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Global recession on the way Adam Tooze says

Central banks around the world are trying to tame rising inflation by raising interest rates and tightening monetary policy. 

On Wednesday, the U.S. Federal Reserve raised its key lending rate by 75 basis points for the third consecutive time, as it continues to wage war against higher prices.

The Bank of England followed in the Fed’s footsteps on Thursday, raising interest rates by 50 basis points, and the European Union has signaled that it is likely to follow in the global wave of aggressive policy action on inflation.

The Fed’s aggressive rate hikes have ignited recession fears in the U.S. But Columbia University economics professor and “the internet’s foremost historian of money and disaster,” Adam Tooze, believes that similar and “simultaneous” hikes by central banks around the world might spark a global economic downturn. 

There is an “extremely severe” risk of a global recession,” Tooze told The Guardian in an interview on Thursday. 

The economist made a name for himself during the pandemic through his widely-read newsletter, Chartbook, and his data-driven predictions on the future of the global economy, often combined with a historical perspective on what could constitute an economic disaster in the future.  

In his interview with The Guardian, Tooze warned that the current wave of rate hiking could play a part in sparking that disaster, saying that hundreds of millions of lives around the world could be altered by a global recession.

“This will mark those people’s lives for the rest of their lives,” he said.

Technocrats’ failures

Despite their best efforts, the world’s economic authorities seem to be becoming increasingly resigned to the fact that inflation cannot be tamed without triggering a recession. 

Last month, Federal Reserve chair Jerome Powell warned that the central bank is prepared to “bring some pain” to the economy to bring down inflation. And after the rate hike on Wednesday, he admitted that the chances of avoiding a recession are “likely to diminish,” and an uptick in unemployment is probably on the way. 

“We have got to get inflation behind us,” he said. “I wish there were a painless way to do that. There isn’t.”

But the tightening monetary action taken by Powell and other central bank leaders right now may not be remembered in a positive light, according to Tooze, who says that future economic textbooks will record this era of economic policy as a “classic moment of failed technocracy.” 

It isn’t the first time Tooze has discussed his concerns about where the global economy is headed. In a July interview, he described the wave of tightening monetary policy around the world as a component of a coming global “polycrisis,” in which a number of crises are combining to create a unique and unprecedented threat to the global economy. 

“The whole is even more dangerous than the sum of the parts,” he warned.

Inflation forcing central banks to clamp down on demand is combining with other challenges—including climate change, extreme weather, economic aftershocks of the pandemic, and a higher possibility of wars breaking out—to create a larger and interconnected crisis made up of several self-reinforcing parts, he said.

But given the spate of rising interest rates, the risks of a global recession might be the more imminent threat. 

Tooze’s uneasiness over relentless rate hikes from every corner of the world is shared by investors and bankers alike.

The Fed’s latest rate hike may have been “not necessary” and a “policy mistake,” Jay Hatfield, CEO of investment firm Infrastructure Capital Management, told Fortune’s Will Daniel this week, adding that the Fed’s stance “significantly increases the risk of recession.”

Wall Street hasn’t taken the Fed’s policy measures well either, with all three major stock indices plunging after the latest hike.

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The 4-day workweek has detractors but research shows employees get more sleep—and that could reduce ‘bad work outcomes’ 

Just as not every CEO buys into remote work, not every business leader thinks a four-day workweek is right for their company. Employees do appear to get more sleep, though, when given the extra day off—and that could help the bottom line.

“Sleep and work are sort of in competition with each other,” Christopher Barnes, a University of Washington management professor, told Bloomberg this week. “When you trade sleep for work, it’s problematic. You sacrifice your health and have bad work outcomes.”

Juliet Schor, a sociologist and economist at Boston College, is tracking organizations across the globe as they experiment with a four-day week. “Employers are realizing that if they can rethink where people work, they can also rethink how many days they’re on the job,” she said in a TED talk this year.

Among workers who switched to four days, according to her, the percentage getting less than 7 hours of sleep each night dropped from 42.6% to 14.5%, and they registered 7.58 hours per night of sleep, nearly a full hour more than they did before the change.

“I wasn’t surprised that people are getting a little more sleep, but I was surprised at how robust the changes were,” Schor told Bloomberg.

In survey results released this month by the 4 Day Week Campaign in the U.K., 46% of respondents said their business productivity has “maintained around the same level,” while 34% reported that it had “improved slightly,” and 15% said it has “improved significantly.”

But skeptics remain, and the four-day week isn’t for all, including companies that have otherwise shown flexibility by embracing remote work. FleetCor Technologies, for instance, lets certain employees work from anywhere, or use a hybrid model, which it says hasn’t led to a drop in productivity, according to TechTarget.

But the Atlanta-based firm, which processes workforce payments, isn’t considering a four-day workweek. “Our customers need us seven days a week,” chief HR officer Crystal Williams told TechTarget.

In Congress, progressive California lawmaker Mark Takano introduced the 32-Hour Workweek Act in July. The legislation wouldn’t penalize companies for not adopting the four-day workweek, but it would incentivize them to do so, as they’d be required to pay workers overtime after 32 hours.

“There’s economic, political, social upheaval,” he told the New York Times in March. Americans don’t “want to return to the same old normal.”

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Con Edison to sell U.S. renewable energy units to RWE in $6.8B deal (NYSE:ED)

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Consolidated Edison (NYSE:ED) announced Saturday it agreed to sell its wholly-owned Con Edison Clean Energy Businesses to German utility RWE (OTCPK:RWEOY) in a transaction valued at $6.8B.

Con Edison (ED) said the deal will allow it to “sharply focus on our core utility businesses and the investments needed to lead New York’s ambitious clean energy transition.”

RWE (OTCPK:RWEOY) said the acquisition will nearly double its renewables portfolio in the U.S. to more than 7 GW.

In light of the pending deal, Con Edison (ED) said it will forego its previously announced plan to issue up to $850M of common equity in 2022 and withdraw its equity guidance for 2023 and 2024.

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For European pharmas, poor Q3 performance makes the quarter one to forget (NYSE:GSK)

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Like most of the rest of the stock market, the third quarter is one to forget for major European pharmaceutical companies.

In Q3 2022, the S&P 500 was down ~5%. The SPDR MSCI Europe Health Care UCITS ETF, whose primary listing on Euronext Paris (ticker: STW), fared even worse, down 8% for the quarter. Its top 10 holdings are among the largest European pharmas based on market cap.

Europe’s biggest drug company, Roche (OTCQX:RHHBY)(OTCQX:RHHBF), was also the best pharma performer of the quarter, down only 2%.

A major overhang for the company is the impending launch of generics of one of its best selling drugs, Lucentis (ranibizumab), for age-related macular degeneration. In Q2, Roche (OTCQX:RHHBY) reported US sales of the treatment of CHF 316M ($320.1M), a decline of ~4% from the year-ago period.

On Monday, Coherus BioSciences (CHRS) will launch Cimerli, its biosimilar to Lucentis, in the US. In September, the European Medicines Agency’s recommended approval of Stada’s Ximluci biosimilar in the EU.

Roche is hoping that its follow-in to Lucentis, Vabysmo (faricimab), will blunt some of the blow from Lucentis generics. In Q2, it brought in sales of CHF 109M ($110.4M).

The second best performer of the month was fellow Swiss pharma Novartis (NYSE:NVS), which was down ~9%. While Novartis (NVS) benefitted earlier this year from several US drug approvals — such as Vonjo (pacritinib) and Pluvicto (lutetium Lu 177 vipivotide tetraxetan) — Q3 was much quieter on that front.

In the US in the quarter, the FDA approved a combination of the company’s Tafinlar (dabrafenib) + Mekinist (trametinib) for solid tumors with a certain mutation while in the EU, Scemblix (asciminib) was approved in August for chronic myeloid leukemia.

Novartis (NVS) just hit a 52-week low of $52.10 on Sept. 26. A major lingering concern for the pharma is the potential launch of generics of its blockbuster multiple sclerosis drug, Gilenya (fingolimod). It had 2021 sales of ~$2.8B. On Sept. 29, the US Supreme Court issued a stay on a mandate from an appeals court that would have allowed Gilenya generics.

Just behind Novartis (NVS) was Danish pharma Novo Nordisk (NVO), which was off ~10% in the quarter. A key highlight for the diabetes treatment company was its $1.1B acquisition of Forma Therapeutics (FMTX), which is focused on sickle cell disease.

In September, the company was buoyed by data from a late-stage trial showed that showed once-weekly insulin icodec led to better results compared to its own once-daily Tresiba (insulin degludec).

Novo Nordisk has benefitted immensely since the June 2021 approval of Wegovy (semaglutide) as a weight-loss treatment. In Q2, however, revenue of 1.2B Danish Krone (~$158.2M) compared to 1.4B ($184.5M) in Q1.

Wegovy will also likely soon have competition from Eli Lilly’s Mounjaro (tirzepatide). Although currently only approved for diabetes, Lilly is pursuing approval Mounjaro as a weight-loss treatment. In a head-to-head trial, Mounjaro beat Wegovy in terms of A1C and body weight reductions.

AstraZeneca (NASDAQ:AZN) lost 17% in the quarter. It hit a 52-week low of $52.65 on Sept. 26. The company did have some positive catalysts in the quarter in terms of readouts from several trials looking at expanding indications for several of its oncology treatments. Last month, however, Credit Suisse cut its rating to neutral saying that AstraZeneca’s (AZN) current stock price reflects its oncology potential.

The bottom two large European pharmas, GlaxoSmithKline (NYSE:GSK) and Sanofi (NASDAQ:SNY), lost, respectively, ~18% and ~26% in the quarter. GSK’s (GSK) major event in Q3 was the July spinoff of its consumer healthcare unit into a separately traded company, Haleon (HLN), which is also down significantly since it began trading.

Sanofi (SNY), as well as GSK (GSK) and Haleon (HLN), were also impacted in the quarter by worries over potential legal exposure to lawsuits over the heartburn drug Zantine (ranitidine) and apparent links to unacceptable levels of potential human carcinogen, N-nitrosodimethylamine. The companies have said there is no evidence that Zantac is linked to cancer.

One closely watched European pharma, BioNTech, was down 14% in the quarter. The company, which along with Pfizer (PFE) developed the COVID-19 vaccine Comirnaty, has been dealing with declining sales of the shots.

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