Trends We’re Tracking: New Ground for Amazon, Deep Impacts of Ukraine Conflict
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Amazon now offering in-home healthcare
Amazon.com, Inc. formally launched its nationwide telehealth service, Amazon Care, earlier this month to capitalize on the surge in demand for healthcare at home. The long anticipated program touts convenience and comfort. It offers virtual visits 365 days a year and, if needed, an in-person medic dispatched to your home within 60 minutes and prescriptions delivered to your doorstep in less than two hours.1
The pilot program was launched prior to the onset of the pandemic in 2019 but moved to center stage as consumers embrace technology-driven solutions to everyday problems. Amazon Care marks a monumental intersection of the consumer discretionary, information technology, and health care sectors. With the acceleration of a technology-driven society, it is likely that we will continue to see many more examples of sectors colliding in years to come.
Ukraine conflict impacts financial conditions
From an economic viewpoint, Russia’s invasion of Ukraine is likely to have large negative impacts on the global economy. The conflict between these two nations is expected to reduce global economic growth as Russia faces steep financial sanctions, flame further inflation as a result of reduced commodity supplies, and increase the risk of further escalation. As a result, many expect that the Fed’s near-term monetary policy may need to adjust for the added uncertainty. Before the outbreak of war, the market expected that in the March FMOC meeting the Fed would increase the target interest rate by 50 basis points, bring it to a range of 0.50 percent to 0.75 percent. Additionally, the yearend market implied rate suggested a total rate hike of over 160 basis point in 2022. But now the market is pricing in a rate increase of only 0.25 percent for this month, with a full year rate hike of just over 110 basis points.2 Despite the negative impacts from the war in Ukraine, the fed is still expected to tighten its monetary policy in an effort to fight historic levels of inflation.
Cryptocurrencies’ role in the Ukraine crisis
The outbreak of war in Ukraine has tested one of bitcoins major investment themes, that of store of value and serving as “digital gold”. Upon the invasion of Ukraine, gold rallied almost 3.5 percent as investors sought safety, and over the past week gold has delivered on its time-tested ability to protect in times of crisis. Meanwhile the price of bitcoin has performed consistent with its longer history of extreme volatility, initially selling off more than 10 percent and subsequently rallying back, up as high as 16 percent. The digital asset’s volatile price movement during this period of crisis suggest that bitcoin still largely trades as a speculative, risk asset.
Regardless of bitcoin’s volatility over the past week, bitcoin and a few other cryptocurrencies are beginning to play an interesting role in this conflict. First, the Ukrainian government tweeted that it will accept donations in the form of Bitcoin, Ethereum, and USDT,3 and has so far received over $50 million worth of cryptocurrency donations from individuals and companies all over the world. This has benefited the nation’s war effort, as the country’s capital controls have made it difficult for foreign investors to participate in Ukraine’s war bond issuance.4 Additionally, the government has announced plans to issue its own collection of non-fungible tokens (NFT) in a continued effort to fund its armed forces. The specific details of the NFT mint have not yet been announced.5
On the other side of the crisis, many worry that Russia and its supports will use crypto to as a way to circumvent steep financial sanctions designed to cripple Russia’s war effort.
This crisis is highlighting the good and the bad that can come from crypto’s decentralized and censorship-resistant nature. Furthermore these actions highlight the growing adoption of crypto, and its incorporation with the global financial system. Only time will tell what lasting impacts crypto will have on geopolitical relations, and the global financial system.
Unintended casualties of the Ukraine crisis
Human tragedies aside, the most immediate yet somewhat expected damage to global economy has been surging commodities prices since Russia invaded Ukraine, as both countries are big commodities producers. For example, both crude oil and wheat prices have surged nearly 50 percent so far this year. European bank stocks were hit hard – using EUFN as a proxy, they plunged nearly 20 percent in just a little over a month from 52-week high all the way to 52-week low. Travel related company stocks such as airlines and hotels were also hit hard - just when Omicron is under control and people worldwide are excited to travel again, NATO allies and Russia ban each other’s airlines to fly over their respective air space.
As the Ukraine crisis continues and deepens, more disruption to global economy is likely and more unintended casualties may emerge. On a macro level, it will serve as another and potentially more damaging setback to globalization than the U.S.-China trade war. While the trade war between the two world’s largest economies is mostly for political show and geopolitical posturing, the Ukraine crisis is a rude wakening that globalization has its serious limitations.
Share buybacks continue to surge
Share buybacks continue to surge in the U.S., as companies are tapping into their pandemic cash hoards. While some market participants argue that a company’s excess cash is better spent on business, others like the fact that buybacks boosts the per-share earnings. Tech giants like Apple, Meta, and Alphabet spent more than $54 billion on buybacks in Q4 2021. This trend is expected to remain intact as companies continue to announce future buybacks. Walmart is expected to spend around $10 billion on the repurchase, Twitter around $4 billion, and Exxon Mobil around $10 billion.6 Twitter has even issued around $1 billion in junk bonds to fund some portion of that repurchase.7
This phenomenon is not limited to, U.S. alone, as global giants like HSBC and British Petroleum (BP) has also announced their intention to repurchase shares.8 The trend is expected to continue in Hong Kong and China markets too. While the recent escalation of geopolitical tension and its associated uncertainty may influence a company’s cash utilization plan, early signs indicate that the buyback party might continue. 9,10 BP who has announced its intention to exit its stake in Russian oil major Rosneft, has conveyed its intention to keep the distribution and buyback plans intact, in spite of staring at a significant write-down cost.11,12
Russia’s invasion of Ukraine crimping commodity supplies, challenging growth, and driving inflation
By: Michael Wedekind, CFA
Over the last week, most of the world has watched with a mix of horror and revulsion as the Russian military has invaded Ukraine in a war of choice that represents the most dangerous state-to-state clash in Europe since the end of the Second World War. The images of deliberate Russian strikes on Ukrainian civilian targets and the resulting humanitarian and refugee crises call to mind some of the darkest moments of the last century. While leaders in the United States, member states of the European Union, and other aligned countries were clear that there would be severe consequences for the Russian political elite if the past several months’ buildup of troops and material on the Russian frontier with Ukraine resulted in an invasion, the sanctions they have levelled against Kremlin-linked oligarchs, key financial institutions, and even Russia’s central bank were far more biting than most observers had previously expected.13
As direct military conflict between Russia and Ukraine’s allies in NATO could quickly escalate to nuclear war, one of the key avenues by which Western countries are striving to change the Kremlin’s risk-reward calculus is through the swift imposition of economic sanctions. Western governments have cancelled the Nord Stream 2 pipeline, cut specific banks off from the SWIFT interbank messaging service, and frozen a substantial portion of the Bank of Russia’s approximately $640 billion in foreign exchange reserves held in banks beyond the Russian government’s jurisdiction. Given European dependence on Russian natural gas, which makes up roughly 17 percent of the global supply, and the U.S.’ concern that sanctions on Russia’s energy sector could destabilize its and its allies’ economies, such measures have not been implemented as of March 3. However, that hasn’t stopped energy prices from spiking on geopolitical risk; Brent crude closed at over $110/barrel and Dutch natural gas futures have recently exhibited gut-churning volatility.14,15,16
While the link between Russia-Ukraine hostilities and high energy prices is clear, perhaps less widely recognized is the extent to which the Russian and Ukrainian economies contribute to global exports of grains, fertilizer, industrial metals, and other crucial inputs to global manufacturing. Ukraine has long been one of the world’s crucial “bread baskets” and, combined with Russia, accounts for over one fourth of global wheat output. The war appears highly likely to seriously disrupt Ukraine’s agricultural output, while Russian supplies may be shunned by many foreign buyers. Fertilizer was already in short supply prior to the onset of hostilities since the EU sanctioned Belarus over human rights abuses last year, which in turn led Russia and China to institute export restrictions to conserve domestic stores. Russia also accounts for a significant share of nickel, aluminum, palladium, and neon production, which serve as crucial inputs for a wide array of crucial goods, such as batteries, catalytic converters, and microchips.17,18,19
After a year of price increases unseen for decades in most countries, this conflict’s upward pressure on energy, food, and key input prices is poised to further erode global consumers’ purchasing power. While rising prices will benefit producers, analysts expect the net effect to be a slowing of global economic growth, which will likely compound the severe first-order contractions presently transpiring in the Ukrainian and Russian economies. While there is no doubt some winners from this conflict, at least economically speaking, they are vastly outnumbered by those poised to lose something or someone as a result.
1. Annie Palmer and Bertha Coombs, “Amazon rolls out its telehealth service nationwide,” CNBC, February 8, 2022, https://www.cnbc.com/2022/02/08/amazon-care-telehealth-service-launches-nationwide.html
2. Edward Bolingbroke and James Hirai, “Traders Abandon Bets on a Half Point Fed Rate Hike in March,” Bloomberg, March 1, 2022, https://www.bloomberg.com/news/articles/2022-03-01/traders-abandon-bets-on-a-half-point-fed-rate-hike-in-march
3. Ukraine [@Ukraine] (February 26, 2022) Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT. Twitter. https://twitter.com/Ukraine/status/1497594592438497282
4. Robert Smith and Tommy Stubbington, “Ukraine to issue ‘war bonds’ to fund armed forces,” Financial Times, February 28, 2022, https://www.ft.com/content/faf894e7-f7a8-4a48-a7ce-2738441ac079
5. Cristina Criddle, “Ukraine plans to issue NFT collection to fund armed forces,” Financial Times, March 3, 2022, https://www.ft.com/content/b4e13435-a818-4d80-94a4-4149a702a094
6. Jess Menton, Matt Turner, and Tom Contiliano, “Surging U.S. Share Buybacks Offer Support to Sputtering Market,” Bloomberg, February 19, 2022, https://www.bloomberg.com/news/articles/2022-02-19/surging-u-s-share-buybacks-offer-support-to-sputtering-market?
7. Olivia Raimonde, Naomi Nix, and Gowri Gurumurthy, “Twitter Is Selling $1 Billion of Junk Bonds to Fund Share Buyback,” Bloomberg, February 23, 2022, https://www.bloomberg.com/news/articles/2022-02-23/twitter-selling-1-billion-of-junk-bonds-to-fund-share-buyback?
8. Harry Wilson and Ambereen Choudhury, “HSBC Takes $450 Million Hit on China Property, Plans Buyback,” Bloomberg, February 22. 2022, https://www.bloomberg.com/news/articles/2022-02-22/hsbc-to-buy-back-another-1-billion-of-shares-as-profit-jumps?
9. Laura Hurst, “BP Promises Another $1.5 Billion Buyback as Profit Soars,” Bloomberg, February 8, 2022, https://www.bloomberg.com/news/articles/2022-02-08/bp-to-buy-back-another-1-5-billion-of-shares-as-profit-soars?
10. Cheryl Heng, “Record stock buybacks to boost Hong Kong stock returns this year, Goldman strategists say,” South China Morning Post, February 22, 2022, https://www.scmp.com/business/markets/article/3167839/record-stock-buybacks-boost-hong-kong-stock-returns-year-goldman?
11. Laura Hurst and Emma Ross-Thomas, “BP to Exit Rosneft Stake and May Take a $25 Billion Hit,” Bloomberg, February 27, 2022, https://www.bloomberg.com/news/articles/2022-02-27/bp-to-exit-its-20-shareholding-in-russian-oil-producer-rosneft?sref=FQLZBxZG
12. BP Press Release, “bp to exit Rosneft shareholding,” February 27, 2022, https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-to-exit-rosneft-shareholding.html
13. Patricia Cohen and Jeanna Smialek, “The West’s Plan to Isolate Putin: Undermine the Ruble,” The New York Times, February 28, 2022, https://www.nytimes.com/2022/02/28/business/russia-sanctions-central-bank-ruble.html
14. Doina Chiacu and Timothy Gardner, “U.S. weighs sanctions on Russia energy flows, but time is not 'right now',” Reuters, March 2, 2022, https://www.reuters.com/business/energy/us-open-sanctioning-russian-energy-sector-white-house-2022-03-02/
15. Neil Hume, Tom Wilson, and Emiko Terazono, “Commodity prices soar to highest level since 2008 over Russia supply fears,” Financial Times, March 3, 2022, https://www.ft.com/content/5753f4dd-1e8e-4159-a4e4-d232e4ad50ed
16. Emiko Terazono, Heil Hume, and Nic Fildes, “War in Ukraine: when political risks upturn commodity markets,” Financial Times, March 2, 2022, https://www.ft.com/content/cf0212cf-21f3-4520-ae5f-136ce3f78afc
17. Katia Dmitrieva, “U.S. Inflation Is Set for Even Hotter 2022 Due to War’s Impact,” Bloomberg, March 3, 2022, https://www.bloomberg.com/news/articles/2022-03-03/u-s-inflation-set-for-even-hotter-2022-due-to-war-s-impact?srnd=premium
18. Verity Ratcliffe and Brian Wingfield, “European Gas Futures Swing Wildly as Market Faces War Volatility,” Bloomberg, March 3, 2022, https://www.bloomberg.com/news/articles/2022-03-03/european-gas-rally-continues-with-focus-on-sanctions-on-russia
19. Patricia Cohen, “Within Days, Russia’s War on Ukraine Squeezes the Global Economy,” The New York Times, March 2, 2022, https://www.nytimes.com/2022/03/01/business/economy/russia-ukraine-sanctions-economy.html
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