Weekly Business Roundup
Publication 9- Amazon Look To Push Further Into Healthcare, U.K Inflation Hit A New 40-Year High, and Saudi Arabia Unveil Plans To Build Largest Man-Made Structure
Published Sunday, July 24th 2022
This week, unconvincing earnings reports failed to faze investors, the ECB raised it’s rates for the first time since 2011, and Russia dishonour grain-export agreement hours after signing it.
Business
Amazon To Push Further Into Healthcare With Acquisition of One Medical
Amazon.com is buying an operator of primary-care clinics, a significant expansion that will help the tech giant offer medical services to a large pool of employers and individuals and that underscores its sweeping ambitions in healthcare
The $3.9 billion deal, including debt, for 1Life Healthcare Inc., which operates a primary-care practice under the name One Medical, is the first major acquisition announced during the tenure of Chief Executive Andy Jassy, for whom expansion into healthcare is a top priority
Amazon.com CEO, Andy Jassy
Amazon will gain access to a practice that operates more than 180 medical offices in 25 U.S. markets and works with more than 8,000 companies to provide health benefits to employees, including with in-person and virtual care. That adds significantly to a smaller service Amazon launched in 2019 and for which it had signed up a limited number of employers in the last year.
“We think healthcare is high on the list of experiences that need reinvention,” said Neil Lindsay, senior vice president of Amazon Health Services. “We see lots of opportunity to both improve the quality of the experience and give people back valuable time in their days.”
The deal adds momentum to the push by technology and retail giants to make inroads into the nation’s $4 trillion healthcare economy. That push, along with new technology and medical discoveries, has fueled growth of medical care outside of hospitals and patients now more regularly seek care in more convenient and lower-cost settings. Demand for telehealth during the pandemic increased the use of virtual care.
Yet the healthcare industry, which is governed by state and federal regulations and an array of companies and providers operating in myriad ways, has proven notoriously difficult to disrupt. An earlier attempt to expand into healthcare, a joint venture set up by Amazon, Berkshire Hathaway Inc. and JPMorgan Chase & Co. called Haven, fizzled after three years. The three companies spent roughly $100 million but struggled to manage fundamental issues related to the cost of healthcare, data and staff turnover.
Once the deal closes, One Medical Chief Executive Amir Dan Rubin will remain as CEO of the business.
“We think healthcare is high on the list of experiences that need reinvention. We see lots of opportunity to both improve the quality of the experience and give people back valuable time in their days”
Weak Earnings Reports Fail To Scare Investors After Brutal Year for Stocks
Investors appear to be taking disappointing earnings reports in stride. After a punishing start to the year, the S&P 500 has climbed nearly 5% in July, including last week’s 2.5% rise. Even some companies that have posted sharply lower quarterly results have seen their shares rally in the following days.
Bank of America Corp. posted a slimmer-than-expected profit last week, yet its shares finished the session little changed and jumped 3.4% the subsequent day. Netflix Inc. said it lost nearly a million subscribers, and its stock jumped 7.3% in the next session. Tesla Inc. snapped its streak of record quarterly profits, yet its shares rallied 9.8% the following day. All three stocks have underperformed the broader market this year.
So far this reporting season, shares of companies in the S&P 500 that have missed earnings expectations have slipped 0.1% on average in the two days before their report through the two days after, according to FactSet. That compares with the five-year average of a 2.4% decline.
With inflation at a four-decade high and the Federal Reserve in the midst of an aggressive campaign to raise interest rates to rein in rising prices, many investors say they had braced for a messy quarter. Companies across industries have pointed to higher input costs and waning consumer demand.
“It just hasn’t been the train wreck that I think investors were predicting,” said Sandy Villere, portfolio manager at Villere & Co. “Sentiment was pretty negative going into earnings.”
Still, few investors are willing to call a bottom to a selloff that has dragged the S&P 500 down 17% in 2022, and many are predicting more volatility for the rest of the year.
“It just hasn’t been the train wreck that I think investors were predicting”
Economics
U.S Recession More Likely If Federal Reserve Continue To Fight Inflation Alone
After the 2008 financial crisis, the U.S. relied heavily on the Federal Reserve to stimulate growth, leading to a frequent quip that monetary policy had become the “only game in town.”
Now, high inflation is fanning fears this is true again but in the opposite direction: Washington risks relying excessively on the Fed to lower inflation by reducing demand rather than have other policy makers work to increase the economy’s capacity to supply more goods and services or workers.
The danger is the Fed will raise interest rates higher for longer than otherwise, creating a deeper downturn.
Inflation has soared because supply and demand are out of whack. Demand surged after the economy’s reopening and aggressive government stimulus. Later, Russia’s invasion of Ukraine aggravated supply-chain disruptions and drove up energy and commodity prices.
The White House says combating inflation is primarily the Fed’s responsibility but that it will act to reduce prices where possible. For example, it has called for allowing Medicare to negotiate prescription drug prices. A separate bill before Congress would boost the domestic production of microprocessors.
Fed officials, meanwhile, have indicated that if forced to choose between bringing down inflation or preventing a recession, they would select the former. “Our mandate says, ‘price stability.’ It doesn’t say, ‘price stability unless Putin invades Ukraine,’” Fed governor Christopher Waller said recently.
Federal Reserve Governor, Christopher Waller
Fed officials are expected to raise interest rates Wednesday by 0.75 percentage point, which would bring their benchmark rate to a range between 2.25% and 2.5%.
Rate increases slow the economy and cool inflation by reducing asset prices and raising borrowing costs, which damps investment, hiring and spending. Higher rates can’t fix supply-chain bottlenecks or increase oil production or refining capacity, and more expensive borrowing threatens to worsen some of those constraints by deterring new investment.
Fed Chairman Jerome Powell said last month he worried governments were relying too much on monetary policy. “There’s much too much focus on demand management and not enough on things that will make us grow at the maximum sustainable level,” he said.
“Our mandate says, ‘price stability.’ It doesn’t say, ‘price stability unless Putin invades Ukraine’”
ECB Raise Rates By Half-Percentage Point
The European Central Bank raised interest rates by a larger-than-expected half-percentage point and unveiled a new plan to buy the debt of Europe’s most vulnerable economies, seeking to protect the currency union as it navigates the twin threats of skyrocketing inflation and slowing economic growth.
The move takes the ECB’s key interest rate to zero, ending the bloc’s eight-year experiment with negative interest rates and capping two weeks of drama for Europe, which saw Russia cut and then restart the supply of vital natural gas, along with the collapse of Italy’s government.
The rate increase comes despite rapidly accumulating challenges facing Europe’s economy and the currency union’s cohesion—from a looming energy crisis to a protracted war next door, mounting political instability at home, and what many economists think has become an inevitable recession. Some of these could make it difficult for the ECB to focus on combating inflation.
The ECB’s decision brings it more into line with other central banks, including the Federal Reserve, underscoring how the bank’s top officials are increasingly worried about high inflation. The Fed is expected to raise its policy rate by 0.75 percentage point later this month to a range between 2.25% and 2.5%. Inflation has risen to about 9% on both sides of the Atlantic, and shows no sign of abating soon.
“There was tremendous pressure going into this meeting,” said one person familiar with the ECB’s discussions. “The euro is weak, and you have the Fed which might raise rates by 75 or even 100 basis points. And then you come out with 25?”
For weeks, ECB President Christine Lagarde had telegraphed that the ECB would raise rates only gradually, starting with a quarter-percentage point this month. On Thursday, she said the bank expected inflation to remain high for some time, partly due to the euro’s falling exchange rate against the dollar, which raises import prices.
ECB President, Christine Lagarde
Thursday’s twin announcement reflects a compromise within the bank. While monetary policy hawks on its boards had long pleaded for a big rate increase to combat inflation, those from heavily indebted countries feared this could spook investors, making it hard for them to roll over this debt, especially given mounting recession risks.
The combination of a robust rate rise and a new policy instrument designed to shield some of the bloc’s most indebted members from excessive borrowing costs was a bargain between the two positions, people familiar with the matter said.
U.K. Inflation Hits a New 40-Year High of 9.4%
The U.K.’s annual rate of inflation rose to a new four-decade high, outpacing increasingly rapid wage growth and weakening the country’s economic outlook during a period of political vacuum.
The U.K.’s Office for National Statistics Wednesday said consumer prices were 9.4% higher in June than a year earlier, the highest rate of inflation since 1982 and a pickup from 9.1% in May. The figure marks the fastest rise in prices for a Group of Seven economy since the global surge began at the start of last year.
Economists expect the annual rate of consumer-price inflation to increase further. The Bank of England has said it should top out at around 11% in the final months of the year. The U.K. sets a ceiling on home energy prices twice yearly, and the next adjustment is due in October, when a further rise of 50% is expected.
“The inflation outlook remains grim,” said Sanjay Raja, an economist at Deutsche Bank. “Our updated projections now show CPI peaking at 11.3%.”
The continued acceleration of price rises makes it very likely that the BOE will raise its key interest rate when policy makers meet in early August. The U.K.’s central bank has raised its key rate by a quarter of a percentage point at each of its last five meetings.
When it last met, the BOE said more forceful action may be needed.
“In simple terms, this means that a 50 basis point increase will be among the choices on the table when we next meet,” said BOE Governor, Andrew Bailey in a speech Tuesday. “50 basis points is not locked in, and anyone who predicts that is doing so based on their own view.”
Bank Of England Governor, Andrew Bailey
Mr. Bailey also said the BOE would lay out a plan for selling some of the government bonds it bought under a series of stimulus programs known as quantitative easing. He said sales could start as early as September, and total between £50 billion and £100 billion in the first year, equivalent to $60 billion and $120 billion.
“The inflation outlook remains grim. Our updated projections now show CPI peaking at 11.3%”
World
Russia Strikes Odessa Port After Signing Deal to Unblock Ukrainian Grain Exports
Russia launched a missile attack on Ukraine’s key grain-exporting port of Odessa, officials said, hours after signing an international agreement to ease its blockade of the Black Sea coastline and allow for the safe transport of grain and other foodstuffs necessary to alleviate a looming global food crisis.
The attack on Odessa appeared to violate the terms of the United Nations-brokered agreement signed by Russia and Ukraine in Istanbul on Friday, which stipulated that both countries would refrain from attacking port facilities or civilian ships used for grain transport. U.N. Secretary-General António Guterres condemned the strike, saying in a statement that all parties had committed to ensuring the safe movement of Ukrainian grain shipments.
U.N. Secretary-General, António Guterres
At least two Russian Kalibr cruise missiles hit Odessa, the only major Ukrainian port resisting Russian occupation, damaging infrastructure at the site, Ukraine officials said. Another two of the missiles, which Russia has been launching from warships and submarines, were shot down by aerial defenses, officials said.
A railcar discharging point and a warehouse used for loading grain were destroyed in the attack, according to international grain traders.
The target of the strike was likely a nearby shipbuilding yard, workers at the port said.
“It’s obvious that the agreement with Russia is not even worth the paper it was signed on…Russia is a terrorist state,” said Ukraine’s ambassador to Turkey, Vasyl Bodnar, who was present at the signing of the agreement.
Ukrainian Foreign Ministry spokesman Oleg Nikolenko said the attack on Odessa was like spitting in the face of the U.N. and Turkey, which facilitated and hosted the negotiations.
“We urge the U.N. and Turkey to ensure Russia’s compliance with its obligations to provide a safe corridor for the grain exports,” Mr. Nikolenko said in a statement posted to Facebook.
“Russia is a terrorist state”
Inside Saudi Arabia’s Plan to Build a Skyscraper That Stretches for 75 Miles
When Saudi Crown Prince Mohammed bin Salman directed authorities to develop land in the kingdom’s arid northwest, he demanded something as ambitious as Egypt’s pyramids.
Saudi Crown Prince, Mohammed bin Salman
What urban planners came up with in response are plans for the world’s largest structure: two buildings up to 1,600 feet tall, running parallel for 75 miles in a line across coastal, mountain and desert terrain, connected via walkways, according to hundreds of pages of confidential planning documents that lay out the idea for the first time in detail.
The project—dubbed the Mirror Line—builds on a previous announcement by Prince Mohammed of plans to create a linear community and is expected to cost up to a trillion dollars and house about five million people when fully completed, according to people aware of the plan and the documents.
A high-speed train will run under the mirrored buildings, the documents, which are from last autumn, show. To feed its residents, the project plans vertical farming integrated into the buildings. For entertainment, the Mirror Line plans a sports stadium up to 1,000 feet above the ground. It will also boast a marina for yachts that lies underneath an arch in the two buildings.
The Mirror Line is one of a series of high-profile projects that make up Neom, a development the size of Massachusetts conceived by Prince Mohammed to diversify the kingdom’s economy from its reliance on oil. Owned by Saudi Arabia’s sovereign-wealth fund, Neom wants to attract foreign investment and create thousands of new jobs.
But raising significant foreign interest and cash has been hard so far, with many Western countries and companies boycotting the kingdom and Prince Mohammed, its de facto ruler, over Riyadh’s record on human rights following the killing of journalist Jamal Khashoggi by Saudi agents in 2018.
That isolation by the West ended after last week’s high-profile summit between Prince Mohammed and U.S. President Biden, potentially paving the way for more foreign investments to come into Neom.