Six months ago exactly – on 9 November last year – Pfizer unveiled interim data from trials of a vaccine candidate known as BNT162b2, developed in partnership with German firm BioNTech. The numbers were far better than expected: 90% efficacy in preventing Covid.
“Today is a great day for science and humanity,” declared Albert Bourla, the company’s chief executive, a judgment that clearly still stands half a year later. Even as the pandemic still rages – appallingly in India, Brazil and many other places – the arrival of effective vaccines has been a turning point in the crisis.
Stock markets had half-anticipated good news and were already recovering, but a sensational run has still followed. The S&P 500, the main US index, has risen 18% since Pfizer’s announcement, to achieve a record high. In the UK, the FTSE 100 index is up 15% at 7130. That is still 500 points short of its pre-pandemic level, but the FTSE 250 index, stuffed with more domestic-focused companies, has recovered all of its lost ground.
Another roaring twenties may not be on the cards, but investors are clearly projecting more than mere normalisation. That hope is not unreasonable. In the US, pent-up savings, boosted by the lack of spending opportunities, are estimated to be $2.3 trillion (£1.6tn). Then there’s the Biden administration’s $2tn plan to rebuild America’s crumbling infrastructure, which follows a $1.9tn stimulus package. And it is set against a new political backdrop that says it’s OK to let the US economy run hot, and thus risk some inflation, in the interests of creating jobs and reducing inequality. So, yes, the ingredients for a mini-boom exist.
Copper and iron prices are at record highs and crude is back at $65 – all before the global recovery has got into its stride
Listen carefully and one can again hear the term “Goldilocks scenario” being used, meaning strong growth and just the right amount of inflation. Even Friday’s big miss in US jobs data – only 266,000 rejoining the jobs market instead of the expected million – was taken as encouraging news. It meant, ran the theory, that the Federal Reserve had fewer reasons to worry about an early return of inflation.
Stock markets, though, rarely present easy one-way bets. Amid the positivity, it is worth pointing to at least three reasons to worry. First, nobody really knows the size of the inflationary threat. While wage inflation may be low, prices of some raw materials are rocketing. Copper and iron ore have reached record highs and a barrel of Brent crude is back at $65, making last year’s talk of sub-$50 levels for years look fanciful. And it is happening before the global recovery has got into its stride.
Second, it’s hard to shake the worry that Jeremy Grantham, the veteran investor at GMO, may have been right in January when he warned that the post-2009 bull market had “finally matured into a fully-fledged epic bubble”. He listed a few symptoms: “extreme overvaluation, explosive price increases, frenzied issuance and hysterically speculative investor behaviour”.
One can think of examples: enormous daily movements in cryptocurrencies; the frenzy for Spacs, or special purpose acquisition companies; January’s flashmob fun at GameStop; and the blow-up at the Archegos hedge fund. So far, investors seem happy to regard them as isolated events. One could equally conclude there is a pattern of excess that may also have infected valuations of mainstream assets.
Third, the big one: the emergence of mutant variants that defeat current vaccines. This possibility seems to have been dismissed by markets on the grounds that the vaccines can be tweaked easily and effectively. They probably can be, but it’s not guaranteed.
Forecasting short-term market movements is a mug’s game, but a lot of good news seems to be baked into prices at current levels. A lot can happen in six months.
If Amazon paid no tax in Luxembourg, reform can wait no longer
The numbers no longer surprise and they aren’t getting any smaller. Amazon’s Luxembourg unit, through which it sells products to hundreds of million of people in the UK and across Europe, collected record sales income of €44bn (£38bn) in Europe last year.
The next figure is also expected, albeit at the other end of the scale: Amazon paid no corporation tax related to those sales (the unit made a €1.2bn loss and therefore didn’t need to line the grand duchy’s coffers). The question now is not whether such tax structuring needs to be tackled at an international level, but how.
And now, against the backdrop of these startling figures, the proposals are rushing in – with big backers behind them. The Organisation for Economic Co-operation and Development, a 37-member club of wealthy nations, is leading attempts to pull off global tax reform that will force multinationals such as Amazon and Apple to pay their fair share to treasuries around the world. President Joe Biden weighed in on the back of these talks last month, with a proposal that tech companies and large conglomerates pay taxes to national governments based on the sales they generate in each country, irrespective of where they are based.
Events this week could confirm which way the momentum is heading. On 12 May, Europe’s second-highest court will rule on Amazon’s appeal against an EU order to pay about €250m in back taxes to Luxembourg. In 2017, the European Commission – the EU’s executive arm – said Luxembourg had spared the online retailer from paying taxes on almost three-quarters of its profits from EU operations by allowing it to channel profits to a holding company tax-free.
Regardless of the ruling on 12 May, surely the days of such tax structuring are now numbered.
Soft furnishings in Sainsbury’s could be tough for Nickolds
At its last trading update, John Lewis was accused of turning into an Argos for the middle classes as it shut stores and moved increasingly online. And now Paula Nickolds, the store chain’s former boss, is taking charge of Sainsbury’s non-food empire, which has lots of middle-class shoppers and, of course, owns Argos.
The Sainsbury’s job is a far bigger one, in sales terms anyway, than running John Lewis. Nickolds will be responsible for a £7.8bn-turnover business that spans the catalogue chain, Habitat and Tu clothing.
Sainsbury’s says it wants its larger outlets to feel more like department stores as it fights back against the discounters, and the John Lewis lifer knows lots about selling clothes, home furnishings and gadgets, albeit in an upmarket environment.
Nickolds’s attempt to “reinvent the department store for the 21st century” when she took charge in 2017 was blown off course by changing shopping habits and the failures of Debenhams and House of Fraser. (This contributed to a profits collapse as rivals’ discounting put pressure on John Lewis’s “never knowingly undersold” promise.)
Nonetheless, she is an impressive figure and her arrival comes at a time when the receding pandemic means supermarket bosses must once again worry about Aldi and Lidl and try to make destinations of their biggest stores – which have enjoyed a renaissance as the big weekly shop made a comeback.
In recent years the major supermarkets, including Tesco, have retrenched from non-food areas. Habitat has potential but the Conran magic is hard to preserve when its cushions and vases are being sold next to baked beans – and that is before we even get to the cut-throat world of supermarket fashion.
Indeed, Nickolds may find she has jumped from the frying pan into the fire. As she well knows, it is hard enough for department stores to make a living out of being department stores, let alone for a supermarket to give it a try.