The World
While yesterday’s Fed policy announcement means prioritizing joblessness as low as possible, don’t expect a dramatic shift in Fed policy. Powell’s speech indicated the Fed won’t be raising interest rates from near-zero any time soon: “The key point for investors is that the Fed has turned its previous view of the labor market on its head, implying looser policy over the next cycle,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote. Oxford Economics projects the Fed will keep interests rates near zero until mid-2024. Meanwhile, grocery shoppers are cutting back on spending, a sign that Americans are hurting for cash. Cleveland Federal Reserve President Loretta Mester says the economy could end 2020 down 6% for the year. (Finance 202, Wall Street Journal, Reuters)
Japanese Prime Minister Shinzo Abe announced his resignation, saying his declining health would make it difficult to carry on: "I decided that I should not stay in the position of prime minister as I am no longer able to perform my duty confidently." The next Japanese prime minister is expected to continue Abe’s approach towards China, balancing economic ties with a more hawkish approach to security. In North Korea, Kim Jong Un's sister is now said to control North Korea party nerve center, expanding her role as the Kim’s health remains in doubt. (Nikkei Asian Review-1, South China Morning Post, Nikkei Asian Review-2)
On Europe’s periphery, tensions involving an array of competing countries are rising. The Belarus crisis has sparked fears of an armed Russian intervention, as Angela Merkel warned Vladimir Putin that the Belarusian people should be allowed to protest ‘without interference from outside,’ and the EU agreed to impose sanctions. Elsewhere, a standoff in the eastern Mediterranean pits Turkey against Greece, Cyprus and France. Germany called for naval exercises to cease in an attempt to defuse tensions between Greece and Turkey that it fears could tip into “catastrophe.” Meanwhile, Downing Street was warned that Boris Johnson has less than two weeks to save post-Brexit trade and security talks. (Washington Post, Financial Times, The Guardian, The Times)
China’s Foreign Minister cautioned against giving a Nobel Peace Prize to Hong Kong protesters as he visited Norway, underscoring the limitations of Beijing’s new diplomatic charm offensive targeted at Europe: “We don’t want to see anyone politicizing the Nobel Peace Prize. China will firmly reject any attempt by anyone to use the Nobel Peace Prize to interfere in China’s internal affairs.” (Bloomberg)
Millennials, long viewed as perennial home renters who were reluctant or unable to buy, are emerging as a driving force in the U.S. housing market’s recent recovery. (Wall Street Journal)
California health officials are preparing for a third surge of coronavirus cases fueled by two groups already hit hard: low-wage essential workers and young people. In Britain, the outbreak may be growing, according to new estimates published by the government. In Germany, large events are banned until the end of this year: Mass gatherings including festivals, concerts and big sporting events will remain prohibited, and soccer fans will not be allowed back into stadiums until 2021. (Los Angeles Times, The Times, The Guardian)
United Airlines announced the biggest pilot job cut in its history: The need to cut 2,850 pilot jobs this year, or about 21% of the total, without further U.S. government aid. Additionally: Banks are eyeing layoffs as short-term crisis ends, long-term costs emerge; MGM Resorts is laying off 18,000 workers; and Coca-Cola will cut thousands of jobs amid multinational plans for restructuring after steepest drop in quarterly sales in more than 25 years. (Reuters-1, Reuters-2, Wall Street Journal, Financial Times)
New mathematical modeling shows that U.S. political parties are becoming increasingly polarized due to their quest for voters -- not because voters themselves are becoming more extremist. (Northwestern University)
Economy
Private equity firms improve the operating performance of the companies they buy according to a new study that challenges critics who claim fund returns are largely due to financial engineering. The authors analysed more than 800 European cases where private equity firms have made an initial acquisition and then built on it with further add-on deals. The firms increased return on sales of the enlarged group by 27% over the first five years (or exit if earlier) compared with what would have been expected for the individual businesses. (Private Equity News)
Covid-19 Is Dividing the American Worker: The rapid adoption of remote work and automation could accelerate inequalities in place for decades. Economists say the resulting ‘K’ shaped recovery will be good for professionals—and bad for everyone else. (Wall Street Journal)
Parents will spend even more on computers and desks as expectations of online classes increase. 34% expect to spend more than they thought in July, and 54% said that’s because they plan to spend more on electronics and computer equipment. 47% said they are spending more on clothing and 59% said the higher spending would be on school supplies. (National Retail Foundation)
The euro and the pound rose further against the dollar, with the U.K. currency reaching a 2020 high, after the Fed announced the switch to a flexible average inflation targeting. Meanwhile, Chinese companies are borrowing less from U.S. bond buyers, as the deep pools of dollars held by investors in Asia means the region can be more self-reliant for hard-currency funding. U.S. buyers took up just 11% of this year’s Chinese dollar bonds by value, down from 20% last year. (Wall Street Journal-1, Wall Street Journal-2)
Technology
Private equity firms are intensely focused on tech businesses they believe can weather the storm. The thesis is that companies are shifting operations online at a fast, do-or-die clip — a scramble that’s created demand for cybersecurity services and new product delivery platforms like ordering groceries online. Now, what was already an increasingly competitive arena coming into the pandemic is getting packed, as huge private-equity firms jump into the fray, highlighting their size and offering creating financing to prospective targets. (Private Equity Insights)
In 2019, people in the U.S. took 136 million trips on shared bikes, e-bikes, and scooters, 60% more than 2018. Further, 109 cities had dockless scooter programs, a 45% increase from 2018. This contributed to an over 100% increase in trips taken on scooters nationwide. (National Association of City Transportation Officials)
Predictions of the end of Silicon Valley are as perennial and have been as wrong as those for the end of Moore’s law—the 1965 forecast of a two-yearly doubling of the number of transistors on a microchip that has driven much of the growth in the Valley. But is this time different? (MIT Technology Review)
Smart Links
Venture capital’s new guard goes solo. (The Information)
The 8 steps firms must take to get Covid-conscious workers back into the office. (The Telegraph)
Plant-based foods gain traction during pandemic. (Specialty Foods)
Tour de France in doubt after Covid red alert issued before Grand Départ in Nice. (The Guardian)
Dutch police say Frans Hals painting stolen for 3rd time. (The Observer)