Finance

THE NEWS, as the second anniversary of the pandemic nears, could be better. The emergence of a covid-19 variant, labelled Omicron, has sparked a wave of selling on financial markets, seemingly on concern that a new highly transmissible strain of the virus could set back economic recoveries worldwide. With luck, Omicron may prove manageable. But continued disruptions from various variants of covid-19 represent just one of three formidable forces that will squeeze emerging markets in 2022, alongside tighter American monetary policy and slower growth in China.Start with American policy. Markets knocked for a loop by Omicron sagged further on November 30th, after Jerome Powell, the chairman of the Federal Reserve, suggested that the central bank might accelerate its plan to taper its asset purchases. Thanks to the critical role of the dollar and Treasury bonds in the global financial system, a more hawkish Fed is often associated with declining global risk appetite. Capital flows towards emerging markets tend to ebb; the dollar strengthens, which, because of the greenback’s role in invoicing, reduces trade flows.In order to assess which places face the biggest squeeze from a tightening Fed, The Economist has gathered data on a few key macroeconomic variables for 40 large emerging economies (see chart 1). Large current-account deficits, high levels of debt (and of that owed to foreigners especially), rampant inflation and insufficient foreign-exchange reserves are all indicators that can spell trouble for countries facing fickle capital flows as American monetary policy tightens.Combining countries’ performance on these measures yields a “vulnerability index”, on which higher scores translate into greater fragility. Some places are already in serious trouble. Argentina, which tops the list, faces an inflation rate above 50% and a deepening economic crisis. Turkey’s fundamentals look a little better, but its woes are compounded by the government’s stubborn desire to lower interest rates in the face of soaring prices. The lira has been hammered, losing 45% against the dollar in 2021, diminishing the purchasing power of Turks’ wages and pensions.The second element of danger comes from China’s slowing economy. When China falters, exporters around the world feel the pain. It is, by a large margin, the world’s biggest consumer of aluminium, coal, cotton and soyabeans, among other commodities, and a major importer of goods ranging from capital equipment to wine.[embedded content]Ranking the same 40 economies by their exports to China, as a share of their own GDP, yields an index of vulnerability to the country. Many of the biggest exporters to China, like Vietnam, are critical links in manufacturing supply chains, which should be untroubled as China’s domestic economy slows, as long as Americans keep shopping and Sino-American trade relations stay stable. At greater risk are the poorer commodities exporters that have helped feed China’s population and provide for its building boom.This gauge of exposure to China can then be compared with our measure of vulnerability to American monetary-policy tightening (see chart 2). Some countries’ fates are more linked to one of the giants than the other. An unlucky bunch, such as Brazil and Chile, appear most likely to suffer from a double whammy. Despite high levels of debt and soaring inflation, high commodity prices have enabled Brazil to just about maintain investors’ confidence. A softening Chinese economy could deprive Brazil of that benefit, leading to a tumbling currency, even higher inflation and the possibility of economic crisis.The world has faced the combined pressure of hawkish American policy and a stumbling China before. In the mid-2010s fragile emerging markets were squeezed by a rising dollar, as the Fed withdrew the monetary support provided during the global financial crisis, while a badly managed round of financial-market liberalisation and credit tightening triggered a slump in China. Growth across emerging markets, excluding China, sagged from 5.3% in 2011 to just 3.2% in 2015.The squeeze this time is almost certain to be worse. That is in part because the Fed is expected to tighten policy more quickly than it did in the 2010s, when a weak recovery and stubbornly low inflation forced it to go slow. Then more than two-and-a-half years elapsed between the Fed’s announcement of its intention to reduce its asset purchases and the first rise in its policy rate. This time, by contrast, the 12 months following the Fed’s announcement of its plan to begin tapering in November are likely to involve a complete halt to bond-buying and, according to market pricing, at least two interest-rate rises.China, for its part, also seems at greater risk of a hard landing today than it was a half-decade ago. Most economists thought growth would slow to 4.5-5.5% even before the emergence of Omicron. That would, with the exception of 2020, be the lowest growth rate since 1990.Another reason for the pain this time around is the addition of a third hazard to emerging markets: the spread of Omicron and the risk of future variants. Little is yet known about the danger posed by Omicron. But the emerging world remains particularly vulnerable to nasty outbreaks of the virus. With a few exceptions, vaccination rates in poorer countries lag behind those in rich ones. Just a tenth of Africa’s population has received even one jab, less than the share of Americans that has received a third shot. Of our group of 40 countries, vaccination rates are particularly low in Egypt and Pakistan, two countries that are also especially vulnerable to American monetary tightening.The spread of a new variant against which existing vaccines may be less effective could prove back-breaking to tourism-dependent economies. And public purses in the emerging world more broadly are in no fit state to extend or reintroduce pandemic relief measures.Working out how the three threats might interact with each other is tricky. But it is possible that their coincidence could lead to still more economic pain for poorer countries. Unforgiving capital markets as the Fed tightens could leave emerging-market governments fiscally hamstrung in the face of new outbreaks. Omicron-induced local lockdowns in China could deal emerging-market exporters another blow. The tourist-dependent countries of South-East Asia, once popular destinations for Chinese visitors, are likely to remain deserted for a while longer.The pandemic’s third year was already destined to be a rocky one for emerging markets, stuck as they are between the two poles of a tightening America and a slowing China. New variants could make the journey still more perilous. ■To keep up with our latest coverage on the spread of the Omicron variant go to economist.com/omicronFor more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Hazards ahead” More

The Salesforce Tower, left, and the Salesforce West office building in San Francisco, California, U.S., on Tuesday, Feb. 23, 2021.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines after the bell:
Salesforce — Shares of the software giant dropped more than 6% in after hours trading on Tuesday after issuing fourth quarter earnings guidance below expectations. Next year revenue guidance also missed estimates. Salesforce, however, reported better-than-expected earnings and revenue for last quarter. The company also announced it promoted Bret Taylor to the role of co-CEO, alongside Marc Benioff.

Box — Shares of Box rose 8% in after hours trading on Tuesday after beating on the top and bottom lines of its quarterly results. The company reported earnings of 22 cents per share on revenue of $224.0 million. Wall Street expected earnings of 21 cents per share on revenue of $218.5 million, according to Refinitiv. Box’s fourth quarter and full year revenue and earnings also topped estimates.
HP Enterprise — Shares of HP Enterprise ticked nearly 8% lower in extended trading on Tuesday after missing last quarter’s revenue estimates. The company reported revenue of $7.35 billion, below the forecast $7.38 billion, according to Refinitiv. Earnings, however, came in 4 cents above consensus.
Ambarella — Shares of Ambarella popped nearly 7% in after hours trading on Tuesday after beating on the top and bottom lines of its quarterly results. Ambarella earned 57 cents per share, topping estimates by 8 cents, according to Refinitiv. Revenue came in at $92.2 million, higher than the expected $90.3 million.

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An American Airlines plane lands at Ronald Reagan Washington National Airport November 23, 2021 in Arlington, Virginia.
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Check out the companies making headlines in midday trading Tuesday.
American Airlines, Norwegian Cruise Line — Travel stocks retreated, as investors continued to weigh the risks from the Covid omicron variant. American Airlines shares retreated more than 4% midday, then eased off their lows to close down 0.3%. Norwegian Cruise Line lost 3.5%%, Wynn Resorts fell 2.4%, and Airbnb dipped 4.2%.

Gap, Under Armour — Retail stock were under pressure after Cyber Monday online sales dropped 1.4% from last year, falling for the first time ever, according to Adobe Analytics. However, Adobe believes customers are spreading out their shopping this year and expects the entire holiday season will post record-breaking online sales growth. Gap fell 7.1%, Under Armour retreated 3.3%, and Tommy Hilfiger-parent PVH Corp lost 2.8%.
Regeneron Pharmaceuticals — Regeneron shares fell 2.7% after the company said its Covid-19 antibody drugs could be less effective against the omicron Covid variant. The company said mutations in the variant suggest “there may be reduced neutralization activity of both vaccine-induced and monoclonal antibody conveyed immunity.”
Moderna, Pfizer — Shares of vaccine makers were in focus after Moderna CEO Stephane Bancel told The Financial Times he expects existing vaccines to be less effective against the omicron variant. Researchers are still studying the new variant’s reaction to prior immunity, and Oxford University said there is no evidence yet that current vaccines will not protect against severe disease from omicron. Moderna shares fell 4.4%. BioNTech shares fell nearly 3%. Pfizer shares gained roughly 2.5%. Novavax shares added 7.6%.
Dollar Tree — The discount retailer’s stock slid 5.3% after Goldman Sachs downgraded Dollar Tree to neutral from buy. The firm said the company’s operational improvements were priced in, and that Dollar Tree would struggle with foot traffic issues in the year ahead.
Solaredge — The clean energy stock shed 5.6% after Morgan Stanley downgraded it to equal-weight. The investment firm said in a note to clients that Solaredge’s shares may be fully valued after a recent hot streak.

Meta Platforms — Facebook-parent Meta’s shares fell 4% after the U.K. competition watchdog said the company should sell the GIF-sharing platform Giphy, which Facebook acquired last year. The regulator said the deal could harm social media users and U.K. advertisers. Meta has said it disagrees with the decision is considering an appeal.
Beyond Meat, Oatly — Shares of Beyond Meat and Oatly retreated roughly 5.8% and 3.9%, respectively, after HSBC initiated coverage of the protein stocks at a reduce rating. “Given the prospect of heightened competition, the growth we forecast will be insufficient for many participants to achieve their lofty growth ambitions,” the firm said.
Twitter, Square — Shares of Twitter and Square retreated 4% and 2.1%, respectively. The moves come a day after Jack Dorsey announced he is stepping down as CEO of Twitter while staying on as chief executive at Square. Bank of America upgraded Square to neutral from underperform and reiterate a buy rating for Twitter.
— CNBC’s Jesse Pound and Tanaya Macheel contributed reporting

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The bank is opening up access to its trove of market data and software tools to hedge funds and asset managers in an offering designed with Amazon’s cloud division, CNBC has learned exclusively.
The new service, called GS Financial Cloud for Data with Amazon Web Services, will help asset managers save time by allowing their developers to focus efforts on trades.
The product, which was unveiled Tuesday at the AWS re:Invent conference in Las Vegas, is the latest sign of the unusually close ties between the tech giant and the leading Wall Street firm.

David Solomon, chief executive officer of Goldman Sachs & Co., listens during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, April 29, 2019.
Kyle Grillot | Bloomberg | Getty Images

Goldman Sachs is getting into the cloud computing business.
The bank is opening up access to its trove of market data and software tools to hedge funds and asset managers in an offering designed with Amazon’s cloud division, CNBC has learned exclusively.

The move, the result of a two-year collaboration with AWS, puts 152-year-old Goldman in the unusual position of being a provider of cloud services for Wall Street, according to executives at the two firms. It’s part of Goldman CEO David Solomon’s push to use technology to better serve clients of the firm’s markets division, a trading juggernaut that has helped drive the firm’s results this year.
“Clients of the firm will get access to our decades of experience and data aggregation that should enable them to enhance their business decisions, both from a speed and efficiency perspective,” Solomon told CNBC last week in a phone interview. “We think that adds to our position as a leader in the marketplace.”
The new service, called GS Financial Cloud for Data with Amazon Web Services, will help asset managers save time by allowing their developers to focus efforts on trades, rather than spending time wrangling data sets and leaning on a patchwork of legacy software to analyze them, the companies said. It will also “lower the barriers to entry” for firms to use advanced quantitative trading techniques, Goldman said.  
The industry is struggling to keep up with the rising technological demands of the latest investment techniques, according to Goldman co-chief information officer Marco Argenti. The last decade has seen the rise of quantitative trading firms, which have soaked up assets while traditional hedge fund managers including John Paulson and Leon Cooperman have closed to outside investors.
A hedge fund client who wanted to chart the correlation between a stock and currency exchange rates, for instance, could take months to assemble and clean the data and perform calculations with it, said Argenti. Instead, by building applications atop data feeds and analytic tools that Goldman itself uses, the analysis can be done in minutes, he said.

“If this existed we would’ve used it, but we had to build it for ourselves because there really is nothing like this in the market,” Argenti said. “All you need to do is assemble the interface and integrate it with your application and then everything else is kind of taken care of for you.”

‘Working backwards’

The product, which was unveiled Tuesday at the AWS re:Invent conference in Las Vegas, is the latest sign of the unusually close ties between the tech giant and the leading Wall Street firm.
That relationship began more than a decade ago when Goldman began to port over parts of its computing workload to the cloud, according to Adam Selipsky, who rejoined Amazon as head of AWS earlier this year.
It’s been a fruitful relationship: Goldman leaned on AWS to quickly build its Marcus consumer finance business in 2016 and its Apple Card operations three years later. Meanwhile, Goldman extends loans to Amazon merchants and advised Amazon on its 2017 acquisition of Whole Foods.
In discussions between the two firms, Goldman was keen to understand how Amazon took computing services it had initially created for itself and turned it into AWS, said Selipsky. (Goldman developers referred to the effort as Project Alexandria, according to the companies.) One technique Amazon taught Goldman was a concept called “working backwards,” in which the tech giant writes a press release and FAQ before starting a project to convince managers of its importance, he said.
“We have a lot of customers who ask us to help them do what Amazon did with AWS,” Selipsky said in a phone interview. “When we started talking about Goldman’s capabilities around data and around analytics in the financial services realm, the ideas just sprang up pretty rapidly about collaborating together.”
Amazon pioneered the cloud computing category, which allows companies to rent computing power and a suite of services instead of operating their own fields of servers. That has allowed companies to speed up software cycles, helping them stay on top of evolving consumer demands. AWS now accounts for the lion’s share of Amazon’s operating profit.

‘Explosively beneficial’

In recent years, Amazon has partnered with leaders across sectors to build out industry-specific cloud services in areas including manufacturing, health and life sciences. For instance, Amazon is working with Volkswagen to create an industrial cloud platform to help it move 124 factories to a single software platform.
“If you take a step back, Goldman is not only a bank or a financial services provider, it’s now also a software company,” Selipsky said. “We’ve been a software company for a number of years, figuring out how to expose the powerful capabilities that Amazon has in a way that is explosively beneficial to customers.”
The executives declined to give details about how Goldman and AWS would share revenue from the joint project, but Solomon told CNBC that he saw it as a way to further entrench the firm with trading clients. Goldman plans to monetize the service through the trading and financing opportunities that it will generate, he said.
“This is something that enhances the experience of our institutional clients and gives them access to our data and information,” Solomon said. “The way we get paid for that is we get more of their wallet share because the overall experience and services we provide gives us more mindshare, more opportunities to trade with them, to finance them and do things like that.”

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Initial claims for unemployment benefits fell to their lowest level since November 1969, on a seasonally adjusted basis, the week before Thanksgiving.
However, unadjusted numbers tell a different story. They show the true number of claims increased.
Overall, numbers are trending in a positive direction and indicate a rebounding labor market.

Recruiters speak with potential applicants during a job fair in Leesburg, Virginia, on Oct. 21, 2021.
ANDREW CABALLERO-REYNOLDS | AFP | Getty Images

Claims for unemployment benefits dipped to their lowest point in more than 50 years the week before Thanksgiving — a remarkable rebound from the nosebleed levels earlier in the Covid-19 pandemic.
The reduction is good news for the U.S. economy and labor market. However, the headline figure masks a detail that likely makes the data appear overly rosy, according to labor experts.

“I would not break out the party hats just yet,” said AnnElizabeth Konkel, an economist at job site Indeed.

Seasonal adjustment

Workers filed 199,000 initial claims during the week ended Nov. 20, the U.S. Department of Labor reported Wednesday. (Initial claims are a proxy for benefit applications.) That’s the fewest since the week ending Nov. 15, 1969, and a decrease of 71,000 from the prior week.
But that figure has a seasonal adjustment, which controls for layoff patterns that occur at various times of year. (For example, layoffs generally rise in construction and agriculture in the colder months.)

The unadjusted number (which reflects the true number of claims) tells a different story. Unadjusted initial claims increased by 18,000, to almost 259,000, the week before Thanksgiving.
How can the seasonally adjusted and unadjusted data move in opposite directions?

Basically, the Labor Department expected many more workers to apply for benefits than did during the week before Thanksgiving. (They anticipated about another 70,000.) That showed up as a big decrease in seasonally adjusted claims.
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“It’s a bit of an art,” said Susan Houseman, research director at the W.E. Upjohn Institute for Employment Research, of the seasonal adjustment. “In that sense, I wouldn’t make too much of this being the lowest number of [unemployment] claims since 1969.”
That said, unemployment claims are generally trending in a positive direction.
The level of unadjusted initial claims is roughly equivalent to the week before Thanksgiving 2019 — which was a strong period for the U.S. economy, Houseman said. It’s also a dramatic reduction from roughly 6 million new claims a week at the height of the pandemic.

Employers are holding onto workers instead of laying them off, at a time when it’s difficult for many to find and retain their existing employees, according to Daniel Zhao, a senior economist at Glassdoor.
“Ultimately, the holistic picture provided by all our economic data is the economy is recovering from the delta slowdown,” said Zhao, referring to the Covid-19 variant.

Future rebound?

By accounting for seasonal volatility, data adjustments generally give a more accurate portrayal of economic trends.
But the exercise has proven more difficult for federal agencies during the pandemic, and is typically harder around holidays, according to Zhao.
Supply-chain issues may also have disrupted typical seasonal labor patterns in certain industries, perhaps if they caused an earlier-than-anticipated layoff, for example, he said.

“It does seem like last week’s figures, in particular, were partially driven by the seasonal adjustment,” Zhao said of the large decrease in seasonal claims. “I do expect to see a rebound in claims in the coming weeks.”
Further, comparing claims across decades (whether adjusted or not) is challenging due to different rules to collect benefits over time, according to economists.
Many states, for example, made it harder to get benefits after the Great Recession, which would tend to reduce the number of people who apply for aid relative to past years. However, increased awareness around benefit availability during the pandemic might pushed more people to apply.

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Bridgewater Associates’ Ray Dalio stood by his belief that cash is not the place to be despite the volatility in the markets triggered by the new omicron Covid variant.
“Cash is not a safe investment, is not a safe place because it will be taxed by inflation,” the founder of the world’s biggest hedge fund said Tuesday on CNBC’s “Squawk Box.”
During turbulent times, it’s also important to be in a safe, well-balanced portfolio, the billionaire investor said.

Bridgewater Associates’ Ray Dalio stood by his belief that cash is not the place to be despite the volatility in the markets triggered by the new omicron Covid variant.
“Cash is not a safe investment, is not a safe place because it will be taxed by inflation,” the founder of the world’s biggest hedge fund said Tuesday on CNBC’s “Squawk Box.”

During turbulent times, it’s also important to be in a safe, well-balanced portfolio, the billionaire investor said.
“You can reduce your risk without reducing your returns. You will not market-time this. Even if you were a great market timer, the things that are happening can change the world, so it changes what could be priced into the market,” Dalio said.
The omicron Covid strain, first identified in South Africa, rattled the stock market on Black Friday after the World Health Organization labeled it a “variant of concern.” The Dow Jones Industrial Average slid 900 points Friday to suffer its worst day since October 2020. Stock futures indicated another big down day following a rebound on Wall Street Monday as investors monitored the ongoing health crisis.
The stock market rebounded swiftly from the pandemic bottom in March 2020 thanks to the massive fiscal and monetary stimulus measured that the government and the Federal Reserve orchestrated to support the economy. However, the excess money supply in the system could create certain economic and political problems, Dalio said.
“You can’t raise living standards by raising the amount of money in credit in the system because that’s just more money chasing the same amount of goods,” he said. “It will affect financial markets in the ways we’ve seen and it will affect inflation rate. It won’t raise living standards in an important way. As inflation then begins to bite, it has political consequences.”

A key inflation gauge spiked in October, accelerating at its fastest pace since the early 1990s, according to prices for personal consumption expenditures excluding food and energy, a measure closely followed by Fed policymakers.
The central bank has been wrestling with inflation that has been more aggressive and persistent than they had anticipated. Officials have said they believe inflation is at the point where they can start gradually reducing the amount of monthly stimulus they are providing through bond purchases.
“What we are seeing happen has played out many, many times in history; it’s like watching the movie over again,” Dalio said.

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While Wall Street is on alert as a new Covid-19 variant spreads, Stifel’s chief economist is hesitant to change her economic outlook.
Lindsey Piegza sees lockdown risks tied to omicron, but she suggests it’s too premature to downgrade forecasts based on them.

“If in fact the variant comes into play and we see very tight policies broad based across the country, we could be talking about a second round recession,” she told CNBC’s “Trading Nation” on Monday. “On the flip side, if policymakers allow the variant to work its course, we could actually see the recovery fare relatively well through the end of the year and into 2022.”
For now, it appears the United States has every intention of keeping the economy open. During a Monday news conference, President Joe Biden indicated the U.S. had no plans to add new travel restrictions to stop the spread.
“I’m cautiously optimistic at this point. Right now, we are seeing the economy on very steady footing,” Piegza said. “We do assume that to be carried through the end of the year.”
2022 may be when the backdrop gets more challenging, according to Piegza. She cites the ongoing reduction in fiscal stimulus as a major factor.
“Even with a solid consumer, we do expect [GDP] growth to slow down to about 2%,” Piegza said. “Growth is still positive, but it’s still very fragile. There’s a number of risks that remain. And, as we continue to see inflation eat into that nominal growth, that’s putting us on a much more uneasy pathway.”
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Check out the companies making headlines in premarket trading.
Regeneron Pharmaceuticals (REGN) — Regeneron shares fell more than 1% in the premarket after the company said its Covid-19 antibody cocktail and similar drugs could be less effective against the omicron Covid variant. The drugmaker said mutations in the variant suggest “there may be reduced neutralization activity of both vaccine-induced and monoclonal antibody conveyed immunity.”

Moderna (MRNA), Pfizer (PFE) — Shares of vaccine makers were on watch after Moderna CEO Stephane Bancel told the Financial Times he expects existing vaccines to be less effective against the omicron variant. Oxford University said there is no evidence yet that current vaccines will not protect against severe disease from omicron. Researchers are still studying the new variant and its ability to evade prior immunity. Moderna shares fell more than 2% in early morning trading. BioNTech shares fell more than 5%. Pfizer shares gained roughly 1%. Novavax shares added more than 2%.
Dollar Tree (DLTR) — Shares of Dollar Tree fell more than 2% in premarket trading after Goldman downgraded the stock to neutral from a buy. The firm said the stock is too expensive at current levels as Dollar Tree’s comeback story is now priced in.
SolarEdge Technologies (SEDG) — Shares of SolarEdge pulled back about 3% premarket after Morgan Stanley downgraded the stock to equal-weight from overweight. Morgan Stanley said the stock appears to be fully valued after a recent hot streak.
Meta Platforms (FB) — Shares of Facebook-parent Meta were slightly lower in the premarket after a U.K. regulator told the company it must sell GIF-sharing platform Giphy. The Competition and Markets Authority said Meta’s acquisition of Giphy would reduce competition between social media platforms.
Beyond Meat (BYND), Oatly (OTLY) — Shares of meat alternative producer Beyond Meat and plant-based dairy company Oatly each retreated more than 1% in early morning trading after HSBC initiated coverage of the stocks at a “reduce” rating. In a report on the alternative proteins market, HSBC said, “Given the prospect of heightened competition, the growth we forecast will be insufficient for many participants to achieve their lofty growth ambitions.”
Twitter (TWTR), Square (SQ) — Shares of Twitter and Square moved higher in the premarket the day after Jack Dorsey announced he is stepping down as CEO of Twitter. Dorsey was serving as chief executive at both the social media platform and digital payments company Square. Bank of America upgraded Square to neutral from underperform and reiterate a buy rating for Twitter.

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