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US equities and government bonds rally after jobs data top forecasts

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Long-dated US government debt rallied on Friday and travel stocks jumped following better than expected jobs data and encouraging results from Pfizer for its antiviral Covid-19 pill.

The yield on the benchmark 10-year Treasury note dropped 0.07 percentage points to 1.46 per cent, pointing to a rise in prices for the second day in a row. Short-term bonds traded in a tighter range, with the two-year yield down only 0.03 percentage points to 0.40 per cent.

The moves in fixed-income markets came after a report showed employers in the world’s largest economy added 531,000 jobs in October, beating the forecast of Wall Street economists of 450,000 hires.

There were “notable job gains” in the pandemic-sensitive leisure and hospitality sectors, the US Bureau of Labor Statistics said, while the number of people who said they were not looking for work because of Covid-19 declined on the prior month.

Moves in US Treasuries rippled into other big markets, with the UK 10-year gilt yield dropping 0.09 percentage points to 0.84 per cent on Friday after the Bank of England surprised traders a day earlier by holding interest rates at a record low level.

Some analysts are concerned the strong global recovery from the pandemic, which has contributed to a powerful burst of inflation, will force central banks to tighten monetary policy more quickly than they had anticipated. If policymakers move too forcefully or too quickly, some investors worry, it could knock future economic growth.

The spectre of a weaker economy several years in the future has helped to keep a lid on longer-term bond yields, narrowing the difference between those and yields on bonds with shorter maturities.

“The Fed doesn’t have the best track record of engineering a soft-landing even in the most pedestrian of macroeconomic environments,” said Ian Lyngen, head of US rates strategy at BMO. “To say that coronavirus has complicated the process of setting monetary policy would be an understatement of pandemic proportions.”

The US central bank this week announced plans to reduce its $120bn monthly bond purchases that have lowered borrowing costs and boosted stock markets since March 2020, but said it would be “patient” in terms of raising interest rates from record lows.

Analysts are mixed on how quickly the Fed will begin raising interest rates. “A few more quarters of these equivalent strong gains [in the jobs market] will surely tip the Fed to become more focused on the rate side of the equation, but that is still a story for the middle of next year,” said Charles Hepworth, investment director at GAM Investments.

“We do not think the Fed will start hiking until 2023,” added Hani Redha, managing director at PineBridge Investments. “We’re still a way away from tighter monetary conditions.”

In equity markets, the blue-chip S&P 500 index was 0.4 per cent higher in afternoon trade, remaining on track for its best weekly performance since July.

The technology-focused Nasdaq Composite erased gains from earlier in the day, trading up 0.2 per cent.

Shares in holiday booking website Expedia gained 15 per cent, while cruise businesses Royal Caribbean and Carnival each rose over 8 per cent after it emerged that pharma giant Pfizer’s oral antiviral drug for the treatment of coronavirus cut the risk of hospitalisation or death by 89 per cent in a late-stage study.

Expedia also delivered third-quarter numbers ahead of expectations after the bell on Thursday, with gross bookings of $18.7bn — up from $8.6bn a year earlier. It also swung to a net profit of $376m, up from losses of $192m.

Meanwhile, pandemic bull Peloton tumbled by more than 34 per cent on Friday after slashing its annual revenue forecast by nearly $1bn amid supply chain issues and the reopening of gyms and in-person fitness classes. Zoom fell by 7.5 per cent.

Other market moves

  • In Asia, Tokyo’s Topix share index fell 0.7 per cent. Hong Kong’s Hang Seng index lost 1.4 per cent after Chinese property developer Kaisa Group said it had missed an interest payment on a wealth management product.

  • Brent crude, the oil benchmark, rose 2.8 per cent to $82.78 a barrel, supported by producer group Opec+ on Thursday sticking with a plan for gradual output increases.

  • The dollar index, which measures the US currency against six others, was flat after the non-farm payrolls report.



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Saudi Arabia’s Most admired Companies in 2022

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Insights Success is an archway that caters to Entrepreneurs’ quench of technology and business updates which are currently ruling the business world.
We are ceaselessly proving the best platform for leading companies, which aids indefinite progress while creating meaningful learning experiences for the visitors and invaluable brand awareness for the clients.



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Bank of England raises base interest rate to 1.75%

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The Bank of England has raised the base interest rate by half a percentage point to 1.75 per cent, the biggest rise since 1995, in an attempt to combat runaway inflation.

The nine-strong monetary policy committee voted eight to one in favour of a 50 basis point rise, defying some market expectations for an increase by 25 basis points.

It is the Bank’s sixth consecutive tightening in monetary policy and follows in the footsteps of the US Federal Reserve and European Central Bank, which have begun aggressively raising rates by larger increments.

Interest rates are now the highest since 2009 as the Bank attempts to bring down inflation, which is running at a 40-year high of 9.4 per cent and is on course to exceed 11 per cent later this year.

These would be the worst inflation rates in the G7, caused in large part by rising global energy prices driving household bills higher this year. The UK economy is also heading for a slowdown this year as consumer incomes are squeezed more tightly than since the 1950s.

Andrew Bailey, the Bank’s governor, has hinted that it will also announce how it intends to begin unwinding the £850 billion of government debt pumped into the economy since the financial crisis, offloading bonds worth between £50 billion and £100 billion from as early as next month.

The Bank will also deliver its quarterly outlook, with Bailey expected to forecast that inflation will rise beyond 11 per cent and remain in double digits into next year. The Bank’s target is 2 per cent.

Commenting on today’s Bank of England interest rate rise, David Bharier, Head of Research at the British Chambers of Commerce (BCC), said: “This rise is the clearest signal yet of the Bank of England’s intention to get inflation under control. Spiralling prices are cited by businesses as by far and away the top concern right now.

“However, given the extremely precarious state of the economy, this decision is not without risk for businesses and consumers that are exposed to banking or overdraft facilities.

“There are many causes of the current inflation crisis – global supply chain problems, trade barriers, soaring energy costs, increased taxes, and labour market shortages. Interest rate rises alone will do little to address these.

“Worryingly, our research indicates strongly that most small businesses are not investing for growth, and that longer-term confidence is beginning to wane.





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Opinion: OSC appointment fuss is a tempest in a teapot

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Jeffrey MacIntosh: The government has the legislated right to have a say in the agency’s course

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Ed Waitzer’s recent op-ed (“The issue at the OSC is integrity, not debate,” July 14, 2022) expresses surprise and disappointment in my recent op-ed (“Conflict at the OSC: Why the regulator needs to make room for dissent,” July 7, 2022). In that op-ed, I argued that lawyer Heather Zordel’s appointment as non-executive chair of the OSC in March of this year should be met with open arms, as it introduces new points of view into what seems to be a rather intellectually closed shop. I don’t suppose it will come as a shock to Ed Waitzer or anyone else that I am surprised and disappointed at his rebuttal.

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To begin with, it contains a number of inaccuracies. It states that Ms. Zordel was denied reappointment to her earlier position (2019-2021) as part-time commissioner. In fact, given her busy legal practice, she took herself out of the running. This puts a rather different complexion on the matter.

And I never stated or implied that Ms. Zordel was not reappointed as part-time commissioner because of two dissenting opinions that she wrote as commissioner. My point was that for Ms. Zordel’s critics the dissents were a factor in opposing her appointment as chair of the board.

The nub of my argument was that the OSC could benefit from greater variety of viewpoints among its brass as to what investor protection and other aspects of the OSC’s mission entail. By contrast, Mr. Waitzer argues: “the importance of debate and dissent is not the point here.” I beg to differ. As I indicated, some prominent accounts of Ms. Zordel’s appointment have put a pejorative cast on her disagreements with her fellow commissioners. That puts the issue of debate and dissent front and centre.

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I certainly agree with Mr. Waitzer that the independence of administrative agencies is a cornerstone of our democracy. But does that mean that every administrative agency should be entirely divorced from any government oversight whatsoever — a little fiefdom unto itself and in no sense answerable to its political masters? Not a whit. It is the government that creates the agency, defines its mandate, gives it the powers that it needs to carry out that mandate and defines its organizational structure. And it is entirely within the purview of the government to enlist its legislative power to re-define that mandate, powers, and organizational structure if it chooses.

We don’t have to look into the distant past to find an example. On the advice of a non-partisan blue ribbon panel — the Capital Markets Modernization Taskforce (“CMMT”) — the Conservative government has recently substantially reorganized the OSC via the Securities Commission Act, 2021 (declared in force in April). That legislation splits the adjudicative function (the “Capital Markets Tribunal”) from the regulatory function. Moreover, where before the reorganization the OSC Chair and CEO were the same person, the two offices are now split. As expressed by the CMMT, “The Board of Directors, led by the Chair, (will) focus on the strategic oversight and corporate governance of the regulator,” while “The CEO (will) be responsible for the overall management of the organization and execution of the OSC’s mandate.” The directors, including the chair, are all government appointees.

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This new structure, recommended by a non-partisan committee, gives the government of the day the power to influence, at the highest level, the strategic direction of the OSC. But why should it not? If the government is dissatisfied with the strategic vision or regulatory philosophy of the regulator or the manner in which it is being implemented, it would be profoundly anti-democratic — and at odds with the rule of law — to forbid the government from seeking to alter the agency’s course.

Indeed, the Ontario Securities Act states “The Commission is an agent of the Crown in right of Ontario.” The key word here is “agent.” It is not “hegemony,” “fiefdom” or “satrapy.” At the end of the day, the OSC is a government creation performing regulatory functions ceded to it by the government.

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Do Ms. Zordel’s conservative connections compromise the independence of the institution of which she is now head? Absolutely not. In the making of such appointments, the twin issues of competence and integrity will take up a lot of shelf space. But why should the government not also consider, if it chooses, whether potential nominees share the government’s regulatory philosophy

The true worry about political interference is that the government might attempt to dictate or influence the result of particular cases. But the new legislation builds in the important protection of ceding no operational powers to the board of directors. Thus, aside from the government’s power to approve or decline proposed rule changes (a longstanding feature of securities regulation), its sole discretionary avenue of influence lies in its power to appoint directors and hence influence high-level strategic direction.

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What is left of the argument that there has been inappropriate political interference over the OSC? Only the assertion that Ms. Zordel and three other part-time commissioners were appointed without the government having consulted the OSC, as has customarily been done. Yes, it would have been better if the government had consulted the OSC. In all likelihood, however, the outcome would have been the same. The OSC might not like not having been consulted but at best this is a foible not a fiasco.

In the end, this tempest easily fits within a standard-issue teapot.

Financial Post

Jeffrey MacIntosh is a professor of law at the Faculty of Law, University of Toronto, and a director of the Canadian Securities Exchange.

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