Nov 24, 2020

Axios Markets

Good morning. If this newsletter was forwarded to you, sign up here. (Today's Smart Brevity count: 1,197 words, a 4½-minute read.)

🗣️ "Too many of us who hold public office think that the world is there for us, that the sun rises and sets on us because we have been privileged to serve, and that's just not the case." - See who said it and why it matters below.

1 big thing: Janet Yellen is back

Photo illustration: Sarah Grillo/Axios. Photo: Hannelore Foerster/Getty Images

A face familiar to Wall Street is back as a central player that this time will need to steer the country out of a deep economic crisis.

Driving the news: President-elect Joe Biden is preparing to nominate former Fed chair Janet Yellen to be Treasury secretary.

  • If she's confirmed (as widely expected), it'll be historic: Yellen will be the first woman in U.S. history to head up Treasury — and the first ever to have held three of the most powerful economic posts in government.

Why it matters: The Treasury secretary wields enormous power in policy on regulations, taxes and the broad economy. Their actions can either reassure and spook financial markets. (Remember Mnuchin's infamous call with the big banks?)

  • "Investors shouldn’t worry that [Yellen] will make off-the-cuff remarks that will spur volatility. She’s the ultimate steady hand," Ian Katz, a financial policy analyst at Capital Alpha Partners, said in a note.
  • "While she isn’t the kind of hands-off free-marketeer that investors would prefer if they had the choice, she isn’t going to make markets nervous."

The big picture: Monetary policy has already played a big role in economic recovery efforts. The Fed is expected to continue to play an outsized part with Yellen at Treasury.

What they're saying: "We can bake in that the Biden administration will drive a Fed-dominated agenda," David Wagner, an analyst at Aptus Capital Advisors, tells Axios.

  • "The government will continue to lean on [chair] Jerome Powell to support the market and act as a backstop since there is still plenty of skepticism on getting a stimulus deal done with the likelihood of a split Congress."

The big picture: Job number one is tackling the pandemic's blow to the economy as the resurgence of the coronavirus threatens a second downturn. Yellen's spate of interviews in recent months also points to how she could approach other priorities as Treasury secretary.

Fed-Treasury relationship: "It would be wrong-minded for the Fed to spend all of its time worrying about how — in some future world, by doing what they were set up to do — they would lose some autonomy," Yellen said in a WSJ interview in April.

Fiscal package: "This is not a good time to have fiscal policy switch from being accommodative to creating a drag. That’s what happened [in the 2008 financial crisis], and it retarded the recovery," Yellen told the WSJ last month.

Debt: "[O]ne day in the future ... after this is over and the economy is recovered, we’ll have to deal with deficits and get them under control, but now is the time when I think it’s not necessary to worry about it," Yellen said in testimony before Congress in July.

U.S.-China trade: "I do think the United States has real issues in terms of its trade relations with China and many valid concerns that are certainly on the table for discussion," Yellen said in an interview alongside the World Bank's David Malpass.

Climate change: "What I see is a growing recognition on both sides of the aisle that climate change is a very serious concern and that action needs to occur," Yellen, who's long-supported a carbon tax, told Reuters.

Capitalism: "There really is a new kind of recognition that you’ve got a society where capitalism is beginning to run amok and needs to be readjusted in order to make sure that what we’re doing is sustainable and the benefits of growth are widely shared in ways they haven’t been," she said to Reuters.

Bonus chart: The Yellen bump
Data: FactSet; Chart: Danielle Alberti/Axios

The stock market hit close to its highest levels of the trading day following reports of Yellen's coming appointment before the gains moderated.

  • Bank stocks also rose near the highest levels of the day following the reports.
2. Catch up quick

A wave of defaults by Chinese state-owned enterprises is sending shockwaves across China’s roughly $4 trillion corporate debt market, of which SOEs account for more than half. (FT)

General Motors must recall over 6 million vehicles equipped with Takata airbags, per the National Highway Traffic Safety Administration. (Axios)

3. Business activity is plunging in Europe
Data: IHS Markit; Chart: Danielle Alberti/Axios

A gauge of business activity in the U.S. continued to soar past pre-pandemic levels, while Europe's lockdown hurt its activity further in November, according to preliminary data from IHS Markit.

Why it matters: The index is a closely watched measure of the manufacturing and services sectors across the globe.

What they’re saying: “The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections,” Chris Williamson, an economist at IHS Markit, said in a release.

  • “The data add to the likelihood that the euro area will see GDP contract again in the fourth quarter.”
  • Yes, but: Germany's services and manufacturing sectors continued to expand, though activity slipped to the weakest level since July.

The other side: Business activity in the U.S. was the strongest in over five years.

  • The survey showed the steepest monthly rise in employment among firms in the survey's 11-year history, although manufacturers reported slowing job creation.

What we're watching: U.S. firms also reported a record sharp rise in input costs, "as growing demand for inputs and supply shortages reportedly pushed supplier prices higher," the release said.

  • Cost inflation in the services sector hit a survey high, while manufacturers' input costs soared at the fastest rate in over two years.

The bottom line: The survey of businesses was conducted as pharmaceutical companies reported encouraging trial data on coronavirus vaccines — pushing confidence among manufacturer and service firms higher in the eurozone.

  • In the U.S., expectations about the coming year were the most upbeat in over six years, "reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future," per IHS Markit.
4. Déjà vu: Social media all looks the same
Data: Axios research; Table: Andrew Witherspoon/Axios

Axios' Sara Fischer writes: Tech platforms used to focus on ways to create wildly different products to attract audiences. Today, they all have similar features, and instead differentiate themselves with their philosophies, values and use cases.

Driving the news: Snapchat on Monday launched Spotlight, a video tab within its app that, like TikTok, distributes videos based more on how popular they are than on who created them. Facebook in August launched its TikTok competitor, called Reels.

  • Snapchat's news comes days after Twitter said it would be adding Fleets, which are basically Snapchat stories for people who tweet. (Nearly every social media app has launched some version of Stories in the past few years.)

The big picture: Instagram launched 10 years ago as a photo-sharing app for artists and design buffs, but now includes everything from live video to shopping to help those creators market and sell their ideas and goods.

  • Snapchat was created as a private messaging app between close friends, but today includes professionally-curated content, games and maps to help close friends develop deeper relationships.
  • Twitter was created as a public ideas platform, but over the years it's made it easier to share images, videos and audio to help users discuss current events.

What to watch: As social media companies adopt similar features, expect them to emphasize how their core values shape their versions of those features.

  • For example, Snapchat was deliberate about making sure Spotlight would be set to private mode by default and wouldn't include public counts of comments, likes or shares.

My thought bubble: Wall Street is fickle on copycats. Snap shares soared to the highest level ever on the back of its announcement. Investors similarly loved Reels. But Twitter shares barely budged after it debuted Fleets.

See you back here tomorrow.

Quote: "Too many of us who hold public office think that the world is there for us, that the sun rises and sets on us because we have been privileged to serve, and that's just not the case."

Who said it: David Dinkins, New York City's first Black mayor, said the above quote in an interview with NPR in 2013.

  • He continues: "The attitude should be the reverse. Those of us who have been privileged to serve should receive it that way and say, I owe you."
  • Dinkins, who was voted out after one term as he struggled with the city's economic trouble and rising crime and drug addiction, died on Monday. He was 93.