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Weekly investment update – The new Covid variant and the Fed-ECB policy divergence

Equity markets fell sharply after news of the latest Covid variant, Omicron, raised concerns about renewed lockdowns hurting economic growth amid uncertainty over its transmissibility and the efficacy of vaccines.   It will take some weeks to identify…

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Equity markets fell sharply after news of the latest Covid variant, Omicron, raised concerns about renewed lockdowns hurting economic growth amid uncertainty over its transmissibility and the efficacy of vaccines.  

It will take some weeks to identify the impact of the variant. Governments have reacted quickly – with many re-imposing travel restrictions such as halting flights and restoring border entry curbs, and implementing mandatory testing, quarantining and partial lockdowns.

Even before Omicron, financial markets already faced concerns in the form of inflation and central bank policy risk. Now, there is more uncertainty over whether equity markets could survive another Covid hit on growth with less central bank support.

Meanwhile, central banks have to deal with developments that appear to call for conflicting policy action, namely intensifying inflation pressure that could require tightening and rising Covid risk that could require easing.

The Fed has a dilemma

The US Federal Reserve’s policy is at an inflection point, requiring it to balance its three criteria for making rate rise decisions after the initial lift-off 

  • Maximising employment
  • Keeping inflation at 2% over the long term
  • Allowing inflation to moderately exceed 2% in the short term. 

The recent surge in consumer price inflation to its highest since the 1990s on the back of mixed labour market indicators – weak labour participation and strong wage growth (Exhibit 1) – are making this balancing act precarious.

Exhibit 1: Mixed signals – US labour participation is weak, but wages have rebounded

Data as at 21 November 2021, sources: Haver, BNP Paribas Asset Management

The new Covid variant is complicating things for the Fed. On the one hand, it could prolong supply-chain disruptions, thus adding to inflationary pressures. On the other, it could delay the reopening of the economy, leading to weaker growth and employment.

Under these circumstances, the voice of recently appointed Fed Vice-Chair Brainard could gain prominence. She appears likely to set a higher bar for meeting the maximum employment target than outgoing Vice-Chair Clarida. That could affect the perceived rate rise timetable.

If Omicron turns out to be relatively vaccine-resistant, it could slow economic re-opening, making it a dovish factor for policy even as persistent supply disruptions keep inflation high.

Until recently, falling real yields and a strong growth recovery propelled US stocks higher. Now, unless the tightening hawks at the Fed retreat, a bearish flattening of yield curves and pressure on growth shocks under the new Omicron outbreak could threaten equities if rates rise.

ECB doves have the upperhand

The ECB is facing a different set of macroeconomic conditions. A eurozone rate increase looks a long way off due to more lacklustre growth despite higher inflation (Exhibit 2). Although the market expects the ECB to end the Pandemic Emergency Purchase Programme (PEPP) in March 2022, its Asset Purchase Programme (APP) will likely continue, perhaps at a higher purchasing pace.

Exhibit 2: Eurozone inflation spikes higher

Data as at 21 November 2021; sources: Haver, BNP Paribas Asset Management

Inflationary momentum in the eurozone appears to be weaker than in the US, with more subdued wage and consumer demand growth. ECB President Lagarde has rebuffed strongly (but not convincingly enough for many market players) the expectation of rate increases in 2022 to quell fast-rising prices.

All of this points to a significant divergence between Fed and ECB policies in the coming year. Still, just like the rest of the world, Europe is facing a new Covid risk. This leaves future policy paths, be they dovish or hawkish, susceptible to change even in the near term.

Omicron in Asia – Will vaccination limit the impact?

The emergence of Omicron also poses a near-term risk to Asia’s outlook. To fight the pandemic, Asian policymakers have tended to rely more on targeted, selective lockdowns rather than full-blown ones.

Compared to the outbreak of the Delta variant in Asia in mid-2021, vaccination levels in the region are now much higher. Out of the 12 economies, 10 already have at least 70% of their population inoculated with one dose. The downside risk to growth may thus be less than the region faced in mid-2021 if the new variant is no more problematic than Delta.

Market estimates on the Omicron impact differ across the region. China, Hong Kong and Taiwan have maintained their zero-Covid policies. This should limit the near-term economic impact, but would also delay any reopening efforts and a rebound in consumption growth.

Australia, Japan, South Korea and Singapore have started to adopt a living-with-Covid strategy. However, the new variant could intensify pressures on hospital and ICU capacity. It could also prompt a rollback of reopening measures. Hence, these economies are exposed to a higher risk of a growth setback than the three China-related economies mentioned above.

The Indian and ASEAN economies have tried to tighten restrictions when cases rise sharply. If the latest variant is as challenging as Delta proved to be, there is a high risk of more lockdowns that could hurt economic growth more significantly than in the rest of the region.

From a supply perspective, experience shows that the disruption risk was higher in India and ASEAN. During the Delta wave, for instance, production in India and ASEAN was disrupted more than in North Asia. We could be set to see a repeat of that pattern.

Overall, the drag on Q4 2021 GDP in the region should be limited because the number of initial cases has been relatively low. If the variant slows the economic reopening and prolongs supply-chain disruptions, the growth risks will show themselves in the first quarter in 2022, with the ultimate effects depending on the evolution of the outbreak.


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 – The new Covid variant and the Fed-ECB policy divergence appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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UBC researchers discover ‘weak spot’ across major COVID-19 variants

Researchers at the University of British Columbia have discovered a key vulnerability across all major variants of the SARS-CoV-2 virus, including the…

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Researchers at the University of British Columbia have discovered a key vulnerability across all major variants of the SARS-CoV-2 virus, including the recently emerged BA.1 and BA.2 Omicron subvariants.

Credit: Dr. Sriram Subramaniam, UBC

Researchers at the University of British Columbia have discovered a key vulnerability across all major variants of the SARS-CoV-2 virus, including the recently emerged BA.1 and BA.2 Omicron subvariants.

The weakness can be targeted by neutralizing antibodies, potentially paving the way for treatments that would be universally effective across variants.

The findings, published today in Nature Communications, use cryo-electron microscopy (cryo-EM) to reveal the atomic-level structure of the vulnerable spot on the virus’ spike protein, known as an epitope. The paper further describes an antibody fragment called VH Ab6 that is able to attach to this site and neutralize each major variant. 

“This is a highly adaptable virus that has evolved to evade most existing antibody treatments, as well as much of the immunity conferred by vaccines and natural infection,” says Dr. Sriram Subramaniam (he/him), a professor at UBC’s faculty of medicine and the study’s senior author. “This study reveals a weak spot that is largely unchanged across variants and can be neutralized by an antibody fragment. It sets the stage for the design of pan-variant treatments that could potentially help a lot of vulnerable people.”

Identifying COVID-19 master keys

Antibodies are naturally produced by our bodies to fight infection, but can also be made in a laboratory and administered to patients as a treatment. While several antibody treatments have been developed for COVID-19, their effectiveness has waned in the face of highly-mutated variants like Omicron.

“Antibodies attach to a virus in a very specific manner, like a key going into a lock. But when the virus mutates, the key no longer fits,” says Dr. Subramaniam. “We’ve been looking for master keys — antibodies that continue to neutralize the virus even after extensive mutations.”

The ‘master key’ identified in this new paper is the antibody fragment VH Ab6, which was shown to be effective against the Alpha, Beta, Gamma, Delta, Kappa, Epsilon and Omicron variants. The fragment neutralizes SARS-CoV-2 by attaching to the epitope on the spike protein and blocking the virus from entering human cells.

The discovery is the latest from a longstanding and productive collaboration between Dr. Subramaniam’s team at UBC and colleagues at the University of Pittsburgh, led by Drs. Mitko Dimitrov and Wei Li. The team in Pittsburgh has been screening large antibody libraries and testing their effectiveness against COVID-19, while the UBC team has been using cryo-EM to study the molecular structure and characteristics of the spike protein.

Focusing in on COVID-19’s weak points

The UBC team is world-renowned for its expertise in using cryo-EM to visualize protein-protein and protein-antibody interactions at an atomic resolution. In another paper published earlier this year in Science, they were the first to report the structure of the contact zone between the Omicron spike protein and the human cell receptor ACE2, providing a molecular explanation for Omicron’s enhanced viral fitness.

By mapping the molecular structure of each spike protein, the team has been searching for areas of vulnerability that could inform new treatments.

“The epitope we describe in this paper is mostly removed from the hot spots for mutations, which is why it’s capabilities are preserved across variants,” says Dr. Subramaniam. “Now that we’ve described the structure of this site in detail, it unlocks a whole new realm of treatment possibilities.”

Dr. Subramaniam says this key vulnerability can now be exploited by drug makers, and because the site is relatively mutation-free, the resulting treatments could be effective against existing—and even future—variants.

“We now have a very clear picture of this vulnerable spot on the virus. We know every interaction the spike protein makes with the antibody at this site. We can work backwards from this, using intelligent design, to develop a slew of antibody treatments,” says Dr. Subramaniam. “Having broadly effective, variant-resistant treatments would be a game changer in the ongoing fight against COVID-19.”


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German Official Trashes Cost Of Living Protesters As “Enemies Of The State”

German Official Trashes Cost Of Living Protesters As "Enemies Of The State"

Authored by Paul Joseph Watson via Summit News,

A top German…

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German Official Trashes Cost Of Living Protesters As "Enemies Of The State"

Authored by Paul Joseph Watson via Summit News,

A top German official has trashed people who may be planning to protest against energy blackouts as “enemies of the state” and “extremists” who want to overthrow the government.

The interior minister of the German state of North Rhine-Westphalia (NRW), Herbert Reul (CDU), says that anti-mandatory vaxx and anti-lockdown demonstrators have found a new cause – the energy crisis.

In an interview with German news outlet NT, Reul revealed that German security services were keeping an eye on “extremists” who plan to infiltrate the protests and stage violence, with the unrest being planned via the Telegram messenger app, which German authorities have previously tried to ban.

“You can already tell from those who are out there,” said Reul. “The protesters no longer talk about coronavirus or vaccination. But they are now misusing people’s worries and fears in other fields. (…) It’s almost something like new enemies of the state that are establishing themselves.”

Despite the very real threat of potential blackouts, power grid failures and gas shortages, Reul claimed such issues were feeding “conspiracy theory narratives.”

However, it’s no “conspiracy theory” that Germans across the country have been panic buying stoves, firewood and electric heaters as the government tells them thermostats will be limited to 19C in public buildings and that sports arenas and exhibition halls will be used as ‘warm up spaces’ this winter to help freezing citizens who are unable to afford skyrocketing energy bills.

As Remix News reports, blaming right-wing conspiracy theorists for a crisis caused by Germany’s sanctions on Russia and is suicidal dependence on green energy is pretty rich.

“Reul, like the country’s federal interior minister, Nancy Faeser, is attempting to tie right-wing ideology and protests against Covid-19 policies to any potential protests in the winter.”

“While some on the right, such as the Alternative for Germany (AfD), have stressed that the government’s sanctions against Russia are the primary factor driving the current energy crisis, they have not advocated an “overthrow” of the government. Instead, they have stressed the need to restart the Nord Stream 2 pipeline, end energy sanctions against Russia, and push for a peaceful solution to end the war.”

Indeed, energy shortages and the cost of living crisis are issues that are of major concern to everyone, no matter where they are on the political spectrum.

To claim that people worried about heating their homes and putting food on the table this winter are all “enemies of the state” is an utter outrage.

As we highlighted last week, the president of the Thuringian Office for the Protection of the Constitution, Stephan Kramer, said energy crisis riots would make anti-lockdown unrest look like a “children’s birthday party.”

“Mass protests and riots are just as conceivable as concrete acts of violence against things and people, as well as classic terrorism to overthrow it,” Kramer told ZDF.

*  *  *

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Tyler Durden Thu, 08/18/2022 - 03:30

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Las Vegas Strip Gets a Brand New Technology

It’s not just Caesars and MGM innovating on the Strip. A number of other companies are trying big idea.

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It's not just Caesars and MGM innovating on the Strip. A number of other companies are trying big idea.

Las Vegas has quietly become a hotbed for innovation. Some of that has been driven by the major casino operators -- Caesars Entertainment (CZR) - Get Caesars Entertainment Inc. Report, MGM Resorts International (MGM) - Get MGM Resorts International Report, Resorts World Las Vegas, and Wynn Resorts (WYNN) - Get Wynn Resorts Limited Report -- trying to outdo each other to win over customers.

Some innovations are ostentatious and hard to miss, like the MSG (MSGE) - Get Madison Square Garden Entertainment Corp. Class A Report Sphere being built at the Venetian. That first-of-its-kind concert venue looks as if it dropped to Earth from a technologically advanced civilization, and it has raised the bar for performance venues.

Many innovations, however, aren't as obvious. Caesars, for example, uses an artificial intelligence text-based concierge that's surprisingly effective. "Ivy," as it goes by, can answer questions, help with mundane tasks like getting clean towels delivered, or advance your issue to a human where needed.

Innovations big and small are happening up, down, and under the Las Vegas Strip. Elon Musk's Boring Co. has been building a network of tunnels under the city that will eventually use driverless Tesla  (TSLA) - Get Tesla Inc. Report electric vehicles to ferry people all over the city. 

That's a revolutionary idea -- but now a rival has emerged.  

Image source: Daniel Kline/TheStreet

Musk Goes Low, Lyft Goes High?

Musk's Boring Co. has a bold plan for more than 50 stations connecting the Las Vegas Strip to the airport, the Convention Center, Allegiant Stadium, and Fremont Street using driverless Teslas. 

Currently, only a small portion of that network has been built -- a section connecting the two halves of the Las Vegas Convention Center (and one connecting Resorts World Las Vegas to that same location.

For Musk and Boring Co., it's all about taking traffic off the city's busy streets and bringing it underground.

"During typical peak hours, driving from the Las Vegas Convention Center to Mandalay Bay, for example, can take up to 30 minutes. The same trip on Vegas Loop will take approximately 3 minutes," the company says on its website.

If Musk's plan is fully built, it'll effectively give Las Vegas a modern subway, helping alleviate road congestion. It will not, however, stop tourists from using ride-share and taxi cabs.

Now, ride-share company Lyft  (LYFT) - Get Lyft Inc. Report has brought a solution to Sin City that may ultimately help it solve another problem: a shortage of taxi and ride-share drivers. 

Lyft Brings Driverless Cars (Sort of) to Las Vegas

Labor in Las Vegas has been in short supply since the pandemic hit. Some people left the city and others found work outside the service-industry jobs that fuel the Las Vegas economy. At times, that has made the wait for a cab, or a ride-share from Uber (UBER) - Get Uber Technologies Inc. Report and Lyft, longer than usual.

Lyft plans to fix that by partnering with Motional to bring Motional's "Ioniq-5-based robotaxi, an autonomous vehicle designed for fully driverless ride-hail operation, to the Lyft network in Las Vegas," the ride-share company shared in a news release.

The Ioniq 5 is Hyundai's  (HYMTF)  prominent EV. Motional is the Boston joint venture between Hyundai and automotive-technology specialist Aptiv.  (APTV) - Get Aptiv PLC Report

"Launching Motional’s all-electric Ioniq 5 on Lyft’s network in Las Vegas represents tremendous progress in our vision to make an electric, autonomous, and shared future a reality for people everywhere," said  Lyft CEO Logan Green.

It's Self-Driving Lyfts, But...

There is, however, a pretty big catch.

"Each vehicle arrives with not one but two backup drivers standing by to take control of the car should anything go wrong" Casino.org's Corey Levitan reported.

Lyft has promised a truly driverless system at some point in 2023, but current laws and the state of driverless technology make the backups necessary.

Motional and Lyft have quietly been testing driverless vehicles in Las Vegas since 2018. In the news release, Lyft explained how the system works.

"This means riders are able to easily control their ride without assistance from a driver. The enhanced experience includes unlocking the doors through the Lyft app and starting the ride or contacting customer support from the new in-car Lyft AV app, an intuitive in-ride display tailored to autonomous ride-sharing," the company said.

Lyft and Boring Co. are not working together. But if Musk's plan takes vehicles off Las Vegas's streets, the new program makes the experience better for any that remain. 

Ride sharing and taxis will continue to cost significantly more than using Boring Co's subway-like system, so it's easy to see how the two options will work well together.   .

 

  

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