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Spotify CEO to invest over $1 billion for ‘moonshot’ bets in Europe

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Spotify CEO Daniel Ek

Toru Yamanaka | AFP/Getty Images

LONDON — Spotify CEO Daniel Ek announced Thursday that he will commit 1 billion euros ($1.2 billion) of his own resources to invest in European start-ups.

Speaking at a virtual talk hosted by start-up event organizer Slush, Ek said he would use the funds to make “moonshot” bets in the continent, focusing on deep technology — new tools that are focused on scientific innovation. Among the sectors Ek is looking to invest in are health, education, machine learning and biotechnology.

“I want to do my part; we all know that one of the greatest challenges is access to capital,” Ek said, adding he wanted to achieve a “new European dream” — akin to that of the American Dream — over the next decade.

According to Forbes, Ek is worth $3.6 billion, indicating he’s earmarking roughly a third of his own wealth for the investments.

Ek spoke of his frustration with the number of European tech companies being bought up by U.S. rivals, as well as a brain drain of talented entrepreneurs leaving the region for Silicon Valley. One of the most notable examples of European entrepreneurs heading to the U.S. is payments giant Stripe, whose Irish founders went to California to build their company.

“I get really frustrated when I see European entrepreneurs giving up on their amazing visions selling early on to non-European companies, or when some of the most promising tech talent in Europe leaves because they don’t feel valued here,” Ek said. “We need more super companies that raise the bar and can act as an inspiration.”

Europe is often seen as lagging the U.S. and China with respect to technology. While those two economic powerhouses have produced some of the world’s biggest tech companies — Amazon, Microsoft, Tencent and Alibaba, to name a few — Europe is yet to offer a similar scale of success in the industry.

Last year, a record $34.3 billion flowed into Europe’s fledgling tech start-ups, according to figures from venture capital firm Atomico. Companies in the region have continued to raise substantial sums of cash this year, with “buy now, pay later” service Klarna raising $650 million and digital banking app Revolut securing $580 million in fresh funds.

Ek said he will work with scientists, investors, and governments to make his investments. A $1.2 billion fund would see the Spotify founder competing with well-established venture funds like Atomico — itself founded by former Skype CEO Niklas Zennström — Balderton Capital and Northzone.

Another issue in the region’s tech ecosystem has been initial public offerings. Spotify, which is based in Stockholm, Sweden, listed in New York over two years ago, while London-based online luxury marketplace Farfetch also chose America for its market debut. Europe has lagged behind in terms of tech IPOs this year, while a raft of software companies are going public in the U.S.

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Rising rates seem to signal a recovery is near, but investors wonder whether they can be believed

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A worker uses a nail gun while installing trim in a home under construction at a Romanelli and Hughes Building Co. subdivision in Dublin, Ohio, July 9, 2020.

Ty Wright | Bloomberg | Getty Images

Bonds, it would seem, are speaking the bulls’ language.

Treasury yields rolled to a four-month high last week, the 10-year note reaching 0.84%, as U.S. economic data continue to arrive generally better than expected and the markets anticipate further fiscal-support worth trillions either sooner or later, under this administration or the next.

Bonds racked up the style points, too, in ways that Wall Street tends to read as signs of better economic growth to come. The spread between five- and 30-year Treasurys hit nearly a four-year high, and corporate debt has traded firm against the rising government rates.

The gust of selling in the Treasury market cleared the way for more cyclical, financial and value stocks to improve relative to the big growth stocks that have been largely in pullback mode since before Labor Day. Bank shares in the S&P 500 last week gained more than 6%, while the small-cap Russell 2000 managed a gain versus about a 2% decline for big momentum stocks as a group.

All this is encouraging as far as it goes, implying investors are gaining comfort with a solid growth trajectory into 2021, perhaps boosted by another fiscal infusion, without new Covid-related restrictions undercutting the recovery.

The ‘reflation’ trade

Still, it’s worth considering other drivers of the backup in yields and related equity reactions.

Fidelity’s head of macro strategy Jurrien Timmer last week notes that Treasury yields have simply been catching up to other indicators of a “reflation” trade that have been working for a while.

The idea here is, assets geared to a global economic quickening have been climbing off their post-Covid lows for months, making the yield rise a belated and grudging follower and not a harbinger of fresh insight about the economy.

Bond folks are also pointing out the yield move coincided with commentary by Federal Reserve officials casting some doubt on any plans for the Fed to shift its buying to longer-dated Treasurys to suppress their yields as the government prepares to ramp up its debt issuance to fund the deficit. And hedging by mortgage-securities holders could have accelerated the bump in yields.

Some technical factors, too, might restrain further lift in yields. The 10-year Treasury yield has just levitated enough to meet its steeply down-sloping 200-day average, a potential friction area for the yield rally on a first approach.

Bank of America noted Friday that the spread between U.S. and German 10-year government yields has grown to multi-month highs. At a time when currency hedges are inexpensive and the dollar weak, this should draw overseas buyers to Treasurys to capture richer yields – and ultimately to cap them

Yields trigger value stock move

Whether the start of a long-running expansion in yields or not, the action in bonds is enabling another attempt by value stocks to narrow their yawning performance gap against growth-company shares.

The Russell 1000 Value index relative to the Russell 1000 Growth measure has gained some traction, and to some eyes, is building a foundation for further comeback.

Still, the prominent spike in this relationship back in June also generated enthusiastic calls that the long-awaited renaissance for value strategies was at hand. The peak of Treasury yields and value relative performance was June 8, days after a surprisingly strong jobs report and at a peak of “reopening the economy” enthusiasm. What followed was a reversal in value, a pullback in the S&P 500 as the Sunbelt Covid-case surge unfolded, a strong bond rally and three months of furious Big Tech growth-stock outperformance.

There is no handy way to determine if this display of reflationary energy in financial markets is another head fake. But it makes sense to stay alert to the possibility.

Meantime, the broad stock market has pulled itself into a neutral, somewhat indecisive condition.

‘Mixed, muddled and inconclusive’

On one hand, the S&P sagged a couple of times last week toward the 3400 area, which traders consider the border between its recent breakout range and the former correction zone. The index finished off half a percent for the week, some 3.5% below its early-September peak.

The broadening out of the tape allowed the index to withstand diminishing hopes of a quick stimulus deal and absorb further pressure from mega-cap Nasdaq stocks without breaking its uptrend. Yet that Nasdaq pressure reflects some fatigue among former leaders. Amazon, Apple, Tesla and Zoom Video, to name just a few, have struggled, while homebuilders, semiconductors and cloud-software have come off the boil.

Stocks of companies reporting results responded without much enthusiasm, even for big upside surprises, a sign investors already assumed good numbers were on the way.

And while this looks like benign ebb-and-flow at the index level, investor sentiment and positioning has not reset much from fairly aggressive postures. This is evident in hedge-fund leverage, rampant speculation in upside call options, individual-investor attitudes and general commentary implying most everyone is looking to catch a post-election rally no matter the outcome.

At the end of last week, Citi strategist Tobias Levkovich wrote, “The backdrop for the equity market is mixed, muddled and inconclusive.” Investors leaning bullish, valuations fairly stout, indexes hard-pressed to rise easily without dominant growth stocks working and the Street attitudes toward the election swinging from intense anxiety in September to confidence that any outcome is market-friendly now.

Last week’s lethargic action could well be the market’s chewing through these issues and creating a chance for both bulls and bears to second-guess their views. For what it’s worth, one of the strongest seasonal stretches of the calendar starts early this coming week, just as industrial and Big Tech earnings bombard the market.

Through it all should come a few more hints of whether the bond market’s upbeat-seeming message is worth heeding.

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China to reveal its five-year (FYP) growth strategy in Xi Jinping era

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One technique for staying upbeat during the pandemic

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As the coronavirus pandemic rages on, it can be difficult to remain upbeat.

Aside from the health implications and associated financial stressors, uncertainty over the outcome of the virus has eroded one of the key contributors to our overall happiness, making optimism hard to obtain.

“A sense of control is very important for happiness,” Tali Sharot, a cognitive neuroscientist and author of “The Optimism Bias,” told CNBC Make It.

Indeed, in her research during the height of lockdowns, Sharot and her peers at University College London found that control was the number one contributor to people’s overall level of happiness: Those who felt they had a sense of agency in their day-to-day lives were far happier than those who did not.

In the months since then, people have adapted to the pandemic and the average person’s happiness level has returned to a “baseline,” said Sharot, describing happiness like a treadmill.

Tali Sharot, cognitive neuroscientist at University College London and author of “The Optimism Bias”

Tali Sharot

“You can go up and down, but people do converge to a certain baseline of happiness,” she said. “That’s true when things are very, very difficult; they eventually find their way back to that baseline. But also when things are good; after a while, they adapt to these good things and go back to the baseline.”

However, that doesn’t mean we shouldn’t find new ways to boost our happiness levels, said Sharot.

One of the best ways of doing that is to start making plans, or what she calls “anticipatory events.” Such tactics can not only help us regain feelings of excitement but also that sense of control, she said.

Anticipation makes us happy in and of itself.

Tali Sharot

cognitive neuroscientist, University College London

“Anticipation makes us happy in and of itself,” said Sharot. Indeed, in a 2010 Dutch study of close to 1,000 holidaymakers, researchers found that the act of planning a holiday contributes a greater boost to respondents’ happiness levels than the aftermath of the trip itself.

Of course, planning for the future can be easier said than done right now. With so many unknowns ahead and further potential lockdowns looming, it can be difficult to arrange anything with certainty.

However, such plans don’t need to be huge or immovable. They could range from vacation for next summer to smaller highlights like dinner with friends, watching a movie or going on a hike.

“It’s important to still get into the habit of making those plans, putting them in the diary, and having things that we can look forward to,” she said.

Don’t miss: Why optimism could be unhelpful in a pandemic, according to behavioral psychologists

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