Don’t slam on the fiscal brakes too soon, warns OECD
A robust recovery in China should help global GDP — the broadest measure of economic health — recover to pre-pandemic levels by the end of next year.
That’s according to the Organization for Economic Cooperation and Development, which released its latest forecasts on Tuesday.
“For the first time since the pandemic began, there is now hope for a brighter future,” OECD chief economist Laurence Boone said in the report. “Progress with vaccines and treatment have lifted expectations and uncertainty has receded.”
But a resurgence of Covid-19 in Europe and the United States has clouded the outlook, and the OECD is warning governments not to withdraw their assistance to struggling workers and businesses too soon.
Following recent restrictions aimed at controlling the spread of the virus, which could remain in place through the winter, the Paris-based agency has revised down its estimate for growth next year. It now expects GDP growth to reach 4.2% in 2021, down from its 5% prediction in September.
Boone told me that one of the biggest risks to the outlook is that governments read the imminent arrival of safe and effective vaccines as permission to ease up on unprecedented fiscal support. In fact, she said, targeted measures remain hugely important during an uncertain period.
“It will take time until we have collective immunity,” Boone said. “In the meantime, governments need to continue what they have done this year.”
One of the worst outcomes would be that leaders repeat the mistakes of the 2008 financial crisis, she added. At the time, as anxiety about soaring debt loads grew, politicians in top economies moved to slash spending. That’s now believed to have made for a longer and more grueling recovery.
“Fiscal austerity is not for 2021,” Boone said.
Federal Reserve Chair Jerome Powell, who is due to testify before the Senate Tuesday, appears similarly hesitant to endorse the arrival of Covid-19 vaccines as a cure-all for the economy.
“Recent news on the vaccine front is very positive for the medium term,” he will tell lawmakers, according to prepared remarks. “For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”
Per Powell, it “remains difficult to assess the timing and scope of the economic implications of these developments with any degree of confidence.”
Such words of caution come as US politicians debate the next round of fiscal aid, whose fate may be tied to the outcome of Senate runoff elections in Georgia in early January. In the meantime, economists are increasingly worried Americans aren’t getting the help they need.
“Massive monetary and fiscal responses have protected households and businesses,” the OECD said in its report. “However, in the absence of a new substantial fiscal stimulus program, a severe fiscal cliff would result in a rapid withdrawal of support to households, massive layoffs and a wave of bankruptcies.”
That’s not the OECD’s baseline assumption. But as the Covid-19 crisis drags on and spending fatigue grows, it’s clearly a fear.
November was a spectacular month for stocks
Economists and policymakers are maintaining a cautious tone. But November — which brought Joe Biden’s election as the next US president and promising news on the development of Covid-19 vaccines — was an incredible month for markets, which entered full-on euphoria mode.
Unlike earlier this year, gains weren’t isolated to big US tech stocks.
- Despite a sharp pullback Monday, the Dow Jones Industrial Average soared nearly 12% in November, its best month since January 1987.
- The Russell 2000, which is comprised of smaller US stocks, climbed more than 18%, its best month since the index was created, per Deutsche Bank. The same goes for the STOXX 600 index of European shares, which rose 13.7%.
And it wasn’t just stocks that benefited from growing optimism.
- Brent crude futures, the global benchmark for oil prices, jumped 27% in November.
- The price of Bitcoin, which reached an all-time high of roughly $19,860 on Monday, leaped nearly 40%.
“The major catalyst for this has been the incredibly positive vaccine news that’s come out in recent weeks, with [three] different candidates releasing results, and efficacy numbers at the upper end of expectations,” Deutsche Bank’s Henry Allen and Jim Reid told clients Tuesday. “In turn, that’s alleviated fears that society will have to learn to live with the virus on a more permanent basis and offers the hope of a much quicker return to normal than had been anticipated only a month ago.”
The notable outlier was the US dollar, which fell 2.3% against a basket of other major currencies. Vaccine developments have erased safe-haven demand, according to UBS. Loose monetary policy from the Fed is also weighing on the currency, according to the bank’s strategists.
DoorDash joins the parade of unicorn IPOs
Demand for initial public offerings has roared back to life on Wall Street, and DoorDash is getting in on the action.
The company, whose shares are expected to begin trading this month, disclosed in a filing with the Securities and Exchange Commission Monday that it was looking to price its IPO between $75 and $85 a share, with 317.7 million shares outstanding.
At the high end of that range, DoorDash would be valued at $27 billion, my CNN Business colleague Paul R. La Monica reports. That’s up from a valuation of $16 billion the last time the delivery service tapped private markets, according to research firm CB Insights.
Demand for shares is expected to be intense. DoorDash competes in the closely-watched food delivery business with Uber and Grubhub, which was acquired this summer by Netherlands-based Just Eat Takeaway.com.
Coming up: DoorDash isn’t the only hot IPO in town. Airbnb’s stock is also due to start trading this month.
While the pandemic has helped food delivery startups, it’s been tougher on those in the hospitality sector. The company was valued at $18 billion earlier this year — still massive, but a sharp pullback from the $31 billion valuation it commanded before Covid-19.
Fed Chair Jerome Powell and outgoing Treasury Secretary Steven Mnuchin testify before the Senate Banking Committee starting at 10 a.m. ET.
- The ISM Manufacturing Index for November also arrives at 10 a.m. ET.
- Salesforce reports earnings after US markets close.
- Oil prices are struggling to find direction after OPEC and Russia delayed until Thursday a tough call on whether to start pumping more crude.
Coming tomorrow: Snowflake, the cloud data company whose stock has soared more than 170% since its September IPO, shares its latest results.