The Treasury Department Ready to Increase Investments In Fed Lending Programs

Treasury Secretary Steven Mnuchin said Tuesday he was prepared to provide more money and take more risks to facilitate lending programs being established by the Federal Reserve.


Congress made $500 billion available to the Treasury Department through the $2 trillion economic-relief package that President Trump signed into law in March. The legislation provided the Treasury with $46 billion to provide direct assistance to airlines and other distressed industries, plus another $454 billion to cover losses in Fed lending programs.

The Fed has launched nine lending programs with Mr. Mnuchin’s approval to support financial markets, businesses, cities and states, and the Treasury Department has provided $195 billion from the economic-relief bill to cover losses in some of those programs.

“I am prepared to allocate the rest of that,” Mr. Mnuchin told lawmakers during a hearing conducted by the Senate Banking Committee via a videoconference Tuesday. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running.”

Lawmakers have pressed Mr. Mnuchin on how much risk the government is willing to take on its investment in the Fed’s lending facilities, and whether he is prepared to lose the money Congress provided to ensure credit is widely available to companies that need it most.

“The answer is absolutely yes,” Mr. Mnuchin said. “We are fully prepared to take losses in certain scenarios on that capital.”

Mr. Mnuchin appeared at the hearing alongside Federal Reserve Chairman Jerome Powell. Lawmakers pressed both men on the need for additional spending to limit the economic damage from the current downturn. Democrats in the House of Representatives narrowly approved a $3 trillion relief package last week with only one Republican voting in favor.

Mr. Mnuchin has said the administration expects economic growth to pick up in the second half of the year, and administration officials are taking a wait-and-see stance regarding additional relief. Mr. Powell in recent weeks has urged Congress and the White House to spend more money to ensure the government’s response to the economic downturn isn’t squandered, and he has said the recovery faces a longer and more uncertain path.

“This is really a question for Congress to weigh,” Mr. Powell said Tuesday.

“There is a growing sense that the recovery may come more slowly than we would like…and that may mean that it’s necessary for us to do more,” Mr. Powell said last week during a moderated discussion online.

Mr. Powell faced questions on when the central bank’s lending programs will be up and running. The Fed has launched several operations to calm short-term funding markets, recycling programs it had used in the 2008 crisis to stabilize financial markets.

But it has unveiled other programs to backstop corporate and municipal bond markets and to lend directly to small and midsize businesses that are taking more time to put into operation.

The Fed began purchasing exchange-traded funds of corporate debt last week through one of these new programs, and it rolled out application materials Monday for state and local-government borrowers that plan to issue debt of up to three years through the central bank’s Municipal Liquidity Facility.

By simply announcing its intention to backstop corporate-debt markets, the Fed has made it possible for companies to borrow more money from private investors without the Fed’s buying a single security.

Still, the Fed’s ability to follow through on those programs will be closely watched by markets and lawmakers alike.


In one particularly novel operation, called the Main Street Lending Program, the central bank will lend directly to middle-market firms that are too large for aid from the Small Business Administration and too small to borrow in Wall Street debt markets.

The Fed has already adjusted the terms of its loan programs several times, and Mr. Powell said the central bank would continue to adjust the terms for those operations “as we learn more.”

Mr. Powell said he expected that program would be ready to start lending by the end of the month or in the first week of June.

While some lawmakers have pushed the Fed to ease terms on certain lending operations, others have warned against the central bank’s expanding eligibility criteria to benefit sectors of the economy they think shouldn’t be helped by the Fed, such as oil-and-gas exploration and drilling.

Mr. Mnuchin faced questions on the Treasury Department’s role in administering the Paycheck Protection Program, which has provided $530 billion in emergency small-business loans. The program got off to a bumpy start and has faced criticism over loans that went to large public companies, and rules limiting how small firms may spend the money to qualify for loan forgiveness.


Japan’s Economy Fell Into Recession In First Quarter Of 2020

The world’s third-largest economy after the U.S. and China shrank an annualized 3.4% in the January-March period, pushed down by the initial effects of the coronavirus pandemic. That followed a revised 7.3% contraction in the previous quarter that was triggered by an increase in the national sales tax. Two straight quarters of contraction is one definition of a recession.


“The situation has become even more severe in April and May after a state of emergency was issued,” Economy Minister Yasutoshi Nishimura said Monday. “The economy is expected to shrink substantially for the time being.”

Prime Minister Shinzo Abe declared a national state of emergency in April to contain the spread of the coronavirus. Last week, he lifted it in 39 of 47 prefectures. It still applies in Tokyo and Osaka, but is expected to end nationwide in the next week or two.

Many stores and restaurants have closed during the pandemic, while tourism has virtually halted because most foreign visitors are barred from entering the country and Japanese people have been encouraged to avoid travel.

Economists are forecasting a contraction at an annualized pace of 20% or more in the current quarter.

Exports fell at an annual rate of 21.8% in the first quarter, reflecting supply-chain disruptions and lockdowns in China, one of Japan’s biggest markets. Private consumption and capital spending by companies also fell, but not as much.

Daiwa Securities economist Mari Iwashita said exports were likely to fall further with lockdowns continuing in some countries. She said imports might improve as China’s economy moves closer to normal operations and provides Japan with personal computers for people working at home and masks.

Société Générale economist Takuji Aida said that even after Japan’s state of emergency lifts, the pace of economic recovery may be slow because many people may see their income reduced or lose their jobs. “Households and companies are reaching their limits of their strength,” he said.

Mr. Nishimura, the economy minister, said the government planned to put together an additional spending package by about May 27, including further support for corporate financing and aid for students. In April, Parliament passed a measure with some $240 billion in spending, including cash payments of about $935 to every person in Japan.



Financial Markets – Top 5 Things To Watch This Week

This Tuesday will see Federal Reserve Chairman Jerome Powell testify to Congress on the economic stimulus measures put in place so far. A day later the minutes of the Fed’s April meeting are scheduled to be released.


Investors will be looking at the weekly jobless claims data as the reopening of the economy gathers pace. Retail earnings will shine a light on consumer spending amid the coronavirus pandemic, while Tuesday brings the monthly expiration of U.S. West Texas Intermediate crude futures contract. Meanwhile, central banks in South Africa and Turkey are expected to cut interest rates again.

Here’s what you need to know to start your week.

Powell testimony, FOMC minutes
The Fed chairman is to testify on Tuesday before the Senate Banking Committee alongside Treasury Secretary Steven Mnuchin to update government officials on the economic stimulus programs approved so far.

In a speech last week Powell gave a sober assessment of the long-term risks to the U.S. economic outlook and the possible need for elected officials to approve more spending programs to keep the economy afloat.

On Wednesday, the Fed is to publish the minutes of it is April meeting. In its rate statement last month, the Fed said it will keep interest rates at near-zero until officials are “confident that the economy has weathered recent events.”

Economic data
In the U.S., the main datapoint continues to be the weekly report on initial jobless claims. With the reopening of the economy gaining momentum economists are hoping for a reading of below 2.5 million, which would indicate that the rate of layoffs is slowing somewhat.

There is a packed economic calendar in the U.K. this week, with updates on March employment, retail sales and inflation. Given that the lockdown in the U.K. didn’t start until late March it may be too early to see the impact of the pandemic on the employment figures.

The retail sales data for April could show at least a 15% decline in spending, while plunging oil prices are expected to have sent inflation tumbling last month.

Retail earnings
While the U.S. first-quarter earnings season is almost over the retail sector is just getting started. This week will see results from big U.S. retailers including Walmart (NYSE:WMT), Home Depot (NYSE:HD), Lowe’s (NYSE:LOW), Target (NYSE:TGT), Kohl’s (NYSE:KSS) and Best Buy (NYSE:BBY). Their figures will show whether U.S. consumers are still spending money despite the widespread coronavirus lockdowns.

The retailers are reporting in the shadow of online shopping giant Amazon (NASDAQ:AMZN), which is among the “stay-at-home” stocks benefiting from the lockdown. Its shares have soared some 28% this year.

Repeat performance of oil plunge?
The monthly expiration of U.S. West Texas Intermediate crude futures contract is coming up on Tuesday and many energy traders are worried about a repeat performance of the oil price slump last month which saw prices drop into negative territory for the first time ever.

Normally uneventful, the expiry turned dramatic in April as brimming storage tanks discouraged traders from taking delivery of oil.

The U.S. Commodities Futures Trading Commission has warned market participants they should be prepared for volatility and negative pricing again, with oil storage still tight and the demand outlook still severely depressed.

But oil prices have recently rebounded on hopes that the easing of lockdown restrictions will boost the energy demand outlook. In another hopeful sign, U.S. crude inventories fell in the most recent week for the first time since January.

Yet some traders seem to be heeding the CFTC’s warning. Volumes in the July futures contract, which expires in a month’s time, are outpacing the June contract by nearly 50%.

Emerging market rate cuts
Central banks in Turkey and South Africa are both to hold policy meetings on Thursday and both are expected to cut rates again despite heavy losses their currencies’ have recently endured.

Analyst polls predict South Africa will cut its 4.25% main rate by another 50 basis points. Economists stress any policy easing must be sizeable if it is to offer any help to the suffering economy.

Turkey’s meeting will be even more interesting. The lira has plunged to record lows, hard currency reserves are dwindling and inflation is in the double digits, yet all that probably won’t deter the central bank from chopping another 50-100 basis points off its 8.75% repo rate


Big Investors Aren’t Betting It All On A Coronavirus Cure


Successful efforts that could help billions of people might not result in big profits for shareholders.

Shares are up for companies searching for coronavirus drugs and vaccines.

As drug companies race to discover treatments for the new coronavirus, big investment firms are placing cautious bets on likely winners.

Hedge funds and venture-capital firms, which are in the business of predicting the future for companies and economies, are growing more confident researchers will develop effective drugs to fight the pandemic.

Yet, successful efforts that could help millions—or even billions—of people, might not result in big profits for shareholders, the investors argue. Some are even placing bearish wagers on pharmaceutical companies they believe are attracting excessive excitement over their progress on Covid-19 treatments.

“Most of the stock prices don’t bear semblance to reality,” says Joseph Edelman, who runs Perceptive Advisors, a $4.2 billion New York hedge health-care fund, which is focused on what it sees as the disconnect between the price of stocks like drug company Gilead Sciences Inc. and their potential profits from any treatment or vaccine.

Shares are up for companies searching for coronavirus drugs and vaccines.

Gilead is up 18.9% this year, thanks to remdesivir, an antiviral drug administered intravenously that shortens the recovery time of hospitalized Covid-19 patients, according to recent data.

It is always hard anticipating successful drugs, but those wagering on coronavirus treatments face unique challenges. Some of the most innovative and promising approaches are wholly unproven. Companies are competing with foreign nations and not-for-profit organizations determined to achieve their own breakthroughs. Successful drugs or vaccines may run into pricing, manufacturing and distribution difficulties.

Among the issues investors are struggling with: Can Covid-19 treatments help those sick while also protecting individuals against the virus, or will that require different drugs? Will vaccines render treatments less necessary? Will governments allow companies to charge high enough prices to generate sizable profits?

Larry Robbins, who runs health-care hedge fund Glenview Capital Management, is avoiding bets on possible coronavirus treatments, partly because he expects researchers to find a vaccine, limiting the need for even the most effective treatments.

“We are all cheering for a treatment on a humanitarian level, but as an investor, you have to believe a treatment works, and that sales last long enough for it to have a material impact on a company,” he says.

Gilead is among the stocks that has investors thinking twice. The company expects to manufacture more than one million treatment courses of remdesivir by the end of this year, and the drug could have billions of dollars in new annual sales, investors say. If Gilead can develop an inhaled version of the drug or other alternatives to receiving it intravenously, its popularity could increase, bullish investors argue.


But Gilead has promised to donate 1.5 million doses of Covid-19 treatments to hospitals free of charge, and the price it would charge thereafter is unclear, raising questions about eventual profits. In the past, Gilead has been criticized for placing high prices on its HIV and hepatitis treatments. It may feel pressure to keep a lid on remdesivir’s cost—especially given President Donald Trump’s past public criticism of drug prices.

If Gilead charges about $4,000 per course, as some investors predict, that would result in $4 billion of revenue for a million patients. That figure would be well below Gilead’s $14.6 billion of added market value this year—without taking into consideration the drug’s development costs, estimated to be about $1 billion, a figure that would reduce any profits.

Some bearish investors aren’t yet convinced of remdesivir’s efficacy.

“Even if the drug has only a modest effect, people will still prescribe it, but Gilead won’t make a lot of money,” says Dr. Joseph Lawler, who runs hedge fund JFL Capital Management, which is shorting, or betting against, Gilead.

Gilead’s company spokesman said the drug company hasn’t yet set a price for remdesivir.

“At this time, we are focused on ensuring access to remdesivir through our donation,” he said. “Post-donation, we are committed to making remdesivir both accessible and affordable to governments and patients around the world.”

Dr. Luciana Borio, who was director for medical and biodefense preparedness at the National Security Council, argues that smaller, private companies may emerge with the most effective treatments, not publicly traded companies, another challenge for investors.

“For technology that’s truly innovative and disruptive there’s opportunity for funding and interest in partnerships,” she says.

Some investors are focusing on treatments that may help those who are sick but also can prevent people from getting the virus, a larger potential market. These investors are betting on therapies that use antibody proteins generated by the body’s immune system. These antibodies may be able to block the action of the coronavirus’s “spike” protein, preventing the virus from infecting healthy cells.

Mr. Edelman, of Perceptive, owns shares of Regeneron Pharmaceuticals Inc., a leader in antibody therapies. The company is using a “monoclonal” antibody approach, where scientists select the most powerful antibodies from recovered coronavirus patients—or, in the case of Regeneron, from mice that have been given human immune systems—clone them, and turn them into drugs.

Regeneron plans clinical trials in early summer and is preparing to manufacture hundreds of thousands of doses each month beginning in late summer.

Robert Nelsen, who helps run venture-capital firm Arch Venture Partners, which made early and successful bets on cancer immunotherapy, is backing VIR Biotechnology Inc., which plans trials for its own monoclonal antibody therapy this summer.

“I’m pushing them every day,” Mr. Nelsen says. “We don’t know if the virus will be weaker or stronger or the same in the fall, but in 1918 it came back stronger, so we have to be prepared.”

Regeneron shares are up 52% this year, adding $23 billion in market value, while VIR is 148% higher and has added $2.3 billion in value. Some investors say if a vaccine is discovered it could limit these shares’ potential. Mr. Nelsen counters that it could take longer than expected for researchers to find vaccines, creating a huge market for antibody treatments.

“Vaccines are never 100% effective,” he argues, “so antibody therapeutics may be key to preventing a re-emergence.”

One high-risk, high-reward strategy: Buying shares of tiny companies with potential upside. Messrs. Edelman and Nelsen hold big chunks of ownership in VBI Vaccines Inc., an unproven biotech company claiming an experimental vaccine approach. The stock closed at $2.07 on Thursday.

Forecasting a winning vaccine is perhaps even harder than predicting coronavirus treatments. By some measures, Chinese companies and a group at Oxford University are in the lead. Some companies say they will distribute a vaccine they develop at cost, potentially reducing profits for others. Still, the potential market is huge—some investors believe a combination of vaccines may be necessary to meet global demand, perhaps a low-cost option for younger, healthier individuals and a more potent one for those who are immune-compromised.

Moderna Inc. has attracted the most excitement among vaccine makers, sending its stock soaring 230% this year, as it moves through human trials. Moderna’s strategy is to produce a vaccine using the virus’s genetic sequence, rather than its actual genetic material. It uses programmed material, called messenger RNA, or mRNA, with the goal of directing a patient’s immune system to produce antibodies to the coronavirus.

The approach, which may be able to produce a vaccine quickly, was described as “impressive” by Dr. Anthony Fauci, director of National Institute of Allergy and Infectious Disease. Pfizer and Germany’s BioNTech are working on their own mRNA vaccine.

But analysts note that mRNA technology is expensive and has never produced an approved medicine or vaccine. Moderna is already worth $24 billion, up from $6.5 billion at the beginning of 2020. As for Pfizer, the company already is worth $211 billion, so it isn’t clear how much a vaccine would increase the company’s value.

Some investors are skeptical of some of the highest-flying coronavirus stocks. Mr. Lawler of JFL Capital is shorting Inovio Pharmaceuticals Inc., a small Pennsylvania company that’s up 314% this year despite limited past success.

A spokesman for Inovio says it is in phase one trials for a Covid-19 vaccine and expects results in June, while working on other medicines.

“The general public is throwing money at headlines,” says health-care investor Brad Loncar at Loncar Investments.


Stock Markets Fell on Thursday as Worries Grew About a Second Wave of Coronavirus Infections

Stock markets fell and bonds were in demand on Thursday as worries grew about a second wave of coronavirus infections and a dour assessment from the head of the U.S. Federal Reserve dashed hopes for a quick economic recovery.

“The path ahead is both highly uncertain and subject to significant downside risks,” Fed Chair Jerome Powell said in a webcast speech.

He warned of a recession worse than any since World War Two, and called for additional fiscal spending to stem the fallout from the pandemic – a pointed comment from a central banker who has avoided giving advice to elected officials.

New outbreaks in South Korea and China were cause for concern, even as more countries begin to re-open their economies after lengthy lockdowns.

European stock futures were down, and every market in Asia fell. Bonds and the dollar held ground won overnight.

FTSE futures (FFIc1) and EuroSTOXX 50 futures (STXEc1) dropped about 0.5%, while futures for the S&P 500 (ESc1) struggled to lift much above flat.

MSCI (NYSE:MSCI)’s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) fell 1%.

“We don’t think the market is going to re-test the lows, but it’s probably seen its best also, so I’m expecting a correction,” said Tony Huntley, chief investment officer at Melbourne-based fund manager Adansonia Capital.

“The issue is whether we get a second wave (of infections) … that would be my greatest fear.”

China has re-imposed movement restrictions near its borders with North Korea and Russia after a new outbreak was detected there and South Korea is working to contain an outbreak centred around bars and nightclubs in Seoul.

“It is important to put this on the table: this virus may become just another endemic virus in our communities, and this virus may never go away,” WHO emergencies expert Mike Ryan told an online briefing on Wednesday.

Bonds and the dollar rallied after Powell talked down the prospect of negative interest rates in the United States, and extended gains on Thursday. Yields on benchmark U.S. 10-year Treasuries (US10YT=RR) fell slightly to 0.6395%.

A surprise drawdown of U.S. inventories helped oil prices make meagre gains, but the bleak outlook capped rises.

Gold pulled back from a one-week high hit early in the Asian session, but held comfortably above $1,700 an ounce at $1,711.20.

Markets are looking ahead to the release of the European Central Bank’s latest economic bulletin at 0800 GMT and the latest U.S. jobless claims data at 1230 GMT.


Equity markets have wavered since April’s rally as investors and authorities try to weigh the risks of re-starting economies quickly against the financial ruin that lockdowns have wrought, while worrying about a flare-up infections.

Australian jobless data bought the latest sign of doom, with a record plunge in employment dragging the currency to a one-week low of $0.6420.

Already bleak expectations and strong demand for Aussie bonds kept it from steeper falls. In the United States, the Trump Administration is pressing on with re-opening plans despite urgings of caution from medical experts.

“We’re going to slowly open the economy,” U.S. Treasury Secretary Steven Mnuchin told Fox News on Wednesday.

“But there is also a risk that we wait too long, there is a risk of destroying the U.S. economy and the health impact that that creates.”

Caution is also prevailing in Europe and the Antipodes, where restrictions are beginning to relax. “Global markets are still licking their wounds, and while equities remain robust, gains are slowing,” said Societe General FX strategist Olivier Korber.

“A second pandemic wave is unfortunately not a tail risk, so the full extent of the economic damage may be underestimated,” he said, recommending a long position in euro/kiwi (EURNZD=) which has gained nearly 9% this year as market volatility has increased.

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Elsewhere a strong greenback pushed the kiwi to a three-week low of $0.5968 and had the euro and pound under pressure. Brent crude (LCOc1) firmed slightly to $29.36 per barrel and U.S. crude (CLc1) was up 1% at $25.58 per barrel.



EU Chief Backs Investigation Into Covid-19 Origin And Says China Should Be Involved

The president of the European Commission backed calls for an investigation into the origin of the new coronavirus and said China should be involved in the process.

Lawmakers in countries like Germany, Sweden and Australia have called for a probe into how the virus started, which has so far infected over 3.2 million people and killed over 230,000.

Speaking to CNBC, Ursula von der Leyen, the head of the EU’s executive arm, said she would like to see China work together with her organization, and others, to get to the bottom of exactly how it emerged.

“I think this is for all of us important, I mean for the whole world it is important. You never know when the next virus is starting, so we all want for the next time, we have learned our lesson and we’ve established a system of early warning that really functions and the whole world has to contribute to that,” she told Geoff Cutmore in an exclusive interview Thursday.

She called for more transparency in the future and said governments needed to learn lessons from the current crisis.

“One of the lessons learned from this pandemic is that we need more robust data, overall, and we need more centralized than an entity that is analyzing those data so that the early warning mechanism is way better,” she said.

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“For example, at the level of the European Union, we know that we need a more robust data system for such situations as we see it right now with the coronavirus. And for building up a system that is, that you can count on.”

China criticized
The new strain of coronavirus, known as Covid-19, was first reported in December in the Chinese city of Wuhan.

While China has deployed medics and sent equipment to nations struggling with the coronavirus overseas, the country has faced criticism over its own handling of the virus, which experts believe originated in a wildlife market, or wet market.

We did not cover up anything, and did not delay any efforts. Le Yucheng – CHINESE VICE PREMIER

In late January, Chinese authorities announced a temporary ban on the trade of wild animals in wet markets, supermarkets, restaurants and e-commerce platforms — but experts and wildlife organizations have called for a permanent ban to help prevent future pandemics.

China has also been criticized for a lack of transparency throughout the outbreak, amid claims that Beijing was too slow to respond. The WHO has cautioned against blaming individual countries for the spread of Covid-19, warning that pointing fingers at nations with a high number of cases could discourage accurate reporting on domestic outbreaks.

China has denied any wrongdoing. In an interview with NBC Tuesday, Chinese Vice Premier Le Yucheng said: “China has been open, transparent and responsible in its Covid-19 response. We did not cover up anything, and did not delay any efforts. We have already publicized the timeline of how we have shared the information on Covid-19.”

Le Yucheng added that there is no international law that supports blaming a country simply for being the first to report a disease. “Neither does history offer any such precedent,” he said.

In the United States, President Donald Trump said Thursday, without offering any evidence, that he has a high degree of confidence that the coronavirus outbreak originated from a laboratory in China. His comments came after the top spy agency in the U.S. said that the country’s collective intelligence community did not believe the virus was manmade or genetically modified.

EU-China relations
When pressed on whether a probe could lead to a weakening of relations with China, von der Leyen disagreed that this would be the case: “No, I don’t think so, because it’s all on our own interest. I mean, this this pandemic has caused so much damage,” she told CNBC.

“So it’s in our own interest, of every country, that we are better prepared the next time. We will, we do not know when such a crisis occurs again, but we should be better prepared now.”

Her comments come at a time when the European Commission has been under pressure for allegedly softening the tone of a disinformation report around the coronavirus. The institution has denied succumbing to pressure from Beijing, but its foreign policy chief, Josep Borrell, has not denied that China had expressed concerns about the report, Politico reported.


Pandemic Triggers A Wave of Distress, Bankruptcy In Corporate America

What a time to be a restructuring specialist.

Practically overnight, bankers and lawyers who advise companies in distress have become some of the most in-demand workers on Wall Street, ending a long period in which rising markets and abundant capital consigned them to obscurity.

Stay-at-home orders and the shutdown of nonessential business have driven broad swaths of the economy into panic mode. In industries that were already in a precarious position before the crisis, including retail and energy, the coronavirus pandemic has tipped many companies over the edge. A host of oil companies have sought chapter 11 protection, while J.C. Penney Co. JCP 3.69% and Neiman Marcus Group Inc. are expected to file for bankruptcy soon.

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Companies in areas that were previously stable, such as the automotive, travel and leisure industries—and even health care—may soon face similar pressures.

U.S. corporate debt downgraded to selective default, meaning a borrower has failed to meet one or more of its obligations, totaled $64.1 billion for the 12 months ended April 17, according to S&P Global Ratings. That represents only a slight uptick over the pace at the end of January, but the numbers are about to get a lot more bleak.

In the coming months, that figure could top the roughly $340 billion reached at the height of the financial crisis, according to the worst-case scenario estimates from S&P. Even in a less grim scenario, the figure could approach levels reached after the dot-com bust in the early 2000s.

Companies of all stripes are scrambling to avoid a painful reorganization of their capital structures and operations, default or bankruptcy. Many have tapped lines of credit and slashed costs. Some, such as Carnival Corp., Expedia Group Inc. and Airbnb Inc., have issued new equity or debt to public investors or private-equity firms.

For some, those efforts could tide them over until conditions improve. But should the recession prove deeper than envisioned, there could be a second—potentially bigger—wave of corporate distress later this year as companies labor under the weight of additional debt taken on during the shutdown, advisers warn.

“We will definitely see an uptick in defaults and an uptick in restructurings,” said William “Tuck” Hardie of Houlihan Lokey Inc., one of the top banks in restructuring. “The question is: Is it a 2,000-foot mountain or is it Mt. Everest?”

U.S. companies drew down about $230 billion from revolving credit lines from the beginning of March through April 9, according to an analysis by Goldman Sachs Group Inc. The largest portion—around 17%—went to companies in the automotive industry, with about 15% going to retailers and 10% to travel and leisure purveyors.

Those figures don’t include new revolver borrowings by companies without publicly traded bonds or those financed by private lenders, many of which are private-equity-backed and were already highly indebted.

Hard-hit companies have taken on additional debt on top of using their credit lines—and some may have effectively boxed themselves in by doing so. Carnival earlier this month sold $4 billion worth of senior secured notes backed by assets like its cruise ships. Tying up those assets will make it difficult for the company to go back to the debt market if it needs to raise more cash, according to a person familiar with the company’s capital structure.

Another person close to Carnival said the cruise operator believes it still has a number of financing options available to it if cruising doesn’t return by early next year, and it expects to get access to government-backed loans in some of the markets where it operates.

For private-equity-backed companies, which are typically bought using a heavy helping of debt and a relatively small amount of equity, having little to no revenue can be even more painful. Loans to fund new buyouts had average debt of 5.93 times earnings before interest, taxes, depreciation and amortization in 2019—the highest since 2007, when the average was 6.23 times, according to S&P Global Market Intelligence’s LCD.

Working in their favor is the fact that 85% of so-called leveraged loans issued in 2019 were “covenant lite,” giving borrowers more breathing room. That figure has risen steadily over the past decade as investors clamored for yield. In 2010, only 10% of leveraged loans were covenant lite, according to data compiled by J.P. Morgan Asset Management.

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Also backstopping companies owned by buyout funds: Firms have around $2 trillion in unspent cash to invest in private markets, with most of that dedicated to private equity, according to alternative-investments manager Hamilton Lane Inc. Much of the dry powder is in the hands of the biggest firms, however, and companies’ fate will be determined by their owners’ willingness to inject more capital at a time when future prospects are highly precarious.

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And the universe of companies facing distress stretches well beyond the world of private equity, said Steve Zelin, head of restructuring at investment bank PJT Partners. “It doesn’t matter if you were five times levered or two times levered prior to the current crisis if you are now not generating any revenue.”

Investment firms that specialize in distressed investing have been gearing up for more action. Oaktree Capital Group LLC aims to raise $15 billion for what would be the biggest-ever distressed-debt fund, according to a person familiar with the matter.

Apollo Global Management Inc. has already invested more than $10 billion since the beginning of March in credit and private-equity.

James Zelter, the firm’s co-president who heads its $200 billion-plus credit business, says he sees three phases of distress playing out.

The first occurred during the early days of market turmoil in March, when even the debt of companies unaffected by the virus was trading at big discounts. The second is the industry-specific declines that led to the rescue financing companies like Expedia have been receiving.

“The third phase is just beginning,” Mr. Zelter said.




Global Stocks Rise As Countries Begin To Reopen Economies

Global stocks rose Monday, with investors anticipating that stimulus measures and the easing of coronavirus-lockdown measures in the U.S. and Europe may help kick-start economic activity.

Futures tied to the Dow Jones Industrial Average advanced 0.9%. Last week, the benchmark for U.S. blue-chip stocks posted modest losses, dropping 1.9% after a massive rally from late March to mid-April.

Japan’s Nikkei 225 stock index ended the day up 2.7%. The Bank of Japan scrapped its target for government-bond purchases and said it would nearly triple its holdings of corporate debt to aid fundraising by companies affected by the coronavirus pandemic.

European markets climbed as countries including Italy and Spain signaled that they may loosen restrictions in the coming weeks. The pan-continental Stoxx Europe 600 gauge rose 1.7%.

Italy announced a timetable for reopening its economy and restoring daily life beginning on May 4, but warned that a resurgence in cases could lead to a return of restrictions. Spain allowed children to leave their homes after six weeks under one of the strictest lockdowns in the world.

In the U.S., some states allowed retailers, salons and other businesses to reopen over the weekend as new infections appeared to slow.

“We don’t yet know the full scale and the pace of lockdowns being eased, but it’s important for confidence,” said Edward Park, deputy chief investment officer at Brooks Macdonald. “Suggestions that factories will restart sooner rather than later suggests that the pressure on economic output in the data we’ve seen will be a shorter-lived phenomenon.”

Concerns about sovereign debt from Europe’s most debt-laden countries also showed signs of easing. Italian, Spanish and Greek bonds rallied after S&P Global Ratings on Friday held off on downgrading Italy’s credit rating. The yield on Italy’s 10-year bond fell to 1.754% Monday, from 1.903% Friday.

Markets at the tail end of last week were fixated on European political risk, and a run on debt markets triggered by a downgrade for Italy,” said Mr. Park. “The lack of a downgrade offers some breathing space.”

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Oil prices dropped sharply as energy markets remain volatile at the start of a week that will test the world’s ability to house a glut of crude. West Texas Intermediate futures, considered the benchmark for U.S. crude prices, fell over 24% to $12.59 a barrel. Brent crude, the global benchmark, fell 5.3%.

The yield on the benchmark 10-year U.S. Treasury rose to 0.630%, from 0.594% Friday.

Investors will also be closely focused on the outcome from the U.S. Federal Reserve and the European Central Bank’s meetings this week. Recent economic data and forecasts from many countries have been weak, prompting policy makers to take unprecedented steps and allocate huge sums to support businesses and individuals whose finances have taken a hit.

“Normally when you have a recession, there are a number of factors that are reining in credit and stimulus and that’s not the case here,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Later in the week, a flood of U.S. companies—including, Apple and Facebook— are scheduled to report first quarter earnings. They are likely to provide insights on how leaders of the biggest American businesses view prospects for the rest of the year. But the pandemic has made earnings forecasts even less reliable than normal, analysts and investors said.

“Most investors are looking through the earnings reports as somewhat meaningless because we’ve never had this mix of fall-off in demand and central bank, government stimulus support before,” Mr. Haefele said.

Among major European equities, Deutsche Bank AG was the best performer. The stock rose over 10% after the German bank said late Sunday that it will beat analyst expectations and report a first-quarter profit. Higher revenue and lower expenses have helped it offset provisions for credit losses triggered by the coronavirus outbreak.
Across Asia, South Korea’s Kospi Composite advanced 1.8% while Hong Kong’s Hang Seng Index gained 1.9%. The stocks benchmark in Australia climbed around 1.5%.

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China’s statistics bureau Monday released data showing that industrial companies’ profits in March were down 34.9% from a year earlier, a slight improvement from the 38.3% pace of decline in January-February. The country last month began reopening some industrial hubs after closing most factories and companies to curb the coronavirus’s spread. The Shanghai Composite Index closed 0.3% higher.

Central banks’ stimulus policies and other government measures to subsidize wages are all helping to buoy markets and asset prices, said Iris Pang, chief economist for Greater China at ING Bank NV in Hong Kong. “They will take a while to reach the real economy,” she said, adding that the path to increasing consumption is unlikely to be smooth.





The Coronavirus Shutdown Will Induce The Sharpest Economic Downturn And Push The U.S. Budget Deficit To The Highest Levels Since The 1940s

Some degree of social distancing is expected to continue through the first half of 2021, the CBO said.

The economy is likely to shrink 12% in the second quarter—a 40% drop if it were to persist for a year—and the jobless rate will average 14%, the nonpartisan research service said Friday. Job losses will come to 27 million in the second and third quarters.

The federal budget deficit is expected to reach $3.7 trillion by the end of the fiscal year on Sept. 30, the CBO said, up from about $1 trillion in the 12 months through March. Congress has authorized unprecedented deficit spending to offset the shutdown of vast swaths of the U.S. economy.

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As a proportion of gross domestic product, the deficit will end the fiscal year at almost 18%, its highest level since the year after World War II ended and up from 4.6% in 2019, the CBO said.

Federal debt held by the public is projected to hit 101% of gross domestic product by the end of the fiscal year, up from 79% at the end of fiscal 2019, the CBO said.

The silver lining is that interest rates are projected to fall so low that the government’s net borrowing costs will decline even with the dramatic increase in borrowing, the CBO said. It sees the yield on 10-year Treasury notes hovering at 0.7% in the second half of this year and through 2021.

The updated forecasts, published in a blog post by CBO Director Phillip Swagel, rest on assumptions that are “subject to enormous uncertainty.” These include the extent to which the coronavirus is brought under control in the coming months and the possibility of a subsequent re-emergence.

Some degree of social distancing is expected to continue through the first half of 2021, the CBO said. But those measures are projected to diminish by roughly 75% in the second half of this year relative to the April-June quarter and continue easing into 2021.

As a result, economic activity is projected to recover from its current nadir, but only gradually. GDP is expected to contract 5.6% in 2020 from last year and to grow 2.8% in 2021.

The unemployment rate is seen topping out at 16% in the third quarter and declining to 9.5% by the end of 2021. But the CBO cautioned that those numbers understate the extent of damage because they only count people who are actively looking for a job.




3 Million Americans Are Not Paying Their Mortgages Right Now

The number of Americans struggling to pay their mortgages has skyrocketed as the economy reels from the coronavirus pandemic, with nearly 3 million Americans behind by at least one month on their mortgage payments in the week ending April 12, according to the Mortgage Bankers Association.

Nearly 6% of all mortgages were in forbearance, the industry term for being behind on payments. The week before, 3.7% of home loans were past due by at least a month. The first week of March, just 0.25% of such loans were past due by a month.

This high a figure on a nationwide level is unprecedented, said Mike Fratantoni, MBA’s chief economist.

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“You might have seen this high of a share in Houston after Hurricane Harvey, but it was always a local phenomenon,” he said. “What’s different this time is it’s national. To have 6% of mortgage loans in forbeareance, that’s about 3 million homeowners saying they can’t make their mortgage payments due to COVID-19.”

Fratantoni expects that number to keep rising, citing an additional 1.8% of homeowners who called banks to request forbearance last week.

“As we get to the time when May payments are due, I expect to see those numbers going up again,” he said. “We are hopeful that, now that some of the stimulus payents are arriving and unemployment benefits are expanded, that can provide some cushion to keep these numbers from going higher too fast.”

More than 22 million Americans have filed for jobless benefits in the past month, and homeowners are taking advantage of a provision in the CARES Act that bars eviction of homeowners whose mortgages are backed by Fannie Mae or Freddie Mac. The law also lets homeowners ask for their payments to be reduced or deferred for 12 months with no penalties.

More than 8.2% of mortgages backed by Ginnie Mae were in forbearance, according to the MBA survey, compared with 4.64% of mortgages backed by Fannie Mae and Freddie Mac.

The CARES Act does not protect mortgages that are not backed by the government, which make up about half of all mortgages nationwide.

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Bets Against the Stock Market Rise to Highest Level in Years

Short sellers have revived their wagers against the stock market in recent weeks, taking their most aggressive positions in years.

Bets against the SPDR S&P 500 Trust, the biggest exchange-traded fund tracking the broad index, rose to $68.1 billion last week, the highest level in data going back to January 2016, according to financial analytics company S3 Partners. That was up from $41.7 billion at the beginning of 2020 and $41.2 billion a year ago.

Short sellers borrow shares and sell them, hoping to repurchase them at lower prices and keep the difference as profit. Among the individual companies they have targeted in recent weeks are travel-related firms, including Carnival Corp., Royal Caribbean Cruises Ltd., Marriott International Inc. and Wynn Resorts Ltd.

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Those bets come during a wild year for investors who are struggling to reconcile the impact of the coronavirus pandemic on the population and economy. The S&P 500 suffered its fastest drop from a record to a bear market in history—ultimately falling 34% between Feb. 19 and March 23. Its 28% rebound since then has also been brisk, leaving some investors anxious about the strength of the rally when so much remains unknown.

“We’ve really seen a significant bounceback in the last three weeks at levels that I think are too quick,” said Jerry Braakman, chief investment officer at First American Trust. His firm recently bet against the Nasdaq-100, on the belief that technology stocks have fallen too little to reflect the probability of a recession. The index is up 1.1% in 2020.

“When we see a strong move in one direction, where we think the fundamentals and the news can turn ugly, especially during an earnings cycle, we think that’s an opportunity where we could see a 5, 10% selloff again,” he said.

Investors are bracing for the possibility of more volatility this week, as earnings reports from companies including Coca-Cola Co., Netflix Inc. and Delta Air Lines Inc. give another glimpse at how the coronavirus is reshaping the landscape for U.S. business.

The outsize market swings of late require vigilance from investors who sell shares short because they can face losses when prices rise. Short sellers incurred total mark-to-market losses of $108.8 billion over three days in late March when the S&P 500 surged 18%, according to Ihor Dusaniwsky, head of predictive analytics at S3 Partners.

But with the potential for additional declines ahead, many investors have decided that the ability to hedge their portfolios—or simply bet on a selloff—is wise.

“Things will go back to normal eventually and these positions will decrease but not until we start seeing less volatility in the market,” Mr. Dusaniwsky said of the rise in short positions against the SPDR S&P 500 Trust. “No one’s going to give up their insurance until they see the chances of catastrophe are in the rearview mirror.”

The portion of available shares sold short against the SPDR S&P 500 Trust has also risen, climbing to 27% in early April, the highest level since November 2016 and up from 14% at the beginning of 2020.

The increase in bets against the market coincides with a push in other countries to temporarily curb short selling. At times of heightened volatility, critics often argue that the practice exacerbates downward pressure on stock prices. But Jay Clayton, the chairman of the Securities and Exchange Commission, has argued short selling is needed to facilitate ordinary market trading.

To be sure, coronavirus has upended entire industries in recent weeks, leaving investors scrambling to reassess the growth prospects of companies from Marriott to Clorox Co. to Inc. to Carnival.

With the pandemic devastating global travel, hotel, casino and cruise stocks have been among the hardest hit—and seen some of the biggest additions to the short positions against them.

Many hotels and casinos temporarily closed their doors when demand evaporated, furloughing employees and curbing spending plans, and the Centers for Disease Control and Prevention has extended a no-sail order for cruises into July.

Short sellers have added a collective $797 million to their short positions against Carnival, Royal Caribbean, Marriott and Wynn over the past 30 days, according to data Friday from S3 Partners.

Alex Lee, a San Francisco resident who manages a family sandwich shop in Oakland, Calif., and his wife had previously dabbled in short selling but have recently devoted more attention there. They made bets against Marriott, along with other stocks.

“Because of Marriott’s price at the time, it seemed like it had more room to fall and because of its heavy presence in Europe and the United States, we just thought that that company itself would be more vulnerable to falling more,” he said.

Over two rounds of shorting Marriott stock in March and April, they made a profit of about $15,000, Mr. Lee said. Marriott recently said about 25% of its hotels are temporarily closed, and North American occupancy levels are around 10%. Its shares are down 44% this year.

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Among the stocks that saw big drops in short positioning in March were stodgy consumer-staples shares, which got a bounce as Americans stocked their pantries to wait out the pandemic at home.

“We had a lifetime of trading in the month of March,” said Mitch Rubin, chief investment officer at RiverPark Funds. He said he had previously bet against shares of Kroger Co., Walmart Inc., Clorox and Campbell Soup Co. but covered those positions in late February and early March as it became clear those companies would perform well with consumers sheltering in place.

“Their business is healthier than it was before the crisis because the demand for their products has increased,” he said. “The amount of times you clean high-touch surfaces with a chemical disinfectant is going to go up for some period of time, maybe for the rest of our lives.”




Europe Needs At Least 500 Billion Euros For Recovery

Europe will need at least another 500 billion euros from European Union institutions to finance its economic recovery after the coronavirus pandemic, on top of the agreed half-a-trillion package, the head of the euro zone bailout fund said.

In an interview with Italy’s Corriere della Sera paper, published on Sunday, European Stability Mechanism Managing Director Klaus Regling said the easiest way to organize such funds would be via the European Commission and the EU budget.

“I would say that for the second phase we need at least another 500 billion euros from the European institutions, but it could be more,” Regling told the paper.


“For that, we need to discuss new instruments with an open mind, but also use the existing institutions, because it is easier, including in particular the Commission and the EU budget. Rethinking European funds can go a long way in keeping the European Union together,” Regling said.

European Union finance ministers agreed on April 9th on safety nets for sovereigns, companies and individuals worth in total 540 billion euros.

They also agreed that the euro zone, which the IMF predicts will plunge into a 7.5% recession this year because of the pandemic, will need money to recover, but they had different ideas on how much is needed and how to raise it.

EU leaders are to discuss that at a videconference on April 23. The idea around which a compromise may emerge is likely to involve the European Commission borrowing on the market against the security of the long-term EU budget and leveraging the money to achieve a bigger effect.




European Central Bank Headquarters And Frankfurt's Financial District Ahead Of Comprehensive Bank Assessment


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The Stock Market Is Ignoring The Economy

The Dow Jones Industrial Average staged its best two-week performance since the 1930s, the explosive rally is a sign that many are positioning for the U.S. to make a speedy recovery when the coronavirus crisis eases. Investors have been encouraged in recent days by signs that several states will move to resume business, along with hopes that a viable treatment for Covid-19 could be near.


The blue-chip index rose 2.2% this week, extending its rally over the past two weeks to 15%—its best performance since 1938. The S&P 500 climbed 3% this week, while the Nasdaq Composite surged 6.1% as investors piled into highflying technology stocks. The Dow and S&P 500 are still down more than 10% for the year, while the Nasdaq’s losses have been cut to 3.6%

Many investors agree the most important driver of the rebound has been the Federal Reserve’s massive stimulus plan, combined with the efforts of the U.S. government, which sent a signal that both were willing to step in like never before to buoy the economy. U.S. stocks bottomed March 23, after the Fed cut rates to near-zero.

“They took away the depression. That scenario is out of the picture now,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. “The Fed is the fundamental reason” for the rebound.

The central bank also unleashed a massive program to buy Treasurys and mortgage-backed securities, while President Trump signed a roughly $2 trillion stimulus package, the biggest relief package in U.S. history.

For some investors, it doesn’t pay to bet against stocks after the Fed stepped in. The stimulus spurred a fear of missing out among investors and gave many the confidence to resurrect some of the most popular tactics of recent years—buying dips in the stock market and piling into shares of big technology companies.

The coronavirus’ toll on the population and the economy has been dour. More than 150,000 people around the globe have died, while cases world-wide have topped 2 million. In the U.S., more than 22 million Americans have sought unemployment benefits in recent weeks.

Retail sales, a measure of purchases at stores, gasoline stations, restaurants, bars and online, fell by a seasonally adjusted 8.7% in March from a month earlier, the most severe decline since record-keeping began in 1992. Earnings for the first quarter among big U.S. companies are expected to decline nearly 15% from a year earlier, according to FactSet, which would mark the biggest decline since 2009.

The Fed’s latest move “reinforces our view of a full asset price recovery, and equity markets reaching all-time highs next year,” Mr. Kolanovic said in a recent note. “Investors with [a] focus on negative upcoming earnings and economic developments are effectively ‘fighting the Fed,’ which was historically a losing proposition.”

There may be limits to that approach, other analysts said. For example, a $350 billion small-business loan program from the U.S. government has already exhausted its funding, highlighting the mammoth challenge that lawmakers face—and sheer amount of cash necessary—to support the economy and keep Americans employed.

These types of loans can be forgiven if firms don’t lay off workers, but U.S. lawmakers have recently struggled to agree on the next round of coronavirus emergency aid.

Despite the stimulus checks going to Americans around the country, measures by the central bank and government can’t alter human behavior and force people to leave their homes, eat at restaurants, shop at malls and go to movies. That has led some analysts to say a recovery may take longer than many are currently anticipating.

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“How long before you and I are going to feel comfortable going to a concert again?” said Dominic Nolan, a senior managing director at Pacific Asset Management, which oversees roughly $12 billion in debt. “A government program doesn’t really help that.”

Mr. Nolan said that he has recently bought bonds of investment-grade companies after the Federal Reserve’s recent moves.

Some investors are still anxious because the bond market is sending a more cautious signal. Investors have continued scooping up traditionally safe assets like government bonds and gold as stocks have rallied.

The yield on the 10-year Treasury note has fallen to 0.655% from 1.26% in mid-March as bond prices have risen, while gold prices hit their highest level in more than seven years this week. The concurrent gains across traditionally risky and safe assets alike suggest that many remain concerned about an extended downturn.

Investors have also treated some corners of the stock market as a hiding place, piling into the technology darlings that powered markets higher in recent years.

“The Nasdaq is trading like a safe haven in a way,” Mr. Ren of Penn Mutual Asset Management said. Inc. and Netflix Inc. both surged at least 14% this week and set records, while some of the momentum-driven trades that were popular earlier in the year also re-emerged. Tesla Inc. has risen for 10 consecutive trading days, its longest winning streak on record, bringing its gain for the year to 80%.

It seems like a “hold your nose, close your eyes and buy,” situation, said Mike Bailey, director of Research at FBB Capital Partners. “Even though there’s a torrent of economic data coming.”

Mr. Bailey said he has been surprised by the “stocks going up on bad news” phenomenon. However, he has bought shares of Amazon and Apple Inc.

The recent rally among big tech stocks underscores their hefty influence on the market. The S&P 500, which is weighted by market-capitalization, is down 11% this year, while a version of the index that gives every company an equal weighting has plummeted 19%.

“You have the trillion dollar guys that are doing fine,” Mr. Nolan said. “I think on average companies have gotten hit really hard.”




Banks Brace For A Recession

The large U.S. lenders are preparing for an economic downturn as millions remain out of work.

Big banks sent a clear message in first-quarter earnings Tuesday: This recession is going to be bad.

JPMorgan Chase & Co. and Wells Fargo & Co. set aside billions of additional dollars to get ready for a flood of customers to default on their loans as the coronavirus pandemic pummels the economy. That sunk the banks’ quarterly profits.

JPMorgan and Wells Fargo are the first big U.S. banks to report first-quarter results, and act as a bellwether for the broader economy. Neither bank has yet seen a wave of loans go bad, but they are preparing for it as the economy plunges further into a presumed recession and millions remain out of work.

Many Americans were already deep in debt before the pandemic, tapping credit cards, auto loans and student loans at record levels to cover a shortfall left by wages that remained flat for many years.

The banks for years rode all that consumer spending and borrowing to big profits. Now, they are preparing to struggle alongside their cash-strapped borrowers. Nearly 17 million Americans have sought unemployment benefits in the past three weeks. About two million homeowners are skipping their monthly mortgage payments, according to industry data.

“This is such a dramatic change of events,” said JPMorgan Chief Executive James Dimon, who returned to work a few weeks ago after emergency heart surgery. “There are no models that have ever done this.”

JPMorgan set aside an additional $6.8 billion in the quarter for potentially bad loans, largely in its consumer bank. That raised its total provision to $8.29 billion, more than the bank has had to take since 2010. But even that may not be enough, the bank warned.

The bank said the provision was based, in part, on the assumption that U.S. gross domestic product would fall an annualized 25% and unemployment would rise to more than 10% in the second quarter. But JPMorgan economists have recently amended their forecast to a 40% decline in GDP in the quarter and a 20% unemployment rate.

Wells Fargo said it set aside an additional roughly $3 billion in the quarter for potentially bad loans, both in the consumer and commercial divisions. That raised its total provision to $3.83 billion.

“We don’t know what the time frame is or how quickly the economy will recover,” said Wells Fargo CEO Charles Scharf. “What we do know is the contraction is real.”

Both banks have pledged to help troubled borrowers and small businesses by, for example, waiving late fees or allowing them to temporarily suspend their monthly payments. They have also taken a central role in disbursing government stimulus money to businesses. But that might not be enough for workers who could be out of a job and small businesses that could be shut down for many months.

Spending on credit cards dropped for both banks. JPMorgan said most customers kept up payments on credit cards through April 1, but that more customers have been late on those loans in the past two weeks. Wells Fargo said that consumers had already contacted Wells to defer more than a million payments, mostly on mortgages and auto loans.

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What’s more, banks and other lenders are starting to toughen their loan-approval standards, particularly for new customers. That means many people could find it hard to get credit just when they most need it.

Shares for both JPMorgan and Wells Fargo fell, with JPMorgan dropping about 3% and Wells Fargo losing about 4%.

JPMorgan earned $2.87 billion, down 69% from $9.18 billion a year earlier. The bank earned $0.78 per share, missing the $2.16 forecast by analysts polled by FactSet. JPMorgan revenue was down 3% to $28.25 billion. That fell short of the $29.55 billion analysts had predicted.

Wells Fargo earned $653 million, down 89% from $5.86 billion a year earlier. The bank earned 1 cent per share, missing analyst expectations of 38 cents. Wells Fargo revenue fell 18% to $17.72 billion. That missed analyst expectations of $19.4 billion.

Wells Fargo also said it took an impairment charge of $950 million on securities because of the economic and market conditions.

Some banking businesses did surge in the quarter. Corporate clients rushed to load up on cash, drawing down lines of credit from the banks and socking it away in deposit accounts. Both banks posted 6% loan growth, driven by corporate lending, and crossed $1 trillion in total loans for the first time.

“People got scared quickly and wanted to make sure they had liquidity,” Mr. Dimon said on a call with reporters.

The volatile stock market boosted JPMorgan’s trading revenues by 32%, with gains in both equities and fixed income. The Federal Reserve attempted to support the economy by twice cutting rates in the quarter, though that pinched the revenue that banks earn from interest.

Wells Fargo’s net interest income dropped 8% from a year ago. JPMorgan’s was flat, but the bank had to cut its full-year guidance.


Stock Markets Around The World Rose On Optimism That Economic Activity May Improve In The Near Future

Futures tied to the Dow Jones Industrial Average rose 1.5%, suggesting U.S. stocks could gain ground later in the day. The pan-continental Stoxx Europe 600 advanced 1.2%. Asia-Pacific stock indexes also rose Tuesday. The benchmark Shanghai Composite Index closed up 1.6%.

Global coronavirus infections topped 1.9 million, with more than 119,000 deaths, according to Johns Hopkins University data. The number of new cases each day appeared to level off in the U.S., and President Trump told reporters his administration is nearing completion of a plan to reopen the country “hopefully ahead of schedule.” But in Europe, France, Italy and Spain extended lockdowns to curb the spread of the virus.

Investors are watching for news about the length of the lockdowns to try to call when the market has reached a trough and could be set to rise again, said Georgina Taylor, a multiasset fund manager at Invesco.

“Anything that suggests that it’s not a complete catastrophe, people will take that as the bottom,” she said.

Stocks in mainland China were buoyed by better-than-feared trade data, which showed exports in March down 6.6% from a year earlier, and imports down just 0.9%. Economists polled by The Wall Street Journal had forecast declines of 15.9% and 10%, respectively.

Daniel Gerard, senior multiasset strategist at State Street Global Markets, said the pandemic presents investors with an economic calamity unlike either the Great Depression or the global financial crisis, and markets are cycling between fear and relief as headlines change.

“The market may be excited today about China’s trade data being better than expected, but tomorrow it may think it is not enough,” he said.

While China’s trade figures were much better than expected, there were no serious lockdowns outside the country until mid-March, and since then orders have been cut back, said Iris Pang, chief economist for Greater China at ING Bank NV in Hong Kong.

“This will heavily weigh on export and import figures for April and May, at least,” she said.

Elsewhere, Hong Kong’s Hang Seng Index edged up by 0.7%, Japan’s Nikkei 225 closed 3.1% higher, boosted by electronics and retail stocks, while South Korea’s Kospi Composite advanced 1.9%.

Mr. Gerard at State Street said any global economic recovery would be uneven, and while panic-selling had ceased, fundamental questions about corporate profits remain. Investors will need to distinguish temporary damage to earnings from longer-term hits, something that won’t be easy until the second half of the year, he said.

Oil prices edged up. The global benchmark Brent crude climbed 1%, trading at $32.04. The Organization of the Petroleum Exporting Countries and its allies agreed to jointly reduce production by 9.7 million barrels a day after a marathon series of talks from Thursday to Sunday.

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The rally is modest because the fall in energy demand from the economic slowdown still outweighs the production cuts made over the weekend, said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB.

“It’s very clear that demand loss is tremendous. They [OPEC] are not cutting enough in the short term to prevent inventory build.’’

Earnings season will begin this week, with some of the largest U.S. banks reporting in the coming days. JPMorgan Chase & Co will release its financial statements Tuesday, followed by Goldman Sachs, Bank of America and Citigroup Wednesday.

Also Tuesday, the International Monetary Fund will put out its world economic outlook, which will kick off a week of virtual meetings with a focus on the downturn caused by the coronavirus.



Stocks Climb, Trying To Extend Winning Streak

U.S. stocks rose sharply Tuesday, buoyed by early indications that the spread of the coronavirus pandemic was slowing in some hot spots around the world.

The Dow Jones Industrial Average rallied 2.8% in midday trading, a day after rising almost 8%. The S&P 500 and the Nasdaq Composite also jumped, climbing 2.3% and 1.5% respectively. All three indexes are attempting to rally for the third time in four sessions, though they remain down about 20% from their mid-February highs.

New York Gov. Andrew Cuomo said Tuesday that the state’s hospitalization rate has showed signs of slowing, and other hard-hit countries in Europe, including Italy and Spain, have reported a slowdown in new infections following strict containment measures.

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“It’s hard to reject the view that things are improving,” said Paul O’Connor, head of multiasset at Janus Henderson. “Markets have been celebrating this in the last couple of days.”

Still, the trends are preliminary and authorities have warned that the coronavirus infections in the U.S. and U.K. are likely to worsen in the coming week. Even as demand for intensive care units has flattened in New York, Mr. Cuomo said Tuesday that deaths related to the virus hit a record Monday. So far, nearly 5,500 people have died from the virus in the state, representing almost half of all U.S. deaths.

Even more, economic indicators have shown that a deep recession may be looming. The Mortgage Bankers Association said Tuesday that mortgage forbearance requests grew 1,896% between the weeks of March 16 to March 30. The spike comes as millions of Americans have sought unemployment benefits after the pandemic shuttered businesses.

Markets have swung sharply in recent weeks as investors have tried to make sense of a fast-spreading pandemic that has warranted unprecedented responses by the Federal Reserve and U.S. government. Monday’s gain marked the 12th consecutive trading day that the Dow moved up or down at least 1%.

All 11 sectors of the S&P 500 marched higher Tuesday. Only two of the 30 stocks in the Dow Jones Industrial Average, Merck and Pfizer, ticked lower.

Travel and leisure stocks were again among the best performers in the U.S. and Europe. United Airlines Holdings jumped 8.3%, American Airlines Group rose 15% and Delta Air Lines added 4.2%. Among cruise stocks, Royal Caribbean Cruises gained 21% and Carnival rose 17%. All five stocks remain down more than 50% for the year.

Meanwhile, in London, EasyJet soared 20% after the carrier tapped a U.K. government-aid program for short-term credit. The company’s ability to access the funding suggests that it could withstand the economic downturn, provided that the spread of the coronavirus continues to slow, according to Michael Hewson, chief market analyst at brokerage CMC Markets.

“Markets are pricing in a return to normality for airlines sooner rather than later,” Mr. Hewson said. That optimism is also driving hotel stocks higher, he added.
The rise in risk appetite led some investors to sell the safest government bonds. The yield on the 10-year U.S. Treasury note rose to 0.749%, from 0.675% Monday. Yields rise as bond prices fall.

Oil prices also ticked higher, with the global benchmark Brent crude advancing 0.3% to $33.15 a barrel.


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In currency markets, the ICE Dollar Index slipped 0.7%. The greenback has been wavering amid renewed risk appetite, according to Jordan Rochester, a currency strategist at Nomura.

“It’s definitely a risk-on day,’’ leading some investors to sell the dollar, he said.


European Markets Mixed As Coronavirus Cases Top 1 Million

Global stock markets have experienced a shaky start to the second quarter this week as investors to assess the potential economic ramifications of widespread lockdowns and the persistent spread of the coronavirus.

European markets were searching for direction on Friday morning as another rocky week of trading draws to a close amid the deepening coronavirus crisis.

The pan-European Stoxx 600 hovered around 0.2% below the flatline in early deals, with insurance stocks sliding 2.3% to lead losses while media stocks added 1%.

The number of confirmed cases of the coronavirus worldwide surpassed 1 million on Thursday night, resulting in more than 53,000 deaths so far. Italy and Spain have reported over 115,000 and 112,000 cases, respectively, while Germany now has more than 84,000 cases, according to Johns Hopkins University.

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Global stock markets have experienced a shaky start to the second quarter this week as investors continue to assess the potential economic ramifications of widespread lockdowns and the persistent spread of the virus, along with the fiscal and monetary measures being deployed by governments and central banks to mitigate the crisis.

Asian markets were muted on Friday after an initial gain in momentum after oil prices experienced their biggest one-day surge on record, but crude futures retraced some of their gains by Asian afternoon trade.

The sharp moves in crude futures came after U.S. President Donald Trump told CNBC’s Joe Kernen that he expected Russian President Vladimir Putin and Saudi Crown Prince Mohammad Bin Salman to agree to an oil production cut of 10 million to 15 million barrels, potentially halting a bruising price war between the two oil powerhouses.

On the data front, individual and collective final euro zone Markit composite and services PMI (purchasing managers’ index) readings for March are due at 9 a.m. London time, before February’s retail sales numbers at 10 a.m.

U.K. Markit/CIPS composite and services PMIs are expected at 9:30 a.m.





Stock Market: U.S. Futures And Global Stocks Fall, Investors Rush To Safe-Haven Assets

“In the U.S., we’re at the beginning of a downturn,” said Steven Englander

U.S. stock futures declined Wednesday, after leading benchmarks closed out their worst quarter since the global financial crisis.

Futures tied to the Dow Jones Industrial Average and S&P 500 ticked down 2.6% early Wednesday.

European stocks also declined. The pan-continental Stoxx Europe 600 index dropped 2.9% with Germany’s DAX benchmark down 3.2% and the FTSE 100 down 3.5%.

As investors rushed to safe-haven assets, the yield on the 10-year U.S. Treasury note fell about 0.02 percentage point to 0.661%. Bond yields fall as prices rise. The ICE Dollar Index, which tracks the dollar against a basket of currencies, rose 0.4%.

“In the U.S., we’re at the beginning of a downturn,” said Steven Englander, global head of G-10 foreign-exchange research and North America macro strategy at Standard Chartered Bank. “We’re likely to see more unemployment, and the early bottom could come in May, but that is very speculative. For that to happen, we need a lot of good luck and serious implementation of economic and health-care policy.”

Mr. Englander said stimulus packages were positive for the economy, and would help American employees get through the next two months but that there might be a need for “trillions more.” On Tuesday, President Trump called for a new infrastructure-focused spending bill worth $2 trillion.

The Federal Reserve said Tuesday that it would launch a temporary lending facility that for the first time would allow foreign central banks to convert their holdings of Treasury securities into dollars, its new bid to alleviate strains in global markets.

Mr. Englander said the program would improve international access to dollar-based funding.

“Investors will take it seriously,” he said.

The S&P 500 dropped 1.6% Tuesday, taking its year-to-date losses to 20%, the biggest quarterly decline since 2008. The Dow Jones Industrial Average fell 1.8%. It slid 23% over the quarter, its worst showing since 1987.

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In Asia, markets were mixed Wednesday. Japan’s Nikkei 225 lost 4.5% and Hong Kong’s Hang Seng was 2.2% lower. Meanwhile, Australia’s ASX 200 gained 3.6%.

In Hong Kong, shares in HSBC Holdings PLC tumbled more than 9% to their lowest since 2009, while stock in rival Standard Chartered PLC also fell. The two lenders, which also have U.K. listings, were among four banks that said Tuesday they would cancel unpaid 2019 dividends at the Bank of England’s request.



Trump Decides Against Quarantine for New York

“A lockdown is what they did in Wuhan, China, and we’re not in China,” Mr. Cuomo said on CNN Saturday evening.

President Trump late Saturday said he would not seek a quarantine on New York, New Jersey and parts of Connecticut after raising the idea earlier in the day and said his administration would instead issue a “strong travel advisory” for the area, as the nation’s largest city quickly becomes an epicenter of the coronavirus pandemic.

Mr. Trump said he had directed the Centers for Disease Control and Prevention to issue the travel advisory and that more details would be released later in the evening. He said he had made the decision in consultation with the governors of New York, New Jersey and Connecticut.

Later Saturday, the CDC issued a travel advisory urging residents of New York, New Jersey and Connecticut to “refrain from non-essential domestic travel” for 14 days, effective immediately. The advisory doesn’t apply to those in critical infrastructure industries, including truckers and health professionals.

The president’s assertion earlier in the day that he was considering imposing a quarantine on those states for a few weeks drew swift and harsh blowback from governors, who questioned why they hadn’t been consulted first and suggested they didn’t believe the move would be legal.

New York Gov. Andrew Cuomo had called the quarantine idea a “declaration of war on states” that would crash financial markets and results in legal challenges.

“A lockdown is what they did in Wuhan, China, and we’re not in China,” Mr. Cuomo said on CNN Saturday evening.

The president had indicated he didn’t plan to physically prevent people from leaving those states, telling reporters earlier in the day that it wouldn’t be necessary to bring in the military or the National Guard. The president’s advisers have told him that most people would listen to an order from the president not to leave the states, and that it wouldn’t be necessary to “bring the hammer” by physically blocking their exit, a person familiar with the discussions said.

A quarantine restricting people’s movement across state lines would have represented one of the toughest measures the federal government has taken yet to slow the spread of the coronavirus. Mr. Trump already has blocked flights from China and much of Europe and asked Americans to adhere to social-distancing recommendations, but the stay-home measures that affect people most deeply have been ordered by governors.

New York City alone has more than 23,000 cases, nearly a quarter of all the cases in the country. Overall, New York state leads the country in infections, with 52,318 confirmed cases and 728 deaths as of Saturday, Mr. Cuomo said during an afternoon briefing.

Mr. Cuomo and the Democratic governors of New Jersey and Connecticut, Phil Murphy and Ned Lamont, already have ordered all nonessential businesses in the state to close and called for residents to stay home. Essential services like hospitals, grocery stores and pharmacies remain open under the order, and residents still can go outside for exercise and to obtain groceries.

They each said their moves already represent aggressive action against the virus’s spread. “Until further notified we are going to keep doing exactly what we are doing,” said Mr. Murphy, whose state has 11,124 coronavirus cases as of Saturday afternoon and 140 deaths.

“I look forward to speaking to the President directly about his comments and any further enforcement actions, because confusion leads to panic,” Mr. Lamont said in a statement.

Mr. Trump’s idea also took federal transportation officials by surprise. Federal transportation agencies, airline officials and pilot unions that would have been an important component of a quarantine weren’t informed about Mr. Trump’s idea before the president revealed it to reporters Saturday, according to people tracking the issue.

Concerns have mounted in other parts of the country about people leaving the New York City area and possibly spreading coronavirus. Earlier this week, administration officials urged anyone leaving New York to self-isolate for 14 days.

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Florida Gov. Ron DeSantis issued an executive order on Monday directing travelers from New York, New Jersey and Connecticut to self-isolate for that period, and said violations of the order would amount to a criminal offense. Rhode Island Gov. Gina Raimondo on Thursday issued a similar order. Mr. Trump said on Saturday he had spoken to Mr. DeSantis.

“They’re having problems down in Florida. A lot of New Yorkers going down,” Mr. Trump said.

Mr. Cuomo said other states’ measures to keep New Yorkers out were “reactionary.” He said he would sue Rhode Island if it doesn’t stop enforcing travel restrictions on New Yorkers.

Legal experts differed on whether the federal government could restrict, en masse, the movements of New York City area residents.

Lawrence Gostin, a professor of global health law at Georgetown University, said the quarantine broached by Mr. Trump would be unconstitutional and unprecedented.

“The power to regulate interstate commerce, including the spread of infectious diseases, resides exclusively in Congress,” he said. “In this case, the president hasn’t even consulted Congress or the governor of New York. He’d be acting unilaterally in ways he has no power to do.”

Mr. Gostin said governors, like Mr. Cuomo, would have multiple ways to push back if Mr. Trump ordered a quarantine of their states. They could sue, and they could direct the state police and public-health authorities not to enforce the order.

“The Supreme Court has said expressly that the federal government has no power to direct a governor to execute the president’s orders,” Mr. Gostin said. “The president would have to call in the United States military to guard the border.”

Wendy Parmet, a public-health law professor at Northeastern University in Boston, said the executive branch has broad powers to protect the public health. Restrictions on interstate travel and commerce should, constitutionally, be put in place by the federal government, not individual states, she said.

“We’re not supposed to have Florida saying drop dead to New York,” she said. “States can’t set up borders. We have a Constitution.”

She said whether any plan to quarantine the tri-state area passed constitutional muster would depend on the details of how it was done, and would have to be grounded in science about the public health.

“The courts are deferential to public health powers in times of emergency,” she said.

Mr. Trump’s comments overshadowed his visit to Norfolk, where he sent the hospital ship, USNS Comfort, on its way to New York to help take pressure off the city’s health-care system. Standing in front of the vessel, Mr. Trump said it was “stocked to the brim with equipment and medicines and everything you can think of.”

“This great ship behind me is a 70,000-ton message of hope and solidarity to the people of New York,” he said. He reminded Americans that anyone leaving New York must self-isolate for 14 days.

The U.S. added more than 15,000 cases of the Covid-19 disease, pushing the total past 104,000 on Saturday, with a surge of cases in New York amid increased testing. There are now more than 2,000 deaths from the virus in the U.S., according to Johns Hopkins University.

In a sign that other states were coming under pressure, California Gov. Gavin Newsom said coronavirus patients admitted to intensive-care units had doubled to 410 on Saturday. Hospitalizations were up 38.6% from a day earlier, with more than 1,000 Covid-19 patients now in California hospitals.

“That’s a significant, sizable increase,” he said. “If trends continue on those lines, then we will begin to manifest conditions that are very familiar to people on the East Coast.”

Authorities also reported the death of a New York Police Department detective and an Illinois infant who had Covid-19, the disease caused by coronavirus.

The virus’s growth in the U.S. outstripped that of Italy and China, the countries with the second- and third-most infections, where confirmed cases stayed around 86,000 and 81,000, respectively, according to data compiled by Johns Hopkins.

As a result, the number of confirmed infections globally has more than doubled over the past week to more than 600,000. The death toll from the pathogen rose to more than 28,000 on Saturday, with roughly one-third of the fatalities in Italy, data from Johns Hopkins showed.

Italy’s death toll from the virus on Friday rose by 919 to 9,134, the highest daily tally on record. Total infections there rose to 86,498, a 7% increase from the previous day.





Economic Indicators: Consumer Sentiment in U.S. Slumps by Most Since October 2008

U.S. consumer sentiment plummeted in March by the most since October 2008 as mounting Covid-19 cases nationwide and business closures elevated concerns about the economy.

The University of Michigan’s final sentiment index for the month slumped 11.9 points to a three-year low of 89.1, data Friday showed. The median forecast in a Bloomberg survey of economists called for a decline to 90 after a preliminary March reading of 95.9.

Ratings for current conditions also decreased by the most since 2008, and a measure of the economic outlook dropped to the lowest level in more than three years. Stocks fell and Treasuries advanced as investors assessed the pandemic’s impact on the economy.

“The outlook for the national economy for the year ahead changed dramatically in March, with the majority now expecting bad times financially in the entire country,” Richard Curtin, director of the Michigan sentiment survey, said in a statement. “Perhaps the most important takeaway is that the largest proportion of consumers in nearly 10 years anticipated that the national unemployment rate will increase in the year ahead.”

The report provides one of the more-sobering pictures yet of how the widespread economic halt, amid efforts to help contain the virus, is impacting consumers’ attitudes. The March figures represent a drastic departure from just a month earlier, when a strong job market and cheap fuel contributed to the second-highest sentiment reading since 2004.

The university’s final survey for the month included responses through March 24, a stretch that includes significant upheaval and uncertainty in day-to-day living and the labor market, as well as in financial markets. A report yesterday showed initial claims for unemployment benefits soared to a record 3.28 million last week.

“Stabilizing confidence at its month’s end level will be difficult given surging unemployment and falling household incomes,” Curtin said. “Mitigating the negative impacts on health and finances may curb rising pessimism, but it will not produce optimism.”

April consumer sentiment data will reflect the surge in dismissals and growing Covid-19 cases, as well as progress on Capitol Hill toward a $2 trillion economic-relief package that includes direct payments to many Americans.

Most notably, the number of confirmed cases nationwide continues to rise. There are currently more than 85,000 with the disease in the U.S., the most in the world, compared with 62 people at the end of February.

The Michigan data showed an index of buying conditions for durable goods dropped in March to the lowest level since 2014.

Year-ahead financial prospects declined across all age and income subgroups, though modestly as respondents anticipated the negative effects from the pandemic would be short-lived.

The impact of the virus on consumer sentiment are likely to become more evident as monthly reports capture the tectonic shift in economic and market conditions seen over the last month. The Conference Board will publish its March confidence reading on Tuesday. Meanwhile, Bloomberg’s weekly index fell to a four-month low.



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Global Stock Markets Mixed After Lawmakers Agree On Coronavirus Rescue Deal

Stocks turned mixed Wednesday after building on a rally from the previous session in anticipation of a coronavirus rescue deal by Congress. The White House and Senate reached an agreement overnight.

While the Dow was up 450 points and the S&P 500 rose 0.6%, the Nasdaq slipped into the red. The Dow soared more than 2,100 points Tuesday, or over 11%, notching its biggest one-day percentage gain since 1933 and its best point increase ever. The S&P 500 rallied 9.4% for its best day since October 2008.

White House and Senate leaders agreed to a massive $2 trillion coronavirus stimulus bill in the middle of the night.

“At last we have a deal,” Republican Senate Majority Leader Mitch McConnell said around 1:37 a.m. ET from the floor of the Senate. “In effect, this is a war-time level of investment into our nation.”

Former Federal Reserve Chairman Ben Bernanke also said Wednesday the U.S. economy will experience a quick rebound after a “very sharp” recession. “If there’s not too much damage done to the workforce, to the businesses during the shutdown period, however long that may be, then we could see a fairly quick rebound,” Bernanke told CNBC’s “Squawk Box.” Bernanke added the current situation is “much closer to a major snowstorm” than the Great Depression.

He also acknowledged current Fed Chairman Jerome Powell moved quickly to stem the economic blow from the outbreak. “I think the Fed has been extremely proactive, and Jay Powell and his team have been working really hard and gotten ahead of this and shown they can set up a whole bunch of diverse programs that will help us keep the economy functioning during this shutdown period.”

Still, some investors think the number of global coronavirus cases needs to improve before the market can form a bottom.

Spain experienced a record spike in coronavirus deaths, with 504 reported for Tuesday. Globally, more than 400,000 cases have been confirmed, according to data from Johns Hopkins University. In the U.S., more than 55,000 cases have been confirmed along with over 69,000 in Italy.

Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said there are four “components” to the market stabilizing from here:

″(i) A sign that the policy intervention is sufficient to prevent severe second- and third-round economic shocks; (ii) A sign that the infection rate is reaching a peak; (iii) A sign that the economic downturn may be slowing; and (iv) Cheap valuations,” Oppenheimer wrote in a note to clients. “In reality, we believe it will be a combination of these, and in some cases there are already signs these are in place.”

Some investors believed the stock market was overdue for a big bounce, having priced in a worst-case scenario regarding the economic damage being done by coronavirus-related shutdowns. They believe a bounce could occur here even as coronavirus cases continue to surge because the market was so oversold.

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These Five Warning Signs Highlight Virus’s Rapid Economic Impact

The economic losses from the coronavirus have transitioned from hints of serious difficulties just a week ago to a devastating stoppage at countless U.S. restaurants, hotels, movie theaters, gyms and other service providers, with millions of employees now idled.

While still largely invisible in the mostly dated official economic data, the destruction is clear in private reports on hotels, dining establishments and theaters, many of which are now closed. The key questions center around how much more deterioration remains and how long it will last.

Here are five indicators that give a sense of the emerging crisis for the nation’s businesses.

1. Hotels

The outlook for the lodging industry has quickly gone from bad to worse. In the week ended March 14, occupancy of U.S. hotels plunged to 53%, meaning rooms were about half empty for the week, according to data tracker STR. A year ago, the rate was 70%. The slump occurred even as the industry reduced prices, with average daily rates falling 11% from a year earlier.

With the virus spreading to all 50 states, the falloff in travel is likely to be just the beginning. Seattle, which was an early epicenter of the virus in the U.S., experienced just 33% occupancy, while San Francisco’s was 39%. New York City, which typically is packed with tourists and business travelers, saw a decline to 49%.

Cities that depend on conventions were especially hard hit, said Jan Freitag, STR’s senior VP of lodging insights. “Group cancellations were felt across the markets.”

2. Retail Sales

Retail sales show a somewhat deceptive picture of true demand as they are holding up primarily because Americans are racing to discount and grocery stores to stockpile food, toilet paper and paper towels and other emergency goods. While discounters saw a surge in sales, purchases slumped at department stores that offer discretionary items like clothing, according to Johnson Redbook data.

Gains were led by “canned food, bottled water, pharmaceuticals, cleaning and household products as consumers stocked up in anticipation of staying at home for the next several weeks,” Bloomberg Intelligence analysts wrote.

It will get even worse for department stores. The largest mall owner, Simon Property Group (NYSE:SPG), announced it was temporarily closing all of its retail malls in the U.S.

3. Jobless Claims

With state and local governments ordering restaurants, movie theaters, bars, gyms and other gathering places to close, economists are bracing for a once-in-a-lifetime surge in jobless claims. Applications for unemployment benefits rose 70,000 last week to 281,000, Labor Department data showed Thursday.

But that’s about to spike much higher. Pantheon Macroeconomics Chief Economist Ian Shepherdson said his preliminary estimate is 2 million claims for next week. Goldman Sachs Group Inc (NYSE:GS). economists project 2.25 million.

4. Consumer Comfort

If you are looking for a bright spot, by one measure, consumers’ attitude seem to be holding up reasonably well. The Bloomberg Consumer Comfort Index improved last week to 63 from 62.7 a week earlier, the first gain since January. The caveat is the CCI is reported on a four-week rolling average basis.

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Confidence remains well above levels of the past recession during 2007 to 2009. But with layoffs starting to occur in large numbers and the stock market deteriorating rapidly, there is reason to expect sentiment will weaken. Improved household attitudes will be vital for spending when the U.S. emerges from the crisis.

5. Movie Theaters

Theaters in the U.S. and Canada brought in just under $50 million over the weekend starting March 13, researcher Comscore Inc. said Monday. That’s a 61% decline from a year earlier and the smallest weekend tally since at least 1998. The three-largest chains in the U.S. are all closed this week, and almost every new film release has been postponed or is being made available for at-home rental early.

Of course, the cinema isn’t alone within the arts and entertainment industry. Broadway is dark too, having been shut down by order of New York Governor Andrew Cuomo more than a week ago. And all major sports — remember this should have been a week for NCAA basketball’s March Madness tournament — have canceled games or suspended seasons indefinitely,


Coronavirus Infections Pass 200,000 Globally, Death Toll Tops 8,000

The rapid increase in world-wide cases reflects, in part, how people in many countries were unwittingly transmitting the respiratory virus before governments grasped the scale of the problem.

There were more than 205,000 confirmed cases of the disease known as Covid-19 on Wednesday, with infections outside of mainland China—where the epidemic began—now above 124,000, according to data compiled by Johns Hopkins University.

Deaths globally have also more than doubled over the past two weeks to 8,248. In Europe, the death toll reached 3,415, overtaking China for the first time and cementing the continent’s position as the new epicenter of the pandemic.

Italy, the second worst-hit country after China, has seen infections top 31,500 and deaths reach 2,503. Scientists expect the number of fatalities in Italy to overtake those in China within days.

The U.S. plans to close its northern border with Canada to nonessential traffic, President Trump said. The president, who made the announcement on Twitter, said the decision was made by “mutual consent.”

A Canadian official said talks with the U.S. are aimed at targeting nonessential travel like tourism, while allowing trade and commerce to continue between the two countries. Canada on Monday banned most nonresidents from entering the country, although it made an exception for U.S. citizens.

U.S. stocks dropped sharply Wednesday, following declines in international markets. In a tweet, Mr. Trump said he would hold a news conference later in the day to announce “very important news from the FDA about coronavirus.”

The U.S. has more than 6,500 confirmed cases in all 50 states and Washington, D.C., including 115 deaths. Case numbers are expected to grow as testing capabilities expand. U.S. hospitals are already facing a shortage of masks, gowns and other equipment needed to care for patients.

States and local officials took more aggressive measures to promote social distancing in recent days, closing restaurants, bars and nonessential businesses. New York City Mayor Bill de Blasio said he is weighing whether to require residents to shelter in place, while New York Gov. Andrew Cuomo said he didn’t intend to impose such a quarantine. Meanwhile, officials in San Francisco and the Bay Area ordered residents to stay home for three weeks, and the city of Hoboken, N.J., imposed a self-isolation policy.


Officials in Chicago, the biggest city within the three states that voted Tuesday, said election-day turnout was low as nervous voters stayed home. Democratic National Committee Chairman Tom Perez called for states with coming primaries and caucuses to use mail-in ballots and other alternatives, after Ohio’s abrupt cancellation of its primary caused confusion.

In an effort to cushion households and businesses amid this economic slowdown, the Trump administration on Tuesday backed a plan to send checks directly to Americans as part of a $1 trillion stimulus package. The Senate is expected to vote Wednesday on a second coronavirus response bill, focused on free virus testing and two weeks of paid emergency leave for people dealing with its effects.

Many economists say it is looking more likely that there will be a global recession. Deutsche Bank AG said gross domestic product could shrink 24% in the eurozone and 13% in the U.S. in the second quarter on an annual, seasonally adjusted basis—declines that would be the biggest in recorded history.


Australian Economic Growth Picks Up But Outlook Cloudy On Virus Fears

Australia’s economy expanded by more than expected last quarter, erasing the risk of a recession even as raging bushfires and the coronavirus crisis wreaked havoc with tourism and travel at the start of the new year.

Wednesday’s data from the Australian Bureau of Statistics (ABS) showed the A$2 trillion ($1.3 trillion) economy accelerated by 0.5% last quarter. Encouragingly, the previous quarter was revised upwards to show 0.6% increase from 0.4% earlier.

That took the annual pace to 2.3%, still well below the 2.75% that policy makers consider “trend”.

Economists had predicted a quarterly rate of 0.3%, according to a median of 16 economists polled by Reuters.

The stronger-than-expected data sent the local dollar rising 0.4% to $0.6611 from $0.6577 before.

The outlook is murkier though, as the coronavirus epidemic is seen dealing a greater blow to world economies than earlier expected.

Such are the risks that the Reserve Bank of Australia (RBA) cut interest rates to an historic low of 0.5% this week, just part of an urgent global response to the virus that saw the Federal Reserve spring an emergency policy easing.

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Prime Minster Scott Morrison has also flagged an imminent burst of targeted fiscal stimulus, a major u-turn for the conservative government that has long scorned such action.

“We view this shift in fiscal policy as a very positive development, but still expect further support from the RBA will be required given the extent of the shock and since the economy was underperforming prior to the outbreak,” said Alan Oster, chief economist at NAB.

He sees another quarter point rate cut in April and suspects the central bank would then have to consider quantitative easing including buying government bonds.



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#1 – The Intelligent Investor. (Revised Edition)

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Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles.

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China Economy Seen in Deeper Contraction on Factory Drop

China’s economy could be heading for a worse-than-expected first-quarter contraction after the country’s manufacturing sector reported activity at a record low in February due to the coronavirus outbreak.

The manufacturing purchasing managers’ index plunged to 35.7 in February from 50 the previous month, according to data released by the National Bureau of Statistics on Saturday. Even before that data, the median forecast of economists surveyed by Bloomberg News was that the economy would shrink in the three months through March from the last quarter of 2019, and the surprisingly weak data prompted further cuts to that view.

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Gross domestic product may now shrink by 2.5% in the first quarter from the previous period, Nomura Holdings Inc. economists led by Lu Ting said in a report Saturday after the data release. That was a cut from their previous forecast of -1.5% in a Bloomberg survey last week. Standard Chartered (LON:STAN) Plc already expected a 1.5% contraction before the data, while Australia & New Zealand Banking Group Ltd. is forecasting a 2% drop, according to reports after the release.

Bloomberg Economics now expects a contraction of 3%, but cautioned that it’s subject to considerable uncertainty.

“The extent of the slump in China, the blow to global supply chains, and the trajectory of the outbreak in China and globally are all difficult to gauge with a high degree of accuracy,” Bloomberg economists led by Chang Shu wrote in a report.

China Factory Activity Weakest on Record Due to Coronavirus

If the economy were to contract, it would be the first time that’s happened in comparable data dating back to 2011.

Pacific Investment Management Co. also sees the virus outbreak causing a contraction, forecasting a 6% annualized drop in China’s first-quarter GDP, while Barclays (LON:BARC) Bank Plc economists see an 8.9% drop, followed by a quick recovery. Pimco’s view gels with Goldman Sachs Group Inc (NYSE:GS). economists, who said in a report Friday that global GDP will shrink on a quarterly basis in the first two quarters of this year before rebounding in the second half.


The factory PMI data may improve in March, CICC analysts including Yue Yan wrote in a note Saturday.

“Strenuous containment measures were taken after the outbreak of COVID-19, which understandably dampened economic activities in the short term,” they wrote. “With the outbreak gradually under control, government agencies have been clearing the unwanted obstacles for production resumption.”

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Nomura’s Lu also expects the March PMIs to rebound, but says activity data will be zero or negative as businesses won’t be completely back.

On a year-on-year comparison, the median forecast for first-quarter GDP growth is 4.3%. That was before Saturday’s data. Nomura and ANZ both now see it rising 2%, while Standard Chartered expects a 2.8% expansion.




China Makes Bad Loans Disappear as Virus Pummels Banks

Chinese banks are taking extraordinary measures to avoid recognizing bad loans, seeking to shield themselves and cash-strapped borrowers from the economic fallout of the coronavirus outbreak.

Some of the measures, which include rolling over loans to companies at risk of missing payment deadlines and relaxing guidelines on how to categorize overdue debt, have the explicit approval of regulators in Beijing. Some lenders are also refraining from reporting delinquencies to the country’s centralized credit-scoring system and allowing borrowers to skip interest payments for as long as six months, according to people familiar with the matter, who asked not to be named discussing internal decisions.

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The moves will buy time for both Chinese companies and the nation’s $41 trillion banking industry, after the outbreak brought much of the world’s second-largest economy to a standstill. But they’re also fueling concern about a buildup of hidden risks on lenders’ balance sheets. Some analysts worry that China is reversing a multi-year push to increase the transparency of its financial system and undermining the long-term health of banks.

“This will provide breathing space,” said Harry Hu, a credit analyst at S&P Global Ratings. “It will also likely undermine standards, making some Chinese banks less creditworthy in the long run.”

Earlier this month, S&P said a prolonged health emergency could cause China’s non-performing loan ratio to more than triple to about 6.3%, amounting to an increase of 5.6 trillion yuan ($800 billion) in bad debt.

The push by banks and regulators to tamp down NPLs is part of a broader effort by President Xi Jinping’s government to shore up the Chinese economy, which some forecasters say may suffer a rare quarter-on-quarter contraction in the first three months of this year. In addition to pumping billions of yuan into the banking system to make it easier for lenders to extend credit, authorities have cut interest rates, reduced taxes and pledged to adopt more “proactive” fiscal policies.

Shares of Chinese banks continued to under-performer the benchmark index this year in Hong Kong. The four biggest state-owned banks are trading at an average 0.5 times their estimated book value for this year, near the record low.

The NPL measures mark an abrupt shift in China’s approach toward financial regulation. Authorities in Beijing have spent the past three years trying to instill more discipline in the banking system and develop credit markets that more accurately price risk. As part of that effort, they’ve encouraged banks to be more diligent when accounting for bad loans.

The outbreak has changed the government’s priorities. In a press conference this week, Ye Yanfei, an official at the China Banking and Insurance Regulatory Commission, said policy makers need to be more tolerant when it comes to bad loans. “Saving corporates now is saving banks themselves,” Ye said.

China isn’t the only country to have relaxed accounting standards for banks during a crisis. In April 2009, during the depths of the global recession, mark-to-market rules in the U.S. were eased after banks complained that they resulted in bigger-than-warranted writedowns on thinly traded mortgage securities. While critics of the decision said it reduced transparency, it arguably helped big American lenders recover more quickly from the crisis.

China’s ability to control the pace of NPLs during economic shocks is an advantage of its centralized financial system, according to Leland Miller, the chief executive officer of China Beige Book.

“When you have a party that controls all the counterparties in the economy — you have state banks loaning to state enterprises and you have state banks loaning to small- and medium-sized enterprises — you can tell them to lend,” Miller said in an interview on Money Undercover with Bloomberg TV’s Lisa Abramowicz. “You never have to freeze up liquidity in the same way that a commercial financial system would work.”

Yet even if China’s banks turn on the credit taps, lots of businesses may struggle to secure the funding they need to stay afloat.

A survey of small- and medium-sized Chinese companies conducted this month showed that a third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months. About two-thirds of the country’s 80 million small businesses, including many mom-and-pop shops, lacked access to loans as of 2018, according to China’s National Institution for Finance & Development.

It remains to be seen whether the benefits of delaying NPLs will outweigh the costs. Much depends on how quickly Chinese authorities can contain the outbreak and get the country back to work. In the week to Feb. 21, the economy was likely running at 50%-60% capacity, according to Bloomberg Economics.


A sharp recovery in coming months would likely ease concerns that banks are obscuring the true health of their balance sheets. “If they can tide the virus over, then the delinquent loans will disappear,” said Zhang Shuaishuai, a banking analyst at China International Capital Corp.

But that’s far from a given. S&P analysts see scope for caution, saying last week that it may take years for the industry to revert to normal standards for recognizing NPLs and that some banks may see their long-term health suffer as a result.

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Oil Steadied Above $56 A Barrel After Two Days Of Declines

Oil steadied above $56 a barrel on Tuesday after two days of declines as OPEC output cuts and Libyan supply losses balanced concerns about the spread of the coronavirus and its impact on oil demand.

Crude fell almost 4% on Monday, with other commodities also reporting losses while U.S. and European equities suffered their steepest declines since mid-2016 on concern the coronavirus outbreak could turn into a pandemic.

Brent crude rose 5 cents to $56.35 a barrel by 1338 GMT. U.S. West Texas Intermediate crude was up 16 cents at $51.59.

“Risk appetite appears to be growing again on the markets,” said Commerzbank (DE:CBKG) analyst Eugen Weinberg. He added that the virus and resulting impact on demand is not expected to disappear anytime soon.

South Korea aims to test more than 200,000 members of a church at the centre of a surge in coronavirus cases. The virus is also spreading in Europe and the Middle East.

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Concern about the demand impact from the virus has pushed Brent down by almost $10 a barrel this year despite the shutdown of most of Libya’s output and a supply pact between the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Prices received further support as lawmakers based in areas of eastern Libya on Monday said that they would not participate for now in peace talks.

“Libyan peace talks appear to have taken a further blow with both sides announcing the end of their participation, pointing to lost crude volumes from the country carrying on for now,” JBC Energy analysts said in a report.

However, oil could come under more pressure from the latest U.S. supply reports.

Crude inventories are expected to rise for a fifth week running. The first of this week’s two supply reports, from the American Petroleum Institute (API), is due at 2130 GMT.

Potential support for prices could also come from OPEC and allies including Russia, which are considering whether to curb output further. However, scepticism is growing about the chance of further action.

“Doubts are emerging about the willingness of OPEC+ to extend and expand the necessary production cuts,” said Commerzbank’s Weinberg. The producers are due to meet in Vienna over March 5-6 to decide policy.

Saudi Arabia’s energy minister on Tuesday said OPEC+ should not be complacent about the coronavirus. But Russia, key to any deal, has yet to announce its position on further curbs.



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European Shares Steady As Selling Pressure Eases

European shares bounced back on Tuesday after recording their worst losses since June 2016 in the previous session, with investors assessing the economic hit of a coronavirus outbreak that has spread far beyond China.

Markets across the globe attempted to stabilize, with the pan-European STOXX 600 index (STOXX) rising 0.6%.

After a 5.4% tumble on Monday, Milan-listed shares (FTMIB) rose 0.6%. Italy is struggling with the worst flare-up of coronavirus cases in Europe, with 220 cases reported and seven dead.

Airline stocks, which took the biggest hit on Monday, edged higher. Lufthansa (DE:LHAG), EasyJet (L:EZJ) and Ryanair (I:RYA) rose between 0.6% and 1.4%.

Prudential Plc (L:PRU) rose 2.9% after hedge fund Third Point LLC amassed a more than $2 billion stake and called on the British insurer to split into two companies.




Wall Street Slips After Jobs Report

◊ Stock Market News Jobs Report ◊


Wall Street pulled back from record levels on Friday, as investors assessed the U.S. employment report that showed jobs growth accelerated in January but included a downward revision to some previous numbers.

Nonfarm payrolls increased by 225,000 jobs last month, the Labor Department’s data showed, much higher than 160,000 jobs additions expected by economists polled by Reuters. However, the economy created 514,000 fewer jobs between April 2018 and March 2019 than originally estimated, suggesting job growth could significantly slowdown this year.

“Where the market is right now, it likes to see an economy that’s not too hot and not too cold because a much stronger economy suggests higher interest rates,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

“When you get the kind of upward move in markets, it’s not surprising to see people wanting to go into the weekend quite as long.”

Technology stocks, which outperformed broader markets this week, slipped 0.7%, weighing the most on the S&P 500. A strong four-day rally this week has put the benchmark index on pace for its best week in eight months as investors took comfort from China’s efforts to limit the economic damage from the coronavirus outbreak.

The new infections in mainland China on Thursday were down from Wednesday and Tuesday’s figures, but experts warned it was too early to identify a trend.

At 9:48 a.m. ET, the Dow Jones Industrial Average was down 0.58% at 29,208.83. The S&P 500 fell 0.44% to 3,331.09 and the Nasdaq Composite dropped 0.56% to 9,519.02.

More than 300 S&P 500 companies have reported fourth-quarter results so far, of which about 70% have topped earnings estimates, according to IBES data from Refinitiv.

Take-Two Interactive Software Inc (O:TTWO) slumped 10.6% after the videogame publisher missed estimates for quarterly adjusted revenue. AbbVie Inc gained 4.3% after the drugmaker forecast 2020 earnings above analysts’ expectations.

Uber Technologies Inc (N:UBER) shares gained about 5.7% after the ride-hailing company moved forward by a year its target to achieve a measure of profitability to the fourth quarter of 2020. Declining issues outnumbered advancers for a 2.51-to-1 ratio on the NYSE and a 2.64-to-1 ratio on the Nasdaq.

The S&P index recorded 18 new 52-week highs and one new low, while the Nasdaq recorded 31 new highs and 31 new lows.

Amazon Says It Will Create 15,000 Jobs In Bellevue

StockMarketNews.Today — Amazon said it expects to bring the 15,000 jobs to Bellevue over the next few years. More than 2,000 employees currently work in Bellevue, and the company has about 700 job openings in the city.

The company opened its first office building in Bellevue in 2017. The city is also where Amazon got its start. Amazon CEO Jeff Bezos founded the company in 1994 out of a 1,540-square-foot house in West Bellevue.

Amazon, which is headquartered in nearby Seattle, has continued to expand there despite rising tensions with local officials. Last month, the Seattle City Council council passed a bill that establishes new restrictions on corporate donations in local elections, which serves as a blow to Amazon, after it donated a record $1.5 million into Seattle’s city council races in 2019. Additionally, Seattle city council member Kshama Sawant has recently reignited efforts to enact a “head tax” on the city’s largest companies, such as Amazon, with the goal of using it to fight Seattle’s housing crisis.

The company has been growing its overall headcount and footprint. In its annual filing submitted last week, Amazon disclosed that it now has 798,000 workers across the globe, which is a 23% increase from the year-ago period. On the company’s fourth-quarter earnings call, Amazon CFO Brian Olsavsky said some of the hires were delivery workers, as it builds out one-day and same-day delivery for Prime subscribers.

Amazon is also growing in New York, where it recently signed a deal to lease more than 335,000 square feet of office space in Hudson Yards and expects to hire more than 1,500 employees. The move comes after Amazon abandoned its efforts to build a second headquarters in New York’s Long Island City neighborhood.

The company is also building out operations in northern Virginia, where it’s building its second headquarters, dubbed HQ2. So far, Amazon has hired 400 employees to work out of leased offices in Crystal City, Virginia. It also plans to bring 5,000 jobs to Nashville, Tennessee, where it expects to build two towers.

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Federal Deficit For 2019 is Estimated at $984 Billion


StockMarketNews.Today — The federal budget deficit for 2019 is estimated at $984 billion, a hefty 4.7 percent of gross domestic product (GDP) and the highest since 2012, the Congressional Budget Office (CBO) said on Monday.

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The difference between federal spending and revenue has only ever exceeded $1 trillion four times, in the period immediately following the global financial crisis.The deficit, which has grown every year since 2015, is $205 billion higher than it was in 2018, a jump of 26 percent.

The CBO has warned that the nation’s debt is on an unsustainable path. Higher levels of debt increase borrowing costs, make it harder for the government to battle economic downturns and increase the share of future spending devoted to paying off interest costs.

Since President Trump took office, the GOP has passed a massive tax cut package that reduced revenue, while Democrats and Republicans have agreed to increase spending year after year. Budget watchers note that the main drivers of the deficit, however, come from automatic spending programs such as Social Security, Medicare and Medicaid.



“Democrats and Republicans must be held responsible for the outrageous deficit reported today by the CBO,” said Jason Pye, vice president of legislative affairs at the conservative advocacy group FreedomWorks.

“This unsustainable situation is only going to get worse,” he added. The final Treasury Department figures for the fiscal year, which ended on Sept. 30, will be published later this month and could include worse news.

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Previous Treasury estimates projected the deficit for the year surpassing $1 trillion.



Boeing Co: U.S. Might Approve the 737 MAX to Fly

Boeing News Today – Stock Market News …Boeing has said it expects the plane to be back in service, at least in some places, starting in the fourth quarter of this year, and the FAA could perform a certification flight as soon as next month. —

Six months after the U.S. was the last major country to ground the MAX following two fatal crashes, the European Union Aviation Safety Agency is saying it will not simply accept the FAA’s determinations about returning the plane to service — and it wants its own pilots and engineers on board test flights. In recent days, India and the United Arab Emirates have set their own conditions as well.

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The demands are a departure from decades of international aviation practices, in which other nations’ regulators typically deferred to the FAA and its approvals of U.S. planes. And they’re a further sign that the United States’ once-preeminent role in aviation safety may have suffered lasting damage.

The two 737 MAX disasters killed a combined 346 people and provoked new scrutiny of the FAA’s growing practice of delegating regulatory work to companies like Boeing. In the case of the 737 MAX, lawmakers have questioned whether the agency was even aware of a crucial change to the plane’s software that allowed the aircraft to send itself into fatal dives over Indonesia and Ethiopia.

Boeing has said it expects the plane to be back in service, at least in some places, starting in the fourth quarter of this year, and the FAA could perform a certification flight as soon as next month. But Boeing CEO Dennis Muilenburg acknowledged last week that the plane could face a “phased ungrounding,” in which it would be allowed to fly in some countries but not others.

Such an outcome would deal a huge financial blow to Boeing and create headaches for airlines worldwide that have purchased the jet but can’t use it. That’s not to mention the logistical nightmare of attempting to fly the plane through a hodgepodge of restricted airspace.

It also has the potential to rip open other agreements among nations that keep global aviation moving — from pilot training standards to airplane seats.

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EASA leader Patrick Ky said in early September that once the FAA determines the plane is safe to fly again, “it’s very likely that international authorities will want a second opinion, or a third opinion.” … “That was not the case one year ago,” he added.

Guillaume Faury, the CEO of Boeing’s rival manufacturer Airbus, attributed the shift to a “break of trust on the FAA process that has enabled this situation.”

“The FAA has to go through it and regain credibility and trust,” he said in an interview with POLITICO. “I believe EASA running its own process and at a given point in time coming to its own conclusion will help regaining trust of the FAA, provided the FAA does what they have to do and improve their processes.”

The U.S. agency discounted the idea of a rift, saying in a statement that is “has a transparent and collaborative relationship with other civil aviation authorities as we continue our review of changes to software on the Boeing 737 MAX.”

“Each government will make its own decision to return the aircraft to service based on a thorough safety assessment,” the FAA added. “It’s common for aviation authorities to conduct test flights of new aircraft and major derivatives that other civil aviation authorities certificate.”

The FAA is making no promises about when the 737 MAX might return to the skies. Administrator Steve Dickson said last month that it won’t “fly in commercial service again until I am completely assured that it is safe to do so.”

“The FAA is not following any timeline for returning the aircraft to service,” Dickson said at the time. “Rather, we’re going where the facts lead us and diligently ensuring that all technology and training is present and correct before the plane returns to passenger service.”

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But Ken Button, a professor at George Mason University focused on international transportation, said Boeing and the FAA both shot themselves in the foot with their “slow reaction” in October, when the first crash of a MAX jet near Jakarta, Indonesia, killed 189 people. The FAA issued an order about pilot procedures after that accident but allowed the MAX to continue to fly until March, when another crash near Addis Ababa, Ethiopia, killed 157.

“This is going to take a little bit of time to get over,” Button said. The first to ground the jet after the Ethiopia crash was China, which has had an increasingly fraught relationship with the United States on a host of issues, including President Donald Trump’s trade sanctions and U.S. accusations of spying by the telecom manufacturer Huawei. Beijing could respond by connecting decisions on the MAX to the outcome of the trade war, aviation industry analyst Bob Mann noted.

“They’re one of the big buyers of the airplane, one of the big operators of the airplane, so I don’t know why they wouldn’t,” Mann said. “It’s a lever.”

Boeing and the FAA still face a host of questions about the plane, after the two crashes triggered about a dozen reviews and investigations into the jet and the agency’s certification process. Several of those reviews are focused on an automated flight control feature called MCAS, which appears to have repeatedly steered the planes downward in a way the pilots couldn’t correct, and questions about how thoroughly the FAA scrutinized the system before approving the plane in 2017. The FAA is under intense scrutiny for having delegated much of the certification work, including some safety-critical functions on the MAX, to Boeing.

As the initial questions from the two air disasters began to swirl in March, countries began grounding the MAX ahead of the United States, shaking global trust in the FAA. But what had initially seemed like a temporary bruise on the FAA now looks like a scar.

In May, the FAA invited other regulators to Texas to show its plan for evaluating fixes by Boeing. At the time, the FAA seemed hopeful that the fleet could be returned to service around the same time across the world. Since then, the timeline for the MAX’s return to service has repeatedly slipped.

“It’s an open question,” Ky, the leader of the European aviation agency, said this month. “When we discussed [it] with the FAA in April, they told us it would be returned to service in May. Later on, we were every time delaying by one month. Honestly, it would be impossible for me to give you any timeline because we want to do it right — in particular the training requirements” for pilots.

On Tuesday, Reuters reported that Dickson has invited about 50 foreign regulators to Montreal to attend a briefing on the plane. Typically, determinations by the FAA do not receive an exacting level of global scrutiny.

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For instance, the world followed suit in 2013 when the United States grounded the Boeing 787 Dreamliner fleet over concerns about its lithium-ion batteries catching fire in flight. And when the United States decided three months later that it was time for the planes to fly again, the EU followed the U.S. lead, with EASA noting only that it was “working closely with the FAA as the primary certification authority and Boeing.”

The level of additional scrutiny other countries are now insisting on is “unique,” Mann said. “And I think it’s the unfortunate result of the drip, drip, drip, drip, drip of information” about the MAX and its certification, he added.

Some industry-watchers say the damage to the FAA’s reputation won’t be permanent. And even Ky acknowledged that skepticism can go only so far without bogging down the global aviation industry, which is important to the economies of virtually every industrialized nation.

The FAA has “very strong ethics,” Ky said, adding that “we need to work with them. We do not want to enter into an area where we would systematically re-certify all Boeing aircraft — because [then the FAA] will do the same” with European products.”

Rep. Rick Larsen (D-Wash.), who chairs the House Transportation Aviation Subcommittee, said he thinks the FAA remains the world’s gold standard, even though his own panel is conducting a thorough scrub of the agency and its processes following the MAX crashes.

“If I have to choose between the FAA making that return-to-service decision or another country’s agency, I’ll pick the FAA,” Larsen said. He added that he thinks the European agency may be “trying to establish itself more in global certification.”

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Jeff Guzzetti, a consultant who once worked for the FAA, the Department of Transportation and the National Transportation Safety Board, argued that it was too soon to judge the extent of any lasting damage while the crash investigations are still ongoing.

“There may be some surprises once both investigations are completed with regards to just how much of a role the design played and also with the philosophical discussion about just how foolproof does an airplane have to be built,” Guzzetti said.

Boeing Officially Lost Its First Order To European Rival Airbus

Airbus Set To Replace Boeing As World’s Biggest Aircraft Maker

Boeing Will Cut Production Of Its 737 MAX By A Fifth

Airlines Dump the Boeing 747, Transforming International Travel. The newer planes, which include the Boeing 787 Dreamliner, are redrawing the map for global air travel



Gucci Sales Dropped in U.S.

◊ Gucci Stock News ◊

Gucci lost the top spot among luxury companies for social media engagement in March, according to Tribe Dynamics, and in July it reported its first quarterly drop in North American sales since early 2016.

The retreat shows how luxury companies that thrive on Instagram and other social-media outlets can just as quickly stumble because of them. Such platforms have become the lifeblood of the attention-seeking fashion business, a marketing strategy that Gucci built around its star designer Alessandro Michele.

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Mr. Michele’s flashy designs grabbed the attention of social media influencers and hip-hop artists who set the streetwear trends that dominate the fashion industry. His fashion shows—including one last year in Milan where models strutted down the runway holding realistic replicas of their own heads—went viral. Mr. Michele’s next show is set for Sept. 22 during Milan fashion week.

The tide of social media praise turned against Gucci after the $890 sweater. Gucci pulled the sweater, apologized and hired a chief diversity officer, but the brand took a beating on social media. Celebrities posted videos of themselves burning Gucci products and called for boycotts, including rapper T.I., who on Instagram declared himself “a 7 figure/yr customer & long time supporter” of Gucci.

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Now, some in the fashion industry are questioning whether Gucci and its designer have peaked.

“As innovative as Alessandro is, his style is becoming a little bit stagnant,” said Nicole Fischelis, who held positions as fashion director and creative director at Saks Fifth Avenue and Macy’s before starting her own consulting firm.

Gucci declined to comment and didn’t make Mr. Michele available. Its parent company, Kering SA, noted that Gucci was the hottest fashion brand in the Lyst Index’s most recent quarterly ranking and is the most searched brand on The RealReal , a luxury resale site.

Gucci, which sells everything from $300 wallets to $1,590 sneakers and $5,000 dresses, is particularly susceptible to social media highs and lows because of its large base of younger customers. Morgan Stanley estimates that more than two-thirds of Gucci sales comes from millennials.

Gucci dialed back U.S. marketing last quarter rather than draw more attention to itself in the middle of the blackface maelstrom, Jean-Marc Duplaix, chief financial officer at Kering, said in July. Gucci contributes about 60% of Kering’s revenue and 80% of profit.

“We wanted to assess the evolution of the U.S. market, the reaction of the consumers after the issue we had in the U.S.,” Mr. Duplaix said, adding that Gucci is readying a marketing push in the U.S. later this year. Kering’s shares are down about 10% since reporting the 2% decline in North American sales in late July.

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The company also has said shifts in tourism flows—more Americans traveling and shopping abroad and fewer Europeans and Asians visiting the U.S.—contributed to the drop in North American sales. The region accounts for 20% of Gucci’s sales.

The Gucci brand is closely associated with American hip-hop culture, which sets the streetwear trends. “Gucci Gang,” a single by teenage rapper Lil Pump, who repeats the brand name dozens of times during the song, has almost a billion views on YouTube and hit no. 3 on U.S. charts when released in 2017.

Gucci’s earned media value fell by a third in March from the previous month to $30.7 million. Chanel, which had an earned media value of $33.8 million in March, held the top spot again in April, lost it in May to Gucci and then won it back again in June with the two companies almost tied.

The drop in Gucci’s North American sales comes on the heels of four quarters of declining growth and tracks the brand’s waning social media strength. Gucci in September 2017 hit an earned media value of $82.5 million, triple the $27 million it reached in July of this year, according to Tribe Dynamics. In the September 2017 quarter, Gucci sales rose 49% in North America.

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Gucci is far from the only brand to stumble on social media, especially when it comes to race and other hot-button issues. Prada pulled from shelves a monkey keychain that was called out as racially insensitive, saying, “The resemblance of the products to blackface was by no means intentional, but we recognize that this does not excuse the damage they have caused.” Versace, meanwhile, has apologized for releasing a T-shirt that identified Hong Kong and Macau as separate from China.


Kering SA Company Profile: Kering SA is a France-based company engaged in the fashion industry. It develops an ensemble of houses in fashion, leather goods, jewelry and watches through a portfolio of such brands as Gucci, Bottega Veneta, Saint Laurent, Balenciaga, Alexander McQueen, Stella McCartney, Christopher Kane, Brioni, Boucheron, Pomellato, Dodo, Qeelin, Girard-Perregaux and Ulysse Nardin.

In addition, the Company offers sport clothing and accessories through such brands as Puma, Volcom and Cobra. Kering SA operates worldwide.



Chinese Investors Have Pulled Back Sharply From The U.S. Real Estate Market

◊ U.S. Real Estate Market News ◊

♦ Stock Market News ♦ … — Home sales are hurting. Even with lower mortgages rates and a sales pickup in July, purchases of homes are still down significantly compared with those of 2018.

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But while analysts typically cite high prices and growing worries about a possible recession, another factor is also playing a prominent role: Foreign buyers, particularly the Chinese, have pulled back sharply from the U.S. real estate market.

Foreign investors purchased $77.9 billion in residential property in the 12 months ending in March, down 36% from the previous 12-month period, the National Association of Realtors said in a recent report.

China, meanwhile, topped all other countries for the seventh consecutive year, with $13.4 billion in home purchases, but that was down a whopping 56% from the prior year, NAR said. About half those sales were all cash, down from 58% a year earlier. The next largest international buyers – Canada, India and the United Kingdom – also had big drops, but they represent smaller shares of the market.

“The magnitude of (China’s) decline is quite striking, implying less confidence in owning a property in the U.S.,” says Lawrence Yun, chief economist of NAR. All told, existing U.S. home sales are down about 3% so far this year from the same period in 2018 despite a 2.5% increase in July from the prior month, NAR figures show.


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A big reason Chinese investors are retreating from the American housing market is that Beijing has placed tight limits on how much capital can leave the country in the wake of a devaluation in the yuan a few years ago.

“In China, each family member has been restricted to $50,000 or less,” says Steven Ho, senior loan officer at Quontic, a New York City-based bank. That makes it tougher for Chinese investors to elbow out American buyers with all-cash offers. “A few years before, these restrictions were not so stringent.”

The government toughened capital controls last year as the Chinese economy weakened, Ho says. Also, China’s slowing economy itself has dampened the confidence and purchasing appetite of Chinese buyers, Yun says. The Trump administration’s trade war with China, he says, has further chilled investment in U.S. housing.

Meanwhile, more Chinese homeowners have been selling their American houses and condos because they can’t pay the maintenance costs with their money trapped in China, says Jeff Lu, vice president of Fidelity National Title Insurance Company.

California feeling the effects… California is the epicenter of Chinese residential investment in the U.S., with 34% of purchases in the state. Other significant hubs are New York, New Jersey, Florida and Texas.

In Irvine, population 280,000, “there are 65,000 houses… and 21,000 of them are owned by Chinese.” Lu of Fidelity National says. “It’s normal for Chinese buyers to raise the price aggressively,” says Phil Lee, a broker at Keller Williams in Irvine. “For example, a $1.2 million house, they pay $1.22 million, all in cash.”

In recent years, Chinese investors made about half of all home purchases in the city, but that share has fallen to about 36% in 2019, Lu says. The pullback is depressing prices. In the first half of the year, the median home sale price in Irvine fell to $820,000 from $834,000, according to Zillow.

“It’s good news for local Americans who are looking to buy a home – larger supply and less competitors,” Lu added.

Many of the wealthy leave market… The drop-off in Chinese investors has especially affected the upper end of the market. After decades of economic growth, China has created a class of nouveau riche, many of whom want to buy U.S. homes as a solid investment or as a home for their children who attend American colleges.

“The wealthy Chinese see the U.S. as a safe harbor to park their money, and also an ideal place for their children’s education,” says Lin Pan, the founder of Lin Pan Realty Group, a Chinese real estate brokerage in Long Island, New York.

“The first batch of Chinese who came into the American housing market were entertainment stars, and then high-level Chinese officials and their families, businessmen and middle-class families,” says Chole Ren, an independent real estate broker in New York City.

“They specifically fly over here to view the houses,” says Xiang Jill Ji, a broker with Douglas Elliman Real Estate in New York. “The condos in midtown Manhattan used to be one of their favorite choices because they’re brand new, with the best view and positive valued-added space,” Ji said. But at a recent open house, few Chinese shoppers showed up, she says.

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More turn to mortgages… With China’s limits on cash that can leave the country, Chinese buyers are now searching for lower-priced homes and using mortgages more often. The share of their home purchases that rely on mortgages has risen to 46% in the 12 months ending in March, from 37% the prior year, according to NAR. And more of the buyers are middle-class.

The Chinese buyers are also downsizing. Ji has a Chinese client who wanted to buy a two-bedroom condo in Manhattan earlier this year but is now looking for a one-bedroom or studio. At the same time, brokers are seeing a growing number of homebuyers from Hong Kong due to the political crisis in the city, New York brokers Pan and Ji say. “Hong Kong buyers could be the next source of growth,” Pan says.






German Economic Sentiment Tumbles To Lowest Level Since 2011

• German Economy – Stock Market News Today •

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Expectations for the German economy have slumped to their lowest level since the eurozone debt crisis eight years ago amid deepening concerns over the US-China trade dispute and the potential for a chaotic UK exit from the EU.

The Zew survey of financial market experts revealed on Tuesday that economic sentiment in August had dropped to minus 44.1, its lowest since December 2011 and much gloomier than estimates from analysts in a Reuters poll who had predicted it to be minus 28.5. The index had come in at minus 24.5 in July.

The experts polled showed that current conditions for the month were minus 13.5, down from minus 6.5 in July and worse than the predicted minus 7.

Turmoil in the country’s carmaking industry, the US-China trade spat and the prospect of a messy no-deal Brexit at the end of October have taken their toll on the export-orientated economy.

The poll points to a “significant deterioration in the outlook for the German economy”, said Achim Wambach, president of Zew. “The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production.”

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Tuesday’s figures show the fifth consecutive monthly decline in the respected poll, while apart from April this year the indicator has shown negative figures since March 2018. The index has been below its long-term average of 21.8 points for three years since September 2015.

Quarterly gross domestic product figures, due on Wednesday, are expected by the Bundesbank and a Reuters poll of analysts to show that the German economy shrank 0.1 per cent in the three months to June. GDP in the first quarter had expanded 0.4 per cent while second-quarter eurozone growth came in at 0.2 per cent.

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“The financial market experts’ sentiment concerning the economic development of the eurozone also experienced a significant drop, bringing the indicator to a current level of minus 43.6 points, 23.3 points lower than in the previous month,” the survey said on Tuesday. The indicator for the current economic situation in the eurozone fell 3.9 points to a level of minus 14.5 points in August.






Economic Growth Slowed In Second Quarter

U.S. economy slowed but still grew at a solid clip in the second quarter, gross domestic product, a broad measure of goods and services produced across the economy, rose at a 2.1% annual rate in the second quarter, adjusted for seasonality and inflation, down sharply from a 3.1% pace in the first quarter, the Commerce Department said Friday.

Businesses took a more cautious approach in the second quarter, causing a key gauge of their investment to decline for the first time since early 2016. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—fell at a 0.6% rate, compared with a 4.4% rise in the first quarter.


One factor that generated uncertainty for businesses in the second quarter was the international trade situation, as the U.S. increased levies on Chinese goods and threatened, but didn’t implement, tariffs on Mexican imports.

Joe Baiz, president of Phoenix-based plastic-injection-mold manufacturer 4front Manufacturing, said business “slowed a little bit in the second quarter” as worries over trade policy generated “a lot of fear of the unknown.” Trade itself was a drag on growth, as exports fell at a 5.2% rate while imports rose slightly, expanding the deficit.

Shoppers picked up the slack however. Consumer spending, which accounts for more than two-thirds of the economy, rose at an inflation-adjusted annualized rate of 4.3% in the second quarter, up from its first-quarter pace of 1.1% and marking the strongest reading since late 2017.

“The simple proposition is that the trade war made manufacturing weaker and the tax cut made consumer spending stronger,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The White House blamed the Federal Reserve for the growth slowdown. President Trump said on Twitter Friday morning that the 2.1% figure was “not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck.”

Mr. Trump has criticized the central bank for holding interest rates steady so far this year and he has repeatedly called for rate cuts to boost growth.

Friday’s report is one of the last major readings of the economy’s temperature Fed officials will see before their policy meeting July 30-31. They are prepared to cut their benchmark interest rate by a quarter percentage point from its current range between 2.25% and 2.5% and signal more reductions to come to bolster the U.S. economy at a time of cooling global momentum.

The divergent signals from strong consumer spending and weakening business investment in the second quarter leave a mixed picture. The economy remains supported by low unemployment and rising incomes, but slowing global growth, a strong dollar and trade uncertainties are weighing on the outlook.

“Combine all those together and you have the kind of [GDP] report that justifies a rate cut,” said Gregory Daco, an economist at Oxford Economics. Mr. Daco likened a rate reduction now to a vaccination shot for the economy and said that “you want to keep looking at the patient as you get into the fall.”

Some companies have tempered their outlook for this year due to worries about U.S. trade policy. Materials-science company Dow Inc. this week reported a decline in profit and lowered its guidance for capital expenditures.

“The macro environment is cautious, largely driven by geopolitical volatility and prolonged trade negotiations which continue today,” Chief Executive Jim Fitterling said Thursday. Earnings for the S&P 500 appear to have grown in the second quarter at their most anemic pace since mid-2016.

Earnings per share are expected to rise just 0.5% over second-quarter 2018, according to an estimate from financial-data firm Refinitiv, which combines analyst estimates with actual results from the 44% of companies that have already reported.

Housing was a headwind for growth for the sixth quarter in a row as residential investment fell at a 1.5% annual pace, despite falling mortgage rates in the April to June period.

Businesses also drew down inventories in the second quarter rather than replenished stock shelves, which subtracted 0.85 percentage point from the quarter’s overall GDP growth rate.


Government spending boosted overall growth, rising at a 5.0% annual rate in the second quarter, though that was partly a rebound from the effects of the federal government shutdown that started in the fourth quarter and stretched into late January.

Many economists expect growth this year of around the 2.3% averaged during the current expansion, which started in mid-2009 and this month became the longest on record. Fed officials’ median projection in June was for 2.1% growth from the fourth quarter of 2018 to the fourth quarter of 2019.

U.S. Housing Starts Fall… Permits Hit Two-Year Low

StockMarketNews.Today — U.S. homebuilding fell for a second straight month in June and permits dropped to a two-year low, suggesting the housing market continued to struggle despite lower mortgage rates.

Housing starts decreased 0.9% to a seasonally adjusted annual rate of 1.253 million units last month as a rebound in the construction of single-family housing units was offset by a plunge in multi-family homebuilding, the Commerce Department said on Wednesday.

Data for May was revised slightly down to show homebuilding falling to a pace of 1.265 million units, instead of slipping to a rate of 1.269 million units as previously reported.

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Economists polled by Reuters had forecast housing starts dipping to a pace of 1.261 million units in June.

Single-family homebuilding, which accounts for the largest share of the housing market, increased 3.5% to a rate of 847,000 units in June, partially recouping some of May’s sharp drop. Single-family housing starts fell in the Northeast, but rose in the Midwest, West and South.


Building permits tumbled 6.1% to a rate of 1.220 million units in June, the lowest level since May 2017. Permits have been weak this year, with much of the decline concentrated in the single-family housing segment.

The housing market hit a soft patch last year and has been a drag on economic growth for five straight quarters. It likely subtracted from GDP in the second quarter.

The sector is being hamstrung by land and labor shortages, which are making it difficult for builders to fully take advantage of lower borrowing costs and construct more affordable housing units. As a result, the housing market continues to struggle with tight inventory, leading to sluggish sales growth.

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The 30-year fixed mortgage rate has dropped to about 3.75% from a peak of 4.94% in November, according to data from mortgage finance agency Freddie Mac. Further declines are likely as the Federal Reserve has signaled it would cut interest rates this month for the first time in a decade.

A survey on Tuesday showed confidence among homebuilders increased in July. Builders, however, complained “they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes.”


Permits to build single-family homes rose 0.4% to a rate of 813,000 units in June. Despite the increase last month, permits continue to lag housing starts, which suggests single-family homebuilding could remain sluggish.

Starts for the volatile multi-family housing segment dropped 9.2% to a rate of 406,000 units last month. Permits for the construction of multi-family homes plunged 16.8% to a pace of 407,000 units.

Shell Aims To Become The World’s Largest Electricity Company

Shell aims to become the world’s largest electricity company without necessarily generating very much power…

The Anglo-Dutch company last month detailed its plans to transform into a cleaner business centered on selling electricity. Hoping to capture the most profitable part of the business, Shell’s power strategy will be light on assets and focus on trading electricity generated by others.

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Trading will sit at the heart of the integrated approach as a very important source of value,” Shell Chief Executive Ben van Beurden said at the company’s management day last month. “Of course we will be involved in generating electricity […] but we have a preference for being asset-light and balance our supply by providing electricity from other producers.”

Oil and gas will remain Shell’s core business, the company says, but it is aiming to be the world’s largest electric power company by the early 2030s.

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The shift presents challenges. Sizable companies already exist in the power industry, and generating power has historically produced smaller profits than oil-and-gas production, because utilities often carry more debt and are heavily regulated.

“The oil companies have always been used to high rates of returns with the production of crude oil,” said Paul Stevens, senior research fellow at Chatham House, a London-based think tank. “Those rates are just not available in power generation.”


Shell says it hopes to achieve equity returns of between 8% and 12% from its power business, lower than the 12% to 15% target for its traditional oil-and-gas business.

The company currently is the second-biggest power trader in the U.S., with a trading desk that predominantly buys and sells electricity that other companies generate. Shell, however, doesn’t disclose its trading profits or profit margin on its power-trading business.

“Many utilities are hopeless at trading and marketing their power, so it makes sense to let them operate the power plants and have Shell market their power more efficiently,” said Craig Pirrong, a professor of finance at the University of Houston.

Shell’s pivot is part of a broad movement among European oil giants to show they can help meet global goals to reduce fossil-fuel emissions while continuing to churn out profits. It also is an acknowledgment that demand for oil, its chief moneymaker, is expected to peak sometime in the early 2030s, according to a host of studies.

The company’s recent interest in Dutch energy provider Eneco could serve as an asset-light model for where Shell’s power business might be heading.

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Earlier this year, Shell announced a joint bid with Dutch pension-fund manager PGGM for Eneco, a firm that sold around three times more power than it produced last year. The size of the bid wasn’t disclosed but analysts have estimated the company to be worth about $3.4 billion.

As electricity rapidly makes its way into domestic heating, transportation and industrial processes, more than a quarter of global energy demand by 2030 will be for electric power, according to Shell forecasts. That compares with 18% today and Shell’s forecast of as much as 50% by 2060.

Shell could play a leading role in new businesses such as electric charging points in fuel stations, said Nick Stansbury, head of commodity research at Legal & General Investment Management, a shareholder in Shell.

“What I am not yet convinced by is whether—in order to be good at power-market trading, be good at making money—they necessarily need to own and have on the balance sheet the renewable assets,” Mr. Stansbury said.

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Many of the oil industry’s biggest companies are investing in clean energy projects. France’s Total SA owns a majority share in U.S. solar-system maker SunPower and acquired French battery manufacturer Saft Groupe.

In the U.K., BP PLC acquired electric-vehicle charging company Chargemaster last year for about $170 million and invested over $20 million in fast-charging battery company StoreDot. Norway’s state-backed oil company Equinor and Italy’s ENI also have committed to large investments.

Overall, European major oil companies are allocating a fraction of their budgets to low-carbon investments, which accounted for a combined 7% of capital expenditures last year, according to investment research firm CDP.

Shell’s acquisitions in power include German battery company Sonnen, retail energy providers First Utility and MP2 Energy, electric-vehicle charging companies NewMotion and Greenlots, and U.K. energy technology company Limejump Ltd.

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Shell also has outlined an ambitious plan to share profits with investors, with a plan to pay at least $125 billion in dividends and share buybacks between 2021 and 2025. Mr. van Beurden has told The Wall Street Journal that the payouts will come from returns on investments the company already has made.

In the long term, those generous dividends could be at risk if the world’s switch to cleaner forms of energy changes pace. Oil giants’ ability to make high profits remains dependent on their core industries, and failing to embrace the change means they’ll eventually be forced out of the business, according to Chatham House’s Mr. Stevens.

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“The energy establishment is grossly underestimating the speed and depth of the energy transition,” he said. “I think it’s going to happen a lot faster and be a lot deeper.”