/2022 - 09:20

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