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Wall Street analyst note expectations

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Fellow streaming and media giant Netflix may provide a roadmap for Spotify’s future stock performance, according to one analyst.

Spotify’s stock started trading on Tuesday in an unusual public offering — one that lacks many formalities, like a traditional roadshow, that help Wall Street figure out what to expect.

But Michael Morris, analyst at Guggenheim Securities, said that he expects Netflix’s highly valued stock will guide investors.

Morris’ bullishness note on the stock — published prior to the opening trade — was helped by the “win-win” scenario of helping both musicians and consumers.

“Spotify seeks to deliver maximum listening enjoyment to consumers through convenience, curation, breadth of content, and payment options (your time or money),” Morris wrote. “The value proposition to the artist is to strengthen the listener relationship through distribution, data access, and compensation. … Spotify’s focus on creating a virtuous cycle for consumers and artists and using technology to create curated experiences evokes a Netflix-like promise of significant global penetration potential.”

And investors have shown they are willing to pony up for a promising business model, even in the competitive content business.

Netflix’s price-to-earnings ratio — the amount of money that stock buyers pay compared with how much profit a company makes — was over 100 by the end of last year, and well over 200, on average, over the past five years. Compare that with Facebook — a P/E of about 62 over the past five years — or Apple — with an average P/E of about 14 during that time, according to FactSet.

RBC analyst Mark Mahaney also expressed optimism before the stock began trading, noting that Spotify may have an even larger data set than Netflix in terms of playlist personalization, in addition to a “very, very large” potential market.

Netflix and Spotify also share some common competitors in Apple and Amazon. But Atlantic Equities analyst James Cordwell echoed Mahaney’s outlook on Spotify’s data and market.

“Spotify faces stiff competition, but we believe its richer music data and singular focus will enable it to offer the best service in terms of music discovery — the key competitive differentiator,” Cordwell said.

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Coronavirus restrictions are the ‘biggest near term risk’: UBS

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A woman wears a face mask as she walks up St. Mary Street on October 19, 2020 in Cardiff, Wales. Wales will go into a national lockdown from Friday until November 9.

Matthew Horwood | Getty Images News | Getty Images

SINGAPORE — Economies around the world are increasing movement restrictions as they continue to fight the coronavirus pandemic, and that’s a “major downside risk” for the fourth quarter, according to Swiss bank UBS.

“Forget about the U.S. elections or fiscal stimulus — restrictions creeping higher is the single biggest near term risk to the outlook,” economis Arend Kapteyn wrote in a note dated Oct. 19.

“If countries start to impose ‘circuit breaker’ lockdowns that last just several weeks, that may already be enough to turn a positive (fourth quarter) growth rate negative,” he said.

The phrase “circuit breaker” has become popular in the U.K. and refers to a short but strict lockdown intended to break the chain of infection.

There have been more than 40.6 million cases of the coronavirus worldwide, and at least 1.12 million people have died, according to data compiled by the Johns Hopkins University.

Increasing restrictions

Various economies including France and the Netherlands have tightened measures in recent weeks, Kapteyn wrote. UBS has been tracking coronavirus mobility restrictions in 42 geographies weekly since March on a scale of one to 10.

According to the bank, if restrictiveness increases by one point for an entire quarter, gross domestic product will decline by 6 percentage points.

Over the last month, the U.K. and the Netherlands have increased from a “moderate” rating of 2.5 to an “intermediate” level of 5. UBS also increased the Czech Republic’s score by 2 points to 4.3, and Ireland and France by 1.5 points to 4.5.

The median level of restrictiveness is 3.5, up slightly from August, but down from 8 in April.

“However, the number of countries taking measures has been increasing,” Kapteyn said. Last week, 13 economies increased restrictions, while three lowered them, the highest “net” number of increases since April.

“We’ll need to monitor how long restrictions stay in place and how mobility responds, but this is now a major downside risk to our forecasts for (the fourth quarter),” he said.

— CNBC’s Holly Ellyatt contributed to this report.

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Morgan Stanley on ‘blue wave’ effect on U.S. economy, Fed rate hikes

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A Democratic sweep in the coming U.S. elections will likely unleash more fiscal stimulus, but it could also cause the Federal Reserve to hike interest rates earlier than expected, said a Morgan Stanley portfolio manager.

The first rate hike by the Fed could be brought forward from around 2024-2025 to 2023-2024 — depending on how other policies, such as taxation, turn out in the event of a “blue wave,” said Jim Caron, a senior member of Morgan Stanley Investment Management’s global fixed income team.

The Federal Reserve Board of Governors seal.

Brendan Smialowski | AFP | Getty Images

A “blue wave” refers to an election outcome where Joe Biden defeats Donald Trump in the presidential race, and Democrats win a majority in both chambers of Congress.   

Caron told CNBC’s “Squawk Box Asia” on Wednesday that the U.S. economy, under pressure from the coronavirus pandemic this year, was already expected to rebound in 2021. Additional stimulus that’s likely to come with a “blue wave” would boost that growth potential further, he added.

“That means the growth impact could go into not just 2021, but also 2022,” he said.

“The effect that this has though — that we need to be wary of — is that this could bring the first rate hike, nobody wants to talk about rate hikes right now, but this could bring the first rate hike by the Fed in from 2024 to 2025 to maybe 2023 to 2024,” he explained.

The Fed has maintained its policy rate near zero since March and indicated that rates could stay at that level through 2023. That has kept Treasury yields low, even though they rose on Tuesday on a potential stimulus package ahead of the November elections.

But Caron warned that a Democratic win in the November elections might not be all good for the U.S. economy. He said there could be “more questions than answers” on issues such as the Democrats’ tax policy and their approach toward regulation, which could create uncertainties.

Many investors fear that a Biden win could result in higher taxes and tighter regulations — which could lead to lower corporate profits and less economic growth.

“I think the markets are being a little bit complacent about, just thinking that: ‘Well on Nov. 3, the day of the election, we’re going to get all the answers and everything’s going to be great going forward’,” said Caron.

“I actually think there’s going to be more questions than answers after the election than there is right now.”

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WEF says machines will create jobs but warns of pandemic disruption

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A worker debugs a robot at a Sany Heavy Industry plant in Changsha, central China’s Hunan Province, on Feb. 20, 2020.

Chen Zeguo | Xinhua News Agency | Getty Images

LONDON — Advances in robotics and artificial intelligence will lead to a net increase in jobs over the next five years but the coronavirus pandemic will result in “double-disruption” for workers, according to the World Economic Forum (WEF).

In a report published Wednesday, the organization said that the rise of machines and automation would eliminate a huge 85 million jobs by 2025. But at the same time, the WEF expects 97 million new jobs to be created, meaning an overall addition of 12 million jobs.

“There has been a slowdown in the rate of job creation,” Saadia Zahidi, managing director of the World Economic Forum, told CNBC’s Julianna Tatelbaum in a TV interview. “That’s not a surprise given the lockdowns that have been underway and the recession that has followed.”

“But at the same time, if we look at the projections that heads of HR and those at the frontlines of making these decisions are saying, we find overall the rate of job creation will still surpass the rate of job destruction.”

Nevertheless, the WEF is not complacent. The institution expects work to be divided equally among humans and machines by 2025, with computers handling much of the heavy lifting with respect to data processing, administrative tasks and routine manual jobs for white and blue collar workers.

That will require a significant level of “reskilling” and “upskilling” from employers to ensure staff are sufficiently equipped for the future of work. According to the WEF, half of all employees will need some level of retraining in the next five years.

“The window of opportunity that we have to ensure that workers have the right kinds of skills for the future just got a whole lot shorter,” Zahidi said. “We will need a lot more effort from business, government and workers themselves to ensure that they have the kind of reskilling and upskilling they need.”

‘Double-disruption’

The Covid-19 outbreak has ravaged the global economy, with the International Monetary Fund forecasting a 4.4% contraction in GDP this year due to the crippling impact of public health restrictions. The crisis has also put millions of jobs on the line, with sectors such as travel and the arts more severely affected than others.

“Automation, in tandem with the COVID-19 recession, is creating a ‘double-disruption’ scenario for workers,” the WEF said in its report. “In addition to the current disruption from the pandemic-induced lockdowns and economic contraction, technological adoption by companies will transform tasks, jobs and skills by 2025.”

The WEF also highlighted the rapid shift to remote work that came about in the spring as the health crisis led companies to close their offices. It said employers could move as much as 44% of their workforce to operate remotely but added 78% of business leaders expect current ways of working to negatively impact productivity as some industries struggle to adapt.

These are the jobs the WEF expects to be lost to machines by 2025:

  • Data entry clerks
  • Administrative and executive secretaries
  • Accounting, bookkeeping and payroll clerks
  • Accountants and auditors
  • Assembly and factory workers
  • Business services and administration managers
  • Client information and customer service workers
  • General and operations managers
  • Mechanics and machinery repairers
  • Material-recording and stock-keeping clerks

And here are the new roles expected to face growing demand:

  • Data analysts and scientists
  • AI and machine learning specialists
  • Big data specialists
  • Digital marketing and strategy specialists
  • Process automation specialists
  • Business development professionals
  • Digital transformation specialists
  • Information security analysts
  • Software and applications developers
  • Internet of things specialists

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