Axios Markets: Taper clock starts ticking ⏰

Plus: Job inequality worsens | Thursday, May 20, 2021

Open in app View in browser   Presented By OurCrowd   Axios Markets By Aja Whitaker-Moore ·May 20, 2021 Good morning and welcome back! (Today's Smart Brevity count: 1,242 words, 4.7 minutes.) ✏️This week my daughter learned about journalists during a second-grade lesson on careers. Find out the three things that stuck, as dictated by a 7-year-old.     1 big thing: Timing the taper Illustration: Sarah Grillo/Axios   Central banks around the globe are beginning to eye the exit ramp, writes Axios' Courtenay Brown and Kate Marino. Why it matters: As parts of the world are starting to rebound from the depth of the pandemic, investors are sketching out timetables for when central banks will pull back on those pandemic-era emergency programs that have helped ignite a financial asset boom. Make no mistake, it's early days and there's still an extraordinary level of monetary stimulus underpinning the global markets and economy. Driving the news: Minutes released Wednesday from the Fed's April policy meeting show some officials suggested that it "might be appropriate" to discuss the possibility of beginning to taper in upcoming meetings — if the economy continues to make "rapid progress." But, but, but: Since that meeting, there are more questions about the state of the labor market recovery, thanks to the April jobs report that missed expectations by a mile. What's happening: Canada's central bank last month said it would scale back its purchases and moved up the timing for a potential rate hike to year-end 2022. That's still a ways away, but it's among the most hawkish moves yet in a major economy. The Bank of England is slowing the pace of its weekly bond purchases, though policymakers overwhelmingly voted to keep the overall size of the program — a record level of quantitative easing — unchanged. (And BoE's Andrew Bailey says this isn't tapering.) The European Central Bank's June policy meeting is setting up to be a "showdown," Reuters reported this week. The big question is whether the ECB will signal a coming rotation out of its emergency-era bond-buying program and into a more stringent stimulus program. What to watch: For the Fed, all eyes are on its annual late-summer gathering in Jackson Hole — where it's historically signaled important policy shifts. The bottom line: The monetary stimulus faucet won't abruptly turn off. In the case of the Fed, it has "repeatedly said it will provide a long runway of guidance before tapering begins. This is the front end of that runway," Tim Duy, chief economist at SGH Macro Advisors, told the Wall Street Journal about the Fed minutes. Go deeper.     2. Catch up quick The steep cryptocurrency selloff this week does not pose a systemic risk to the U.S. economy, two Fed policymakers said on Wednesday. (Reuters) Tulsa Race Massacre survivors testified before Congress yesterday. They are seeking reparations for the continued damage to their community after a violent white mob in 1921 destroyed the Black economic hub, then known as "Black Wall Street." (CBS) Roviant Sciences plans to go public via a SPAC — and then buy back an affiliate it previously took public using a different SPAC. Roviant will buy the affiliate at a valuation that's several times what it sold the asset for in 2019. (Bloomberg) TikTok owner ByteDance's CEO and co-founder, Zhang Yiming, will step down as chief executive and move into another role by the end of the year. (CNBC)     3. The latest liquidity dilemma Data: S&P Global Market Intelligence; Chart: Axios Visuals U.S. markets needed liquidity last year, and the government helped provide it. Now, by at least one measure, that liquidity is starting to erode bank margins, Kate writes. What's new: Net interest margins at U.S. banks reached record lows on average in Q1 2021, according to new data from S&P Global Market Intelligence. That's largely due to a glut of cash sitting on bank balance sheets, along with the low-rate environment. Why it matters: The market debate is raging over whether the Fed should pull back from its unprecedented market support. Evidence of the bank cash pile is just one more data point that indicates there's extra money in the system. Yes, but: Banks are doing just fine, overall. In fact, they had record profits in Q1 2020, thanks to noninterest income in the form of stock trading, IPOs and SPAC formations. They're also poised to do even better, on the loan margin side, if and when rates go up. By the numbers: U.S. banks' median net interest margin — a measure of the difference between interest income and interest paid out — hit a record low in Q1, at 3.31%, from 3.37% in Q4 2020. That's down from a recent high of 3.7% in mid-2019. Among the top 20 largest U.S. banks, the median fell to 2.1%, from 2.18% the prior quarter and 3.1% in 2019. In Q1 2021, deposits grew 17% from the first quarter last year, while loan balances dipped 1.2% (or 5.5% when excluding the low-interest PPP loans). Banks' loan-to-deposit ratio fell to 59% in Q1, from 69% a year earlier. What they're saying: "Banks have a dilemma. They have all these deposits and are not able to deploy it into loans. They're also reluctant to put too much into securities because yields are so low. So right now, they're sitting on a lot of cash," S&P's Robert Clark tells Axios. The bottom line: The Fed and Treasury are not overly concerned about banks' lending profitability as they debate next steps. But the dilemma facing banks is one more side effect of the liquidity sloshing around the market.     A message from OurCrowd AI tech is forever altering the $1T drug development landscape     The average drug costs millions and can take decades to develop. CytoReason dramatically cuts costs and timelines with its AI platform. Already, five of the ten largest pharma companies use CytoReason. Now, you can invest in this groundbreaking tech. See the possibility of CytoReason.     4. Worsening job inequality in America Illustration: Sarah Grillo/Axios   Inequality in the U.S. is worsening by many measures — especially when it comes to employment, Axios' Hope King writes. Driving the news: The Job Quality Index (JQI), a measurement of "high" to "low quality" jobs in the private sector, has fallen to 80.5 last year from 81.1 in 2007. The 80.5 level signifies that 55% of workers were in low-quality jobs versus 45% in high quality. (High quality means weekly wages above the national average for non-management production jobs and low means it's below.) Axios is first to report the new findings from a group of research and industry analysts who publish the JQI monthly. They include economists from the Coalition for a Prosperous America, a trade group representing domestic sectors across farmers, manufacturers and labor organizations. The inequality shows drastic differences when broken down by race: 28% of Hispanic American workers held high-quality jobs in 2020, compared with 29% of Black American workers, and 61% of Asian American workers. Since 2007, Black American workers have seen a 6% decline in job quality versus a less than 1% decline nationally, a 29% increase for Hispanic workers and a 66% increase for Asian American workers. Why it matters: Worker pay has been at the heart of recent debates over the slowly recovering labor market. Following a year of shutdowns, companies like Amazon, Chipotle and McDonald's say they are finding it difficult to hire people and have started to bump up hourly pay.  Republican governors of more than a dozen states are ending federal unemployment programs months earlier than the September target, citing tight labor supply. The big picture: The pandemic demonstrated how communities of Black and Hispanic workers — women in particular — were disproportionately impacted by shutdowns, given how much more likely they were to have been in service sector roles. Go deeper.     5. Crypto's weak links Data: Coindesk; Chart: Sara Wise/Axios Binance and Coinbase, the world's two largest cryptocurrency exchanges, both had service disruptions Wednesday that intensified a crypto selloff, Kate writes. Why it matters: It's a signal that the exchanges are still not equipped to handle the full breadth of the mania. Hundreds of billions in investor money are at stake after crypto's explosive rise this past year. Binance temporarily disabled withdrawals in Ethereum and blamed network congestion. Coinbase also experienced delays. And Kraken said users experienced longer than usual processing times. By Wednesday evening, bitcoin had shed 14% on the day, and Ethereum lost 31%, according to Coindesk. Be smart: One of crypto's selling points is the fact that the currencies are decentralized. The fallibility of the exchanges could lead to greater adoption of decentralized exchanges, Bloomberg notes.     A message from OurCrowd AI tech could save pharma industry billions. Now is your time to invest     CytoReason dramatically cuts costs and timelines with its AI platform. What this means: Already, five of the ten largest pharma companies use CytoReason. Now, you can invest in this groundbreaking tech. See the possibility of CytoReason.   📓A second-grade lesson in journalism taught my daughter: A journalist writes and reports on the news. Journalists share information on what's happening in the world. Journalists used to only use paper and pencil. Now journalists use electronics such as smartphones, computers and newspapers to write about what they discovered and share it with the world. Send feedback or tips to aja.moore@axios.com or follow me on Twitter @AjaWMoore.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: