Covid Testing for Travelers From China Won’t Stop Variants
The Biden Administration’s new mandate is better understood as political inoculation than virus protection for Americans
The Biden Administration on Wednesday imposed new Covid testing requirements for travelers from China, and this is better understood as political inoculation than virus protection for Americans.
Biden officials said travelers to the U.S. from China, Hong Kong and Macau will be required as of Jan. 5 to get a PCR or rapid test monitored by a healthcare provider no more than two days before departure. Airlines must confirm the negative test before passengers board.
The U.S. is following Japan, India, South Korea, Taiwan, Malaysia and Italy in imposing testing mandates for Chinese visitors. The apparent concern is that the virus’s untrammeled spread in China after government officials lifted zero-Covid restrictions may increase the risk that more lethal or transmissible variants emerge.
This is possible, but more transmissible variants that evade the antibody response from vaccines and prior infection continue to emerge in the U.S. and other countries too. It’s also possible that China’s lower natural immunity reduces the selective evolutionary pressures that give rise to more immune-evasive and transmissible variants.
U.S. officials are rightly concerned that China may be slow to identify a new dangerous variant and share that information with the world. It took China weeks after the novel coronavirus began spreading in Wuhan to confirm human-to-human transmission. Beijing continues to deny Western scientists access to records needed to determine whether the virus originated from a lab.
While the Biden testing requirement punishes China for its lack of transparency, it’s unlikely to stop a more pathogenic variant from spreading to the U.S. PCR tests usually take a few days to get results. On the other hand, rapid tests are much less sensitive, which is why public-health officials advise repeat daily testing.
Travel restrictions have been ineffective throughout the pandemic at stopping new variants. Donald Trump imposed a travel ban on China on Jan. 31, 2020, but the virus was already spreading in Europe and likely in the U.S. A variant that ran rampant through New York came from Europe.
After Omicron was discovered in South Africa in November 2021, the U.S. imposed travel restrictions on noncitizens from eight African countries. But many cases of the variant had already been confirmed in Europe, Israel, Australia and Hong Kong. A recent study found that Omicron’s ancestors were spreading across Africa as early as the summer.
The Administration’s testing mandate for Chinese travelers won’t take effect for another week, by which time tens and perhaps even hundreds of millions more Chinese will be infected, some of whom will already have flown to the U.S. or other countries. A Shanghai hospital predicted that half of the city’s 25 million residents will be infected by the end of this week.
The Administration is trying to show it’s doing something in case fears of a more dangerous variant are realized. But if it wants to do something that could make a real difference, how about accelerating treatments that can’t be defeated by new variants such as our current class of monoclonal antibodies?
Financial trends: more whacks for Spacs in 2023
There have been far too many special purpose acquisition companies chasing too few deals
The two-year boom in special purpose acquisition companies turned to bust in 2022. Rising interest rates, a sharp stock market sell-off and heightened regulatory scrutiny doused cold water on Wall Street’s torrid love affair with Spacs. These blank-cheque listing vehicles raised just $16bn for the year to December 19. That compares with $250bn investors poured into them during 2020 and 2021.
The relationship is unlikely to regain its spark next year. Spacs are time-limited. They usually have two years to use their funds to make an acquisition before they have to return the money to investors — with interest. At the moment there are far too many Spacs chasing too few deals. Over 650 Spacs with a combined pool of $159bn of IPO capital are looking for a merger target, according to an estimate from the London Stock Exchange Group.
Spacs can request an extension. Some will. Many will opt to liquidate. Some 22 liquidations have already been announced in the first three quarters of 2022. Prominent investors — including Chamath Palihapitiya and Bill Ackman — are among those who have thrown in the towel. Spac tie-ups that were struck when the market was stronger are falling apart, with 51 mergers cancelled this year, says LSEG.
Investors are not missing much. Spacs were once touted as a way for the average investor to invest in hot, unlisted companies. In reality, most post-merger Spacs have performed poorly.
Companies that completed deals this year have tanked. They chalked up an average loss of about 49 per cent for the first nine months of the year, according to Spac Research. The S&P 500 index lost 25 per cent over the period.
For investors, having Spac sponsors return their money in full with a bit of interest on top may well be a blessing in disguise. Some may be inclined to redeem their money sooner to avoid being hit by new tax rules on share buybacks. Sponsors will be left holding the bag.
Gold buyers binge on biggest volumes for 55 years
China and Russia have been big accumulators of the precious metal in 2022, analysts say
Central banks are scooping up gold at the fastest pace since 1967, with analysts pinning China and Russia as big buyers in an indication that some nations are keen to diversify their reserves away from the dollar.
Data compiled the World Gold Council, an industry-funded group, has shown demand for the precious metal has outstripped any annual amount in the past 55 years. Last month’s estimates are also far larger than central banks’ official reported figures, sparking speculation in the industry over the identity of the buyers and their motivations.
The flight of central banks to gold “would suggest the geopolitical backdrop is one of mistrust, doubt and uncertainty” after the US and its allies froze Russia’s dollar reserves, said Adrian Ash, head of research at BullionVault, a gold marketplace.
The last time this level of buying was seen marked a historical turning point for the global monetary system. In 1967, European central banks bought massive volumes of gold from the US, leading to a run on the price and the collapse of the London Gold Pool of reserves. That hastened the eventual demise of the Bretton Woods System that tied the value of the US dollar to the precious metal.
Last month the WCG estimated the world’s official financial institutions have bought 673 tonnes. And in the third quarter alone central banks bought almost 400 tonnes of gold, the largest three-month binge since quarterly records began in 2000.
The conservative estimates from the WGC outstrips the reported purchases to the IMF and by individual central banks, which stands at 333 tonnes in the nine months to September.
Officially, the buying in the third quarter was led by Turkey at 31 tonnes, taking gold to about 29 per cent of its total reserves. Uzbekistan followed with 26 tonnes, while in July Qatar made its largest monthly acquisition on record since 1967.
The discrepancy between the WGC’s estimates and officially reported figures tracked by the IMF can be partly explained by government agencies besides the central banks in Russia, China and others that can buy and hold gold without reporting them as reserves.
Acknowledging its intake — but also possibly trying to signal its limited role — the People’s Bank of China (PBoC) reported earlier this month that in November it made its first increase in gold holdings since 2019, with a 32-tonne bump worth about $1.8bn. Yet the gold industry says Chinese buying is almost certainly higher.
Mark Bristow, chief executive of Barrick Gold, the world’s second-largest gold miner, said China had bought tonnes of gold around the high 200s mark, based on his discussions with numerous sources.
Nicky Shiels, metals strategist at MKS PAMP, a precious metals trading company, added gold prices would have peaked around $75 lower in November if the PBoC had only purchased 32 tonnes. Gold prices traded as high as $1,787 a troy ounce in November and have since advanced above $1,800.
For Russia, sanctions have created significant problems for its gold mining industry — the largest in the world after China — in selling overseas. It produces roughly 300 tonnes each year but has a domestic market for only 50 tonnes, according to MKS PAMP.
At the same time, western governments have frozen $300bn of Russia’s foreign currency reserves through sanctions, which Shiels says has prompted nations outside the west to ask: “Should we have exposure to so many dollars when the US and western governments can confiscate that at any time?”
Russia’s gold-buying repeats South Africa’s playbook during Apartheid-era sanctions of supporting domestic mining by buying the yellow metal using local currency, says Ash.
“With limitations on the export side, it would make sense it’s the Russian central bank,” said Giovanni Staunovo, commodity analyst at UBS.
The Central Bank of Russia stopped reporting monthly numbers on its reserves soon after the war began. CBR officials have rejected the suggestion it is buying gold.
“Our gold and foreign exchange reserves are sufficient. We don’t have a specific task of accumulating gold and foreign exchange reserves,” said CBR governor Elvira Nabiullina in mid-December.
Yet CBR officials have long placed strategic value on boosting gold reserves; in 2006 it said it would be desirable for gold to make up 20-25 per cent of its holdings — in February 2022, the last time CBR published its statistical data, gold accounted for 20.9 per cent. It has reduced its holdings of US Treasuries to only $2bn from more than $150bn in 2012, while increasing gold reserves by more than 1,350 tonnes worth almost $80bn at current prices, according to Julius Baer, a Swiss private bank.
Carsten Menke, head of next generation research at Julius Baer, reckons the purchases from Russia and China indicate a growing reluctance for countries to rely on the greenback.
“The message these central banks are sending by putting a larger share of their reserves in gold is that they don’t want to be reliant on the US dollar as their main reserve asset,” Menke said.
Some in the industry speculate Middle Eastern governments are using fossil fuel export revenues to buy gold, most likely through sovereign wealth funds.
The coming months will test whether record central bank buying was an opportunistic spurt as gold prices fell, or a more structural shift.
Even with prices having since recovered to about $1,800 per troy ounce, few are willing to bet the trend towards diversification of central bank reserves will change course any time soon.
Bernard Dahdah, senior commodities analyst at Natixis, the French investment bank, said deglobalisation and geopolitical tensions meant the drive by central banks outside of the west to diversify away from the US dollar was “a trend that won’t change for a decade at least”.
Luxury brands brace for a 2023 slowdown
But reopening in China could offset recessions in the US and Europe
Heading into 2022, the €353bn luxury goods market had reason to celebrate. Covid-19 restrictions had largely eased outside of China, luxury stocks were outperforming the broader equity market for the sixth consecutive year, and shoppers flush with lockdown savings were eager to travel — and dress for it. And they did: after fully recovering from pre-pandemic levels by the end of 2021, sales of luxury goods grew another 15 per cent on a constant currency basis in 2022, according to analysts at Citi and Bain.
But even the remarkably resilient luxury sector is not immune to economic turbulence, and amid the war in Ukraine, rises in energy prices and interest rates, and the threat of recession in the US and Europe, the fizz appears to be coming off the champagne.
A sales slowdown
While the fashion industry is bracing for a small sales contraction next year, according to McKinsey, analysts expect the luxury goods sector will keep growing — albeit more slowly than last year.
How much it grows hinges on the success of China’s reopening and the resilience of the US market. Beijing’s decision this week to ease inbound and outbound travel could lead to a sales lift of 6 to 8 per cent next year, according to Bain partner Claudia D’Arpizio, versus an earlier, more conservative forecast of 3 to 5 per cent. Japan in particular is likely to benefit as Chinese shoppers take advantage of the depressed yen, although the country has said all travellers from China must produce a negative Covid test on arrival, or quarantine for seven days, as case numbers in China soar.
Focus on the ultra-wealthy
Although “aspirational” luxury buyers are already cutting back in the US, spending among the wealthiest 2 per cent of global consumers — who together account for 40 per cent of luxury spending — is still strong, brands and retailers say. Competition for those shoppers will heat up next year, with brands investing further in shows, trips and exclusive experiences. Earlier this year Balenciaga opened a store in Paris for its top spenders, while Chanel is planning to do the same in Asia in 2023.
Brace for price hikes
Although the prices of “core” handbags from brands such as Chanel and Louis Vuitton have already increased 20 per cent or more in the past two years, brands are expected to boost prices on those items even further next year — particularly in Europe, where the depressed euro has made luxury goods comparatively cheap. Prices there could rise 15 per cent next year, and in the mid-single digits in the US and China, says Citi luxury analyst Thomas Chauvet.
As the price gap between leather goods and watches and jewellery shrinks, consumers may see the value in shifting more of their spending to the latter categories, he adds.
A return to formality
A return to socialising, travel and the office has ushered in a return to dressing up — although categories such as sneakers remain important, especially for younger shoppers who see such items as collectibles. There will also be an increased focus on young teens (aka Gen Alpha), who are making their first luxury purchases as early as age 13 — in contrast to Gen Z, who made their first luxury purchases in their late teens. To reach those young would-be shoppers, brands will continue to invest in marketing opportunities in gaming and the metaverse, despite the crash in crypto.
Logos and other flashy signifiers of wealth vanished during the last economic recession in 2009. The same could happen in the US and Europe in 2023, as the post-Covid euphoria wears off and young consumers push back on celebrities who are flaunting their wealth on social media (see: Kylie Jenner’s Christmas tree).
Succession takes shape
Next year will also see fresh faces come to the fore, as new creative directors are slated to be announced at Gucci, Louis Vuitton men’s and Tom Ford, while family-owned companies hand greater responsibility to the next generation. In December, Antoine Arnault, son of LVMH chair and CEO Bernard Arnault, added CEO of Christian Dior SE to his duties. Meanwhile, Prada appointed Andrea Guerra as group CEO to aid the transition of Lorenzo Bertelli, son of Miuccia Prada and Patrizio Bertelli, to eventual CEO. Burberry’s new direction will begin to materialise with Daniel Lee’s first collection for the British brand in February.
Long-term prospects remain bright
While 2023 will be a slower year for the luxury sector, its long-term prospects are strong. According to Bain, sales are forecast to increase by 60 per cent between 2022 and 2030, fuelled by growing numbers of luxury consumers in markets including India, Mexico, South Korea and south-east Asia.
Silicon Valley staff race to offload start-up shares as valuations plummet
Workers forced into sales at sharp discounts amid job cuts and stalled IPO market
Silicon Valley workers are scrambling to offload stakes in tech start-ups through private share sales after a wave of job cuts, compounding a collapse in valuations.
Employees of embattled tech groups are flooding secondary markets — where stakeholders in a private company sell shares to third parties — as the industry’s former darlings like Klarna and Stripe have been forced into aggressive cost-cutting measures, according to brokers and investors.
For many workers who have lost their jobs, their shares vest within 60 days, forcing them to sell during the worst downturn in a decade. Some companies are offering an extension on this timeframe, according to brokers, although some sellers want to get out of their holdings over fears the market rout will get worse next year.
“We are seeing an inflow of people being laid off trying to sell their shares,” said Greg Martin, managing director of Rainmaker Securities, which facilitates private securities transactions. “These companies have built their headcounts up so much, so there are a lot of people highly motivated to get a sale done.”
Martin added: “In general, we are seeing a 30 to 80 per cent decline in price from a year ago.”
The uptick in sellers is pushing the price of many tech start-ups down, adding to concerns of an industry-wide reset in valuations of fledgling companies as rising interest rates and faltering public technology stocks filter through to private markets.
The rout means it has become increasingly hard to assess a current price for many start-ups. Most have avoided raising money from venture capitalists this year out of fear that they would be forced to accept a lower valuation, leaving few solid indicators of how the wider slump has affected them.
Meanwhile, the informal private secondary markets handled by dealers such as Rainmaker are often highly illiquid, further complicating attempts to come up with an accurate “market” value.
The head of one tech VC fund in Silicon Valley said he had received 10 times more offers to invest in companies through secondary share sales this month than usual.
Multibillion-dollar businesses like fintechs such as Klarna, Chime and Stripe, ecommerce group Instacart and autonomous delivery group Nuro, have cut 10 to 30 per cent of their staff in the past two months. They have mirrored moves by public tech giants: Facebook parent Meta and Amazon have both announced plans to cut more than 10,000 jobs in recent weeks.
Data from Rainmaker showed that shares in Anduril, a defence AI company backed by Peter Thiel’s Founders Fund and Andreessen Horowitz valued at $8.5bn, traded at $16.95 per share on secondary markets in November, down from $31.50 in March.
Shares in SoftBank-backed Chime Bank, which was valued at $25bn when it last raised external capital in August 2021, have lost a quarter of their value since then on secondary markets, trading at $60 per share, according to the most recent data.
“The number of sellers is a lot more, and the number of bidders is a lot less, which is pushing price down and making it more aligned with multiples and valuations in public markets,” said Rainmaker’s Martin.
However, trading in many of these companies showed a return to, or an improvement on, pre-pandemic prices, following a significant jump in valuations during a VC fundraising boom in 2021.
The head of one VC fund said valuations in his portfolio had collapsed, but from record highs. “Valuations have got out of whack, but they got out of whack on the way up too. Yes, the stock is ugly and it was much higher, but in the context [of several years] it is not too bad,” he said.
A collapse fundraising for initial public offerings, which has dropped to its lowest level in two decades, has also forced some tech groups to create structured liquidity programmes for employees to sell off chunks of shares, often alongside a large cut to the company’s own valuation.
Companies that had planned to go public this year are “scrambling to find lending options or selling shares on the secondary markets,” said Kevin Swan, a specialist in private markets at Morgan Stanley’s workplace financial solutions business.
Swan added that start-ups were under pressure from an employee and investor base that had expected to cash out through blockbuster stock market debuts this year but have been forced to move with no IPO on the horizon.
In other cases, tech employees “are becoming concerned that their options are underwater and [the company is] not going public anytime soon,” said Glen Kernick, Silicon Valley leader at Kroll, which provides valuation services to start-ups.
“Buyer demand increases when companies are getting close to an IPO or are correlated to when a company raises a funding round . . . but both of those have been pushed out,” said Kernick. He added that these issues over price meant some companies had gone as far as restricting secondary share sales for existing employees.
Many private companies, such as Klarna, Stripe and Europe’s Checkout.com, as well as Instacart, have slashed their internal valuations. Reducing the cost of a company’s equity gives employees scope for further gains in the case of a future deal such as an IPO. Companies have sought to make these moves because, despite the widespread job cuts across tech, there is still a fierce talent war for the best engineers.
Elon Musk’s SpaceX is trying to arrange a sale of mostly employee stock that would value the company at $150bn. The offering at a 20 per cent increase to its previous valuation would help employees and shareholders make strong returns.
The value of a company’s common stock is determined by trading volumes, the price tag placed on its preferred equity by investors, and by the company’s own internal valuation that is typically decided by its board and independent advisers during a “409a” assessment which determines a company’s worth for tax purposes.
The need to create liquidity for employees while holding on to sky-high valuations is a “big tension that will have to be addressed in the next 12 months,” said Ravi Viswanathan, founder of California VC fund, NewView Capital. “Pretty much every company is thinking about it.”
After Hours Summary: Another quiet after hours; CALM -5.5% lower on earnings; RXO +4.7% higher as it will move to S&P SmallCap 600; IMGN -2.6% lower as CFO will step down after medical leaveAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: HYZN +12.9% (enters into Equity Capital Contribution Agreement with CVX), RXO +4.7% (will move to S&P SmallCap 600 from S&P MidCap 400), RFP +0.4% (receives Canadian Competition Bureau approval for merger), LMT +0.3% (LMT files protest asking GAO to review Army's award of FLRAA contract to TXT; BA supports LMT protest; also LMT awarded an undefinitized contract action worth up to $528 mln from Missile Defense Agency), MOS +0.2% (provides update on Q4 volume data)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CALM -5.5%
Companies trading lower in after hours in reaction to news: JYNT -6.1% (to be removed from S&P SmallCap 600), IMGN -2.6% (CFO to step down after medical leave), VNO -1.8% (will move to S&P MidCap 400 from S&P 500), KRUS -1.7% (files for $125 mln mixed securities shelf offering), OR -0.2% (provides update on CSA Stream transaction)
Closing Stock Market SummaryToday's trade started on a more upbeat note with the main indices being led higher by renewed buying interest in the mega cap space. The initial upside moves saw the S&P 500 test the 3,850 level.
Things started to deteriorate noticeably around 10:30 a.m. ET with no specific news catalyst. Instead, it was induced by a general lack of buyer conviction and presumably some ongoing tax-loss selling efforts.
Shortly after the open, advancers led decliners by a roughly 3-to-2 margin at both the NYSE and the Nasdaq. By the closing bell, however, decliners led advancers by a greater than 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq. The main indices ultimately closed near their worst levels of the session, which brought the S&P 500 below the 3,800 level.
Many stocks faded from their highs as the market declined. The Vanguard Mega Cap Growth ETF (MGK) had been up as much as 0.7% before closing down 1.3%. The PHLX Semiconductor Index was up 0.6% at its high, but registered a 1.5% loss today.
Notably, the turn lower in the equity market coincided with an increase in selling pressure for the bond market. The 10-yr note yield, which hit 3.80% overnight, settled at 3.89%. The 2-yr note yield, which hit 4.33% earlier, settled at 4.35%.
Tesla (TSLA 112.71, +3.61, +3.3%) was able to go against the grain today after ARK Innovation ETF (ARKK) purchased 25K shares, but like the broader market, the stock declined from an earlier 6.6% gain.
All 11 S&P 500 sectors closed in the red with energy (-2.2%) suffering the steepest loss by a wide margin. Falling oil and natural gas prices provided a catalyst for some profit-taking efforts. WTI crude oil futures fell 0.8% to $78.94/bbl and natural gas futures declined 9.8% to $4.78/mmbtu, which coincided with the arrival of warmer winter temperatures.
Meanwhile, the financial (-0.4%) and health care (-0.6%) sectors sat atop the leaderboard with the slimmest losses.
- Dow Jones Industrial Average: -9.5% YTD
- S&P Midcap 400: -15.7% YTD
- S&P 500: -20.6% YTD
- Russell 2000: -23.3% YTD
- Nasdaq Composite: -34.7% YTD
Today's economic data was limited to Pending Home Sales, which fell 4.0% in November (consensus -0.2%) following a 4.6% decline in October.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims ( consensus 220,000; prior 216,000) and continuing claims (prior 1.672 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -87 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior -5.89 million)
Lockheed Martin Sikorsky and Boeing Protest U.S. Army’s Future Long-Range Assault Aircraft decision
Sikorsky, a Lockheed Martin company, filed a formal protest today asking the U.S. Government Accountability Office (GAO) to review the U.S. Army’s decision on the Future Long-Range Assault Aircraft (FLRAA) contract.
Boeing supports the protest filed by our Team DEFIANT partner, asking the GAO to review the Army’s decision.
Based on a thorough review of the information and feedback provided by the Army, Lockheed Martin Sikorsky, on behalf of Team DEFIANT, is challenging the FLRAA decision. The data and discussions lead us to believe the proposals were not consistently evaluated to deliver the best value in the interest of the Army, our Soldiers and American taxpayers. The critical importance of the FLRAA mission to the Army and our nation requires the most capable, affordable and lowest-risk solution. We remain confident DEFIANT X is the transformational aircraft the Army requires to accomplish its complex missions today and well into the future.