Axios Markets

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December 03, 2021

🎉We made it. Kate Marino will be back in your inbox on Monday with regularly scheduled programming. Thanks for hanging with me this week!

👀T.G.I.(JOBS)F.

Today's newsletter is 1,265 words, a 5-minute read.

1 big thing: School is in session for Jerome Powell

Illustration of Jerome Powell sitting at a school desk.
Photo illustration: Megan Robinson. Photo: Federal Reserve, public domain via Wikimedia Commons

Speed up the taper, supercharge communication and release the digital coin white paper — this is advice to the Federal Reserve from a surprising source: college kids, Axios' Courtenay Brown writes.

  • The backstory: Each year students act as Fed officials and compete to pitch staffers the best direction for the nation’s economy.

Why it matters: Forget what seasoned Wall Street types think. Here’s a fresh perspective from your next colleague or boss — and maybe the next policymakers.

  • “This competition is a window for the Fed to see how young people look at the economy. To that extent, people should care what we have to say about inflation and employment,” says Liza Brover, a senior at the University of Pennsylvania who competed in the College Fed Challenge this year.

Flashback: This fall, college Fed clubs took a look at the economy: The Delta variant was still surging. Inflation was hot, but it appeared to be transitory. Job gains looked to have slowed.

  • Those students then debuted a (virtual) policy decision — much like the real one we get every six weeks or so.
  • The winner? Pace University. That team recommended the Fed issue a new document that’s more explicit about the path of the economy (among other recommendations like keeping the current pace of its asset purchases).

What they’re saying: “It’d be around two pages, just letting market participants into the mind of the Fed and the specific indicators that help guide their outlook — at least while we’re in this transitional period with COVID-19,” says Fiona Waterman, a Pace senior and team co-captain.

  • That advice still holds as the Fed made a hard pivot this week. It bowed to the possibility that soaring prices might stick around, so it will likely speed up the tapering of its pandemic-era bond purchases — and an interest rate hike might not be so far off.

Other students say the central bank should have better prepared the public for that switch-up.

  • “What we would have hoped to see was the conditions which would have led the Fed to reconsider whether inflation is transitory laid out way ahead of time, maybe in September or August,” says Brian Lee, a sophomore at the University of Pennsylvania.

The bottom line: Fed Challenge alumni land at Wall Street’s big banks, think tanks, and sometimes the Fed itself. (Then there’s Transportation secretary Pete Buttigieg, who competed in the high school version of the challenge.)

Go deeper.

2. Catch up quick

Government shutdown was avoided late Thursday when Congress passed a bill to fund the government through Feb. 18. (NYT)

💥The FTC sued to block Nvidia's $40 billion acquisition of U.K. chip designer Arm on the grounds that the mega-deal would give the buyer too much control over the tech and designs relied on by its competitors. (Axios)

📉Grab shares fell 21% on their first trading day after the Singapore-based "super app" maker finished its merger with Altimeter, in the biggest SPAC deal so far. (Bloomberg)

3. DiDi to delist from NYSE under pressure

Illustration: Sarah Grillo/Axios

Chinese ride-hail giant DiDi said it will delist from the New York Stock Exchange, following a Chinese government crackdown on foreign listings, Axios' Hope King and Dan Primack write.

Why it matters: This reflects how geopolitical tensions are bleeding into the capital markets.

The backstory: DiDi isn't just the Uber of China. It's the company that beat Uber in China, buying up the U.S. company's business before going public this past June at a $73 billion valuation.

  • What wasn't known at the time was that Chinese officials had asked DiDi to postpone the IPO, over concerns that sensitive data could fall into foreign hands.
  • Just days after its stock began trading, China banned DiDi from app stores. Last week, Bloomberg reported that Chinese officials recently asked the company to devise plans to delist from the U.S.
  • Its current market cap is $37 billion.

Also: U.S. securities regulators finalized rules Thursday to forcibly delist Chinese companies that fail to abide by certain auditing requirements, although that doesn't seem to apply to DiDi.

What's next: The company said in a Weibo post that it plans to relist its shares in Hong Kong. A spokesperson for the NYSE didn't return a request for comment.

The bottom line: DiDi is delisting under duress.

4. OPEC+ plan holds firm with an asterisk

Data: FactSet; Chart: Thomas Oide/Axios
Data: FactSet; Chart: Thomas Oide/Axios

OPEC+ is sticking with plans to boost output — but with an unexpected catch that reflects the uncertain fallout from the omicron variant, Axios' Ben Geman writes.

Driving the news: The group of OPEC, Russia and allied producers met virtually Thursday and decided to move forward with plans to hike production by 400,000 barrels per day in January.

  • But in an unusual move, the group has technically held the meeting open to enable them to revisit the decision on the fly.
  • “In a highly uncertain situation, the best option is to stick with the plan. That is exactly what OPEC+ has done today,” Wood Mackenzie analyst Ann-Louise Hittle said in a statement.

Why it matters: The output hike — if it holds — is likely to help keep crude prices in the lower range than they’ve been at lately after October saw Brent crude rise above $85 per barrel (it ended Thursday around $70). That should bring down gasoline prices that have already fallen slightly in recent days.

Between the lines: The decision comes despite the White House move to release oil from strategic stockpiles. RBC Capital Markets analysts called the OPEC+ decision a “victory” for the Biden administration, which has called for more output.

What they’re saying: “The pandemic has demonstrated that it can strangle oil demand at will. OPEC is smart to prime its membership for the possibility of a U-turn,” Rice University energy expert Jim Krane tells Axios via email.

  • “But a change in strategy right away might’ve unduly upset the Biden administration and made the Saudis look a bit tone-deaf,” Krane adds.
  • “It would’ve also signaled that the Saudis and Russians were keen to protect the $70-$80 price band, which would probably unleash a whole bunch of U.S. shale production.”

5. New paper says PFOF is also fine for investors

Is payment for order flow (PFOF) bad for investors? Absolutely not, according to a new paper from S.P. Kothari and Eric So of MIT.

What's new: PFOF is back in the news, now that Public has come out with data showing that the alternative — trading directly on exchanges — can result in significantly better execution quality, Axios' Felix Salmon writes.

  • The MIT paper — which was commissioned and paid for by Robinhood — pushes back against that conclusion.

What they found: The researchers found that the price improvement for retail investors using Robinhood was better than the price improvement that institutional investors receive when they trade small lots on public exchanges.

  • Be smart: As So of MIT tells Axios, that's because "market makers know they are unlikely to be trading with a sophisticated institutional investor with an information advantage."

The big picture: Retail investors get better execution than institutional investors. The new paper shows that decisively.

  • What's still up in the air, however, is whether retail investors are better served by the Robinhood PFOF model, or by the Public model of trading on exchanges.
  • Public has been making a concerted effort to find on-exchange counterparties who know that they're trading with retail investors rather than smart institutions, and are therefore likely to offer better prices. The NYSE and IEX exchanges already make that possible, and such setups are likely to expand.

The bottom line: Both models are good for retail investors, who now live in a blissful world where $0 trading fees are standard. The differences between the two models, if any, are always going to be small.