Safe Space

What’s Going On Here?

You can’t be too careful in times like these, which might be why the European Central Bank (ECB) announced even more support measures late last week.

What Does This Mean?

With new coronavirus hotspots forcing parts of Europe back into lockdown, the ECB’s concluded that the region’s economy will shrink 2% this quarter compared to the one before. So on top of calling for individual governments to help their countries directly, the central bank announced extra support of its own: it’ll spend an additional $600 billion buying eurozone bonds, and reinvest the money it earns into other bonds until 2023 – longer than it’d originally planned.

When central banks buy lots of bonds, it pushes their prices up and yields – which investors use to determine interest rates on new loans – down. So by upping the amount of its bond-buying program and extending its length, the ECB has effectively promised businesses and governments to keep those rates low. That low cost of borrowing should then encourage them to take out loans, spend money, and help grow the economy.

Why Should I Care?

For markets: Big move energy.
The euro rose by about 0.2% versus the US dollar after the ECB’s announcement, which is a pretty significant move for a currency (even if it doesn’t sound like one). That suggests European assets are becoming more popular with investors again – not least with the ECB itself, which will, according to Bloomberg, own 40% of all German government bonds by the end of next year.

The bigger picture: Envy, thy name is European banks.
Across the Channel, the Bank of England gave UK banks the go-ahead to start paying dividends again – an early Christmas gift for shareholders who rely on that income. There were various strings attached to make sure they don’t find themselves short of cash if there’s another downturn, but at least they can pay something: European banks’ own dividend ban looks like it’ll keep going into next year…

You might also like: How central bank policy affects your bank account.

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There’s Value To Be Squeezed From EM Stocks

What’s Going On Here?

US stocks might’ve proved a solid trade for the last decade, but the last time current valuations were this high was right before the dotcom bubble burst.

Instead, you could find the real value in emerging market (EM) stocks.

See, asset manager Schroders thinks EM stocks could outperform their US counterparts by about 40% over the next two years.

And Goldman Sachs argues that EM companies could see their earnings grow by 19% over the same period – compared to just 2% in the States.

That means they have higher earnings growth and more favorable valuations – and we haven’t even touched on how a rally in commodity prices could help them.

That’s today’s Insight, along with how you can invest in EMs.

What’s Going On Here?

Oracle is helping businesses clean house and make a fresh start: the US software company reported stronger-than-expected quarterly earnings late last week.

What Does This Mean?

It’s no secret that the cloud computing industry is big and getting bigger, but Oracle hasn’t benefited from its pandemic-driven growth this year as much as, say, Amazon and Microsoft have. The company’s would-be customers, after all, reprioritized their spending plans back in the spring and ultimately decided not to splash out on upgrading their software. And Oracle – in name and nature – found itself warning that there’d be tough times ahead.

Now, though, there’s light at the end of the tunnel, which might be why Oracle’s services were at the top of its customers’ shopping lists last quarter. The software giant delivered higher sales and profit than analysts predicted after having previously lowered those expectations, and it increased its earnings forecast for this quarter too.

Why Should I Care?

For markets: Disposable products.
Oracle’s shares initially climbed 2% on Friday, taking this year’s rise to 14%. But while that’s roughly the same as the overall US stock market, it’s miles behind cloud rivals Amazon and Microsoft, whose shares are up 67% and 33% respectively. And Oracle may never catch up: it’s admitted that its customers don’t see its services as an essential expense in a pandemic, which could mean they’re the first to get the chop if things go south again.

Zooming out: A buffering rivalry.
One cloud service that has proved itself essential during the pandemic is video-streaming. Just look at Disney, which announced last week that Netflix-rival Disney+ now has 87 million subscribers, and could have as many as 260 million by 2024 (tweet this). That – along with new content announcements – seemed to press all the right buttons with investors, and they sent its stock to an all-time high.

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There’s Value To Be Squeezed From EM Stocks

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