European stocks log modest gains as the quarter kicks off, boosted by China data

Upbeat economic gave European stocks a boost at the start of the third quarter on Wednesday, with German equities in the lead, but gains were muted elsewhere as investors waited for U.S. private-sector payrolls data due later.

The Stoxx Europe 600 index

rose 0.3% to 361.66, after a modestly higher close on Tuesday. The index logged a 12.5% gain for second-quarter, the best percentage gain since the first quarter of 2015. But that comes after an extremely weak first quarter, as the coronavirus pandemic emerged.

The German DAX

climbed 0.7%, with heavily-weighted auto maker Daimler

rising 1.2% and drugmaker Bayer

gaining over 3%.

Elsewhere, gains were more modest, with the FTSE 100

up 0.1% and the French CAC 40

down 0.1% each.

“Basically, traders are taking a break after a stellar second quarter, and more important, they do not want to bet big ahead of U.S. ADP data. There is also this constant battle of arguments between bulls and bears if the recovery in Chinese economic data can outweigh the spikes in coronavirus cases in the U.S.,” said Naeem Aslam, chief market analyst at AvaTrade.

The Caixin China manufacturing purchasing managers index (PMI) climbed to a six-month high of 51.2 in June from 50.7 in May. That data provides “further evidence that the world’s second-biggest economy has some serious momentum behind it.”

Upbeat data came from Europe as well, with the final eurozone manufacturing PMI rising to 47.4 in June, from a previous estimate of 46.9 and a May level of 39.4. The data add further to signs that “the eurozone factories are seeing a strong initial recovery as the economy lifts from COVID-19 lockdowns,” said Chris Williamson, chief business economist at IHS, in a press release.

Sentiment also rebounded sharply, but Williamson said production and sentiment remain below pre-pandemic peaks, and weak demand and social distancing will keep dragging on the recovery.

Dow Jones Industrial Average futures

were modestly lower, a day after the Dow

and the S&P 500

closed out the second quarter with the best performance in more than 20 years.

Caution was setting in ahead of a rush of U.S. data to be released before Friday’s July 4 holiday in the U.S. Wednesday’s ADP data is forecast to show 2.9 million private-sector jobs were added in June, following May’s 2.8 million decline, according to a survey from Barrons. Economists expect Thursday’s jobs data to show an employment gain of 3 million, after a surprising 2.5 million increase in May.

Among stocks on the move, oil companies were moving higher as U.S.

and Brent crude prices

climbed over 2%, after the American Petroleum Institute reported late Tuesday that U.S. crude supplies fell by 8.2 million barrels for the week ended June 26, according to sources.

Shares of BP


rose 1.7% and Royal Dutch Shell Group


rose 1.7%.

Leading the index gainers, shares of Clariant

rose 9% after the Swiss chemical group said it completed a $1.6 billion sale of its Masterbatches business to polymer materials maker PolyOne

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Micron shows how the cloud is saving chip makers

Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron

reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.

and Nvidia Corp.

made last quarter. On Monday, Xilinx Inc.

joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”


The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.

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Venmo and Square’s Cash App were going gangbusters before the pandemic — now they’re doing even better

Peer-to-peer payment platforms were already seeing explosive growth in the U.S. before the COVID-19 crisis gave them a new surge of momentum.

Services like Square Inc.’s

Cash App and PayPal Holdings Inc.’s

Venmo found new uses during the height of the pandemic as people looked for ways to tip service workers, donate to causes, and patronize businesses that had moved to offer digital services during lockdowns.

The services also allowed users to get their stimulus payments direct deposited through their platforms, which helped some people get their money more quickly and drove more users to try the Cash App, Venmo, and PayPal.

“I think we’re going to look back and it’s going to be a really important inflection point” for these services, KeyBanc Capital Markets analyst Josh Beck said of the COVID-19 crisis.

Don’t miss: Square and PayPal finally have a chance to prove they can beat the banks

“I think we’re going to look back and it’s going to be a really important inflection point.”

— Josh Beck, analyst, KeyBanc Capital Markets

Square disclosed on its latest earnings call that direct deposit volumes on its service grew by three times in April as customers moved to store more than $1.3 billion in aggregate balances on the Cash app during the month. PayPal Chief Executive Dan Schulman said on his company’s call that Venmo has “become much more central to people’s management and movement of money instead of just being a social payment [service].”

The digital tailwinds likely gave a further boost to peer-to-peer services that Ark Invest analyst Max Friedrich estimates had already been growing faster than social-media services did in the U.S. back in the late 2000s and early 2010s.

ARK Invest

Like social-media platforms, peer-to-peer payments services benefit from network effects and become more valuable to users as more members of their social circles join. But unlike with “cool” social media sites, younger users actually have an incentive to bring their older relatives on board their payments services, helping to spur user growth, Friedrich told MarketWatch.

Schulman said on PayPal’s earnings call last month that Venmo has become a “cross-generational platform” with “entire families” now using the service to send money to one another.

The network effects of peer-to-peer payments give PayPal and Square a leg-up on traditional banks, as well as challenger banks like Chime and Revolut, Friedrich said, contributing to lower customer acquisition costs because users are helping the companies do their marketing.

Wells Fargo “literally spends $500 million each year on postage and supply costs,” he said. Lower customer-acquisition costs help digital wallets like the Cash App and Venmo pick up unbanked customers, in his view, as these customers are typically viewed as unattractive for mainstream banks from a financial perspective.

PayPal and Square both say their services are popular among unbanked and underbanked customers. While Venmo is viewed as more popular with coastal millennials, the Cash App has caught on in the South and the Midwest. Square announced Monday that it has acquired Verse, a startup from Spain that lets users transfer money to one another.

Sending money to family and friends through peer-to-peer services is generally free, but PayPal and Square increasingly have been adding functions that allow them to make money off their user bases. Venmo and Cash App users can pay a fee to transfer their funds over to their bank accounts instantly or spend their funds with associated debit cards. Venmo users can also use a dedicated Venmo checkout button with some online merchants.

Though both originated as peer-to-peer payment services, Venmo and the Cash App seem to be going in different directions as they build out their functionalities. PayPal is “starting to play more of a commerce angle” with Venmo, in line with its broader strengths, while the Cash App is becoming “much more of a financial services platform,” Beck told MarketWatch.

Square has allowed Cash App users to buy and sell bitcoin on the platform for years, and it recently added equities trading as well. The company’s debit card lets users choose amongst a rotating set of rewards including 10% off DoorDash orders or 10% off a purchase at any grocery store.

“I think they’re likely to retain new users that they’ve gotten from stimulus products or people looking to save money on non-discretionary items like groceries,” Beck said. For underbanked consumers, these perks are “excellent,” he said.

Eventually, the company could branch into adjacent areas, such as deposit accounts, savings accounts, credit cards, or loans, according to Beck. (On the merchant side of the business, Square has obtained conditional approval for a bank charter that will let it more easily distribute loans to sellers.)

A company like Square could also more closely link its merchant and consumer businesses, Friedrich said, using coastal merchants to drive more Cash App users and allowing local businesses to offer targeted discounts to nearby Cash App users.

The Holy Grail for PayPal, Venmo, and the Cash App is convincing users to set up direct deposits of their regular paychecks through these services, but that appears to be a tougher sell than it was for the one-time stimulus payments, said Lisa Ellis, a payments analyst at MoffettNathanson.

“Wherever your paycheck is going, that’s your home base, and banks typically own that,” Ellis told MarketWatch. She said that while some users who tried Venmo or the Cash App for the first time to access their stimulus payments may stick around and try out other features, it’s still an “open question” whether these users will deem the user experience to be so much better that it becomes worthwhile to set up direct deposits of their real paychecks.

Square Chief Financial Officer Amrita Ahuja said on the last earnings call that direct-deposit customers “have generated revenue, which is multiples higher compared to customers who only use peer-to-peer.” They typically carry higher balances and engage with more of the company’s services.

Amassing regular direct-deposit customers could hinge on feature improvements. PayPal, for example, is making a large push into bill payments through a partnership with Paymentus, which aims to help customers more easily manage recurring bills. A better bill-pay experience could prompt more to ship their payments straight to PayPal or Venmo, Ellis said, since many people go to handle their bills shortly after getting paid.

“The idea is that the large banks like Chase are working on something similar, but naturally not everyone banks with large banks and the small banks are nowhere on this,” she said. “Even if Chase rolls it out, there are lots of customers out there who wouldn’t have access.”

Venmo and the Cash App already have an edge on the traditional banks, according to Ark’s Friedrich, who estimates that each service had more active mobile users last year than any mainstream bank.

He projects that there could be 220 million digital wallet customers by 2024 and calculates that if these customers were assigned a “lifetime value” similar to that of traditional bank customers, it would represent a $800 billion opportunity.

Of course, that assumes that Venmo and the Cash App morph into “real banking platforms” that generate “real banking revenues,” which Friedrich admits is a “bull-case scenario,” especially given that PayPal has proceeded more carefully with how it adds features to Venmo.

Still, he said it’s “interesting to think about what scale [the digital wallets] could go to,” given the more optimal margin structures of digital banks.

Investors, for their part, seem to be slowly coming around to the value of digital wallets. Beck said there was “low” investor reception when he suggested back in December a high standalone valuation for the Cash App, but now Wall Street appears to be looking past retail-related challenges for Square’s merchant business, in part due to the potential for a surge in Cash demand.

“I’ve very rarely seen a change in sentiment this quickly on a stock,” Beck said.

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Key Republican senator promises release of some PPP details

Republican Sen. Marco Rubio of Florida, who chairs the Senate Committee on Small Business and Entrepreneurship, has promised that there will be more disclosure around companies that received Paycheck Protection Program loans, following widespread calls for more information on borrowers.

Rubio tweeted on Wednesday that he supports full disclosure of information about the aid program’s borrowers, but small businesses have concerns so he and other government officials are working to find a way to release the data that addresses those worries. He tweeted on Tuesday that there was “no dispute over larger loan recipients being disclosed,” and the “only issue still being discussed” with the Trump administration was how to treat smaller loans.

Many lawmakers, both Democrats and Republicans, have called for disclosing the names of all PPP loan recipients and their loan amounts. Treasury Secretary Steven Mnuchin has been declining to reveal such information, saying at a Senate hearing last week that it’s “proprietary information and in many cases, for sole proprietors and small businesses, is confidential information.”

See:House not taking Mnuchin’s no for an answer as it seeks details on recipients of federal coronavirus relief funds

The heads of the Democratic-run House’s Financial Services Committee, Ways and Means Committee and Small Businesses Committee called for the Trump administration to provide disclosure in a letter Monday.

“Given our shared responsibility to safeguard taxpayer dollars, we disagree with the decision to not release the names of businesses that received PPP loans. At a minimum, we owe the American people that information,” said Rep. Maxine Waters of California, Rep. Richard Neal of Massachusetts and Rep. Nydia Velázquez of New York.

Mnuchin said on Twitter on Monday that he would be having discussions with lawmakers to “strike the appropriate balance for proper oversight of #ppploans and appropriate protection of small business information.”

The PPP was established in late March to help small businesses and nonprofits hurt by the coronavirus crisis. It has received $670 billion in funding through March’s $2.2 trillion CARES Act and April’s $484 billion relief package.

The program has drawn criticism over how publicly traded companies scored loans, as well as over sending money to less hard-hit areas and allegedly discriminating against businesses owned by women and minorities. On Tuesday, a Politico report said four House lawmakers — two Republicans and two Democrats — have close ties to companies that received PPP loans, and there could be other members of Congress who have benefited from the aid program.

U.S. stocks


have rallied from their March lows thanks in part to optimism around Washington’s aid efforts.

This is an updated version of a report first published on June 15, 2020.

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How activist investors risk triggering even more automation, job losses and wealth inequality

As COVID-19 has shut down much of the U.S. economy, socially conscious investors are making a new wave of ESG (environmental, social and governance) demands. Companies are now being asked by their shareholders to both provide greater disclosure regarding their pandemic response and to improve worker safety generally. 

While it is heartening to see investors place their attention and emphasis behind enhancing working conditions, if their ambitions are narrowly defined then such demands may have the unintended consequence of creating additional unemployment through increased automation.

Economists already predict that upwards of 42% of the jobs lost in the coronavirus pandemic may be gone for good. In the retail space particularly, companies are looking for any and all excuses to cut costs. In this, and other industries where the risk of automation is high, ESG investors must do more than make demands related to improving worker safety. 

The drawback to the current ESG investor approach is that when they require more protection of workers’ health in isolation, CEOs may turn to the least costly option to address it. Economists often observe that in life, or business, there are no perfect solutions, only trade-offs in the face of scarcity. This yields a difficult situation for well-intentioned investors. While their desire is for companies to provide safe working conditions for employees, the reality may be increased unemployment and widening inequality. Because employee safety and health are added costs that eat into a firm’s bottom line, a CEO who is pressed on the issue of worker health may be more inclined — on the margin — to trade a human employee for one that can never get sick (i.e. a robot).  

For example, while the pandemic may have forced Gap Inc.

to temporarily shutter its brick and mortar operations, it created a dramatic spike in online purchases that, given social distance guidelines, could not be met safely by humans. What to do? Gap’s response has been to speed the acquisition and implementation of robots that assemble orders in warehouses. So far the company is treating this as positive step towards ensuring employee safety as opposed to a replacement mechanism. Yet given that one robot can do the work of four people, along with the endless search for efficiency present in the industry, automated replacement seems inevitable.

Demands by investors for greater worker protections need to be tailored for the particular situation an employee faces.

Examples like this from the retail sector should give pause to the ESG crowd and illustrate why blanket calls for employee safety are not sufficiently nuanced. Demands by investors for greater worker protections need to be tailored for the particular situation an employee faces in terms of the risk of automation of their position. The same goes for those in the airline industry and any other industry where automation is a possible substitute for human labor if the price of labor increases (in this case due to safety costs).

More broadly, investors interested in a more optimal outcome for employees must be ready and willing to engage management on a much wider set of issues. These include unionization, severance, extension of health insurance, unemployment benefits. To do otherwise could result in a situation where companies automate at a quickened clip, and kick employees to the curb with no protections, resources, or means of recourse.

Lest anyone think ESG investing is little more than a passing fad, or their potential to influence overblown, pay close to the actions of BlackRock

and its Chairman Larry Fink. BlackRock has almost $7 billion in assets under management, so when Fink speaks the business community listens. Early this year, Fink penned a letter advising CEOs that his company has placed sustainability at the center of its investment approach. While this particular action was heavily motivated by climate change risks, it is clear that the firm’s thinking extends more broadly.

In closing his message, Fink stated that “companies must be deliberate and committed to embracing purpose and serving all stakeholders.” It is the same belief we hold at the George Mason University Business for a Better World Center, and the mindset we try to instill in our students. In the wake of this crisis, it is also the same value system that is motivating investors.

The most high-profile instance, though, may be

and its Whole Foods Market subsidiary. While Amazon is no stranger to pressure from government officials and unions on workplace safety, some of the most stinging criticism has been from its own shareholders. Prior to its annual shareholder meeting, an activist group of Amazon shareholders, including pension fund managers, took the company to task for its apparent lax approach to managing worker health in light of COVID-19. Some even went as far as to hold their own shareholder meeting, designed specifically to air grievances around workplace safety and precautions not taken to ensure employee health. While no concrete steps have been taken in response, it’s clear the reaction from shareholders has not gone unnoticed.    

In recent weeks we have seen much greater attention being paid to solutions that may aid workplace safety. Robots are cleaning surfaces using UV and scanning employees and patrons for fevers, and checkout counters are self-sterilizing. These advances are all being implemented with both employee and customer health in mind. They aim to stop the spread of the virus while reducing the risk of exposure to employees by removing them from the cleaning process — a laudable development in and of itself. Our concern is that the removal isn’t temporary, and ultimately the robot will serve as a permanent substitute for the labor of an employee.

Derek Horstmeyer is an associate professor of finance at the George Mason University School of Business. Lisa Gring-Pemble is an associate professor at the George Mason University School of Business and the founder of Business for a Better World Center at George Mason.

More:As boomers hand over the keys to the stock market, sustainability-minded younger investors let their consciences lead

Plus:  These 4 groups of funders are uniquely positioned to help close the racial wealth gap

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