Welcome back to our weekend reading.
This week has been slightly more sedate on the ‘interesting news’ front, as we travel into reporting season perhaps markets and corporates are on their best behaviour. The biggest splash was created by Jack Dorsey’s Square Inc. agreeing to buy Afterpay for a not-inconsiderable $39 billion AUD, the golden outcome for a company seeking growth but fearing regulation.
As we move throughout August we can expect more news, market surprises and disappointments as financial data begins to flow freely. For now, we’ll fill our time with a lot of charts.
Let’s look back on the week.
Chartered Failing Analyst (Level 2)
Not three days ago I was having a discussion with a colleague about how the CFA is not as difficult as it’s made out – wait a minute, I said this last week.
But CFA failure rates were once again in the news, this time the CFA Level 2, with passes falling to the lowest levels since 2010.
COVID-19 seems to have had a significant impact on the testing of Levels 1 and 2 (and presumably 3), and what may be an interesting implication will be employment trends in financial markets. Are employers finding it more difficult to fill positions if they look for CFA-graduates? Are companies relaxing their entrance standard? Will both companies and students realise the CFA is a monumental waste of time? Time may tell.
On the Square/Afterpay Deal
This piece has been covered extensively, so we won’t re-tread already worn ground here. There are two quick interesting points to mention regarding the Afterpay buyout offer.
Firstly, the price action for Afterpay has been unsurprisingly bullish, with the offer made well above current levels (but below the highs of Q1). For technical fans out there, it seems Afterpay is forming a clean inverse head-and-shoulders. This does raise the question of how market punters may react in the coming weeks whilst the deal is inked.
Secondly is the impact on Square, the less talked about matter in this story.
The deal should help boost Cash App’s total user base by adding Afterpay’s 16 million users to Cash App’s existing user base of 70 million annual users and help Square compete against fellow industry titan Apple, and their new BNPL product offering.
*All numbers in USD from BofA Securities
Equities: $4.8bn into equities
Bonds: $12.1bn into bonds
Precious Metals: $0.7bn into gold
Cash: $24.7bn into cash
Flows to Know
6th week of inflows back into tech ($1.2bn)
7th week of inflows into healthcare ($0.3bn)
Largest outflow from emerging markets equities in 6 weeks ($1.6bn)
Emerging markets equities approaching 20-year low versus S&P 500
Outperformance of lockdown versus reopening stocks
Inflows into growth have resumed after Q2 redemptions
You Think This is A Game?
The latest sector to be caught up in recent China unrest has been gaming, with Chinese state media condemning games as “spiritual opium” and prompting Tencent to consider a ban for kid’s games out of fear of Beijing’s backlash.
As a gamer, this is fine; “kid’s games” are pay-to-win, casino-style slot machines dressed up in a fresh coat of paint and as about as morally bankrupt as an old school carnival attraction.
Just don’t come for my proper games whilst lockdown is going on, or there will be retribution.
Gaming stocks fell sharply on the news and the consideration of further action is on-going around if regulators will pay further scrutiny to one of China’s fastest growing technology spaces.
Tortoise and the WHO
To briefly touch on a COVID-19 matter, the World Health Organization called for a
moratorium on Covid-19 booster shots to enable poorer countries to catch up in vaccination rates.
The halt on third doses should be in place until at least the end of September, Director-General Tedros Adhanom, which supposedly would help achieve the WHO’s goal to vaccinate at least 10% of the population in every country by that date, protecting health-care workers and vulnerable people.
Out of House and Home
Finally, the upcoming cessation of the US eviction moratorium could turn into a major economic issue, as almost 10 million people in the U.S may be losing their safety net amidst on-going financial difficulties.
Quoting from Bloomberg [emphasis mine]:
About 11 million Americans have fallen behind on payments during the pandemic, according to a Center for Budget and Policy Priorities estimate based on U.S. Census Bureau data. Many or most of those people could face eviction as soon as the latest federal moratorium expires in early October. In a Census Bureau survey completed in early July, before the latest federal eviction moratorium was imposed, an estimated 3.6 million households reported being somewhat or very likely to face eviction within two months.
Given the size and structure of the U.S mortgage and housing markets, having ~3% of the population falling behind on payments and potentially being evicted could have serious ramifications on the economic recovery of the country.
We all remember what happened last time there was an upset in the U.S housing market.
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Have a safe and enjoyable weekend.
Max and the Mason Stevens team.
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