Category: Business

S&P 500 clears 3,000 barrier on hopes of recovery, vaccine

(Reuters) – ṄU.S. stocks jumped and the S&P 500 crossed 3,000 points on Tuesday as optimism about a potential coronavirus vaccine and a revival in business activity helped investors overlook simmering Sino-U.S. tensions.

The benchmark index traded above the key psychological level for the first time since March 5, but came off session highs as White House adviser Larry Kudlow said President Donald Trump was “so miffed with China on virus and other matters that the trade deal is not as important to him as it once was”.

Still, all 11 S&P sector indexes were trading higher, with cyclical financials .SPSY and industrials .SPLRCI rising more than 4%.

The S&P 500 index .SPX has risen about 37% from its March lows on central bank and government stimulus at a time when the U.S. economy is seeing its biggest job loss since the Great Depression. It is now about 11% below its February record high.

On Monday, California decided to reopen in-store retail businesses and places of worship from one of the most restrictive shutdowns in the United States.

“People have been locked up and when they see sparkles of hope like vaccines, that drives optimism probably ahead of where it should be and clearly ahead of the economy,” said Richard Steinberg, chief market strategist at Colony Group in Florida.

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Data showed U.S. consumer confidence nudged up in May, adding to hopes the worst of the impact of the shutdown in economic activity was probably in the past.

At 12:31 p.m. ET, the Dow Jones Industrial Average .DJI was up 593.68 points, or 2.43%, at 25,058.84, the S&P 500 .SPX was up 50.88 points, or 1.72%, at 3,006.33. The Nasdaq Composite .IXIC was up 81.78 points, or 0.88%, at 9,406.37.

U.S. biotech group Novavax Inc (NVAX.O) jumped 13.3% as it joined the race to test coronavirus vaccine candidates on humans and enrolled its first participants. Merck & Co Inc (MRK.N) added 1.9% as it announced plans to develop two separate vaccines.

With macroeconomic data pointing at a deep recession, analysts warned the financial markets could be betting on too fast a recovery.

“The impact on the economy and corporate earnings will be seen for several quarters (and) I’m not sure if it has been completely baked into the equity prices,” Robert Wyrick, chief investment officer at Post Oak Private Wealth Advisors in Houston, Texas told the Reuters Global Markets Forum.

Beaten down travel-related stocks soared, with S&P 1500 airlines index .SPCOMAIR up about 11% and cruise operators including Carnival Corp (CCL.N) more than 12.6%.

Meanwhile, the New York Stock Exchange on Tuesday partially reopened its trading floors at the iconic 11 Wall Street building, which had been closed since March 23.

Advancing issues outnumbered decliners by a 6.47-to-1 ratio on the NYSE and by a 3.27-to-1 ratio on the Nasdaq.

The S&P index recorded 13 new 52-week highs and no new lows, while the Nasdaq recorded 97 new highs and eight new lows.

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NYSE to reopen trading floor closed by coronavirus

NEW YORK (Reuters) – The New York Stock Exchange will partially reopen the trading floors at its iconic 11 Wall Street building on Tuesday for the first time since March 20 when the bourse was forced to go all-electronic due to the coronavirus pandemic.

The Intercontinental Exchange Inc’s (ICE.N) NYSE floor will be different, with protective masks, strict social distancing requirements, and just around a quarter of the people, NYSE Chief Commercial Officer John Tuttle said in an interview. Still, he says the reopening is meaningful.

“The floor represents so much more than the several tens-of-thousands of square feet it occupies,” he said. “It’s a symbol of America, and it’s a symbol of capital markets; it’s a symbol of the economy and after two months of the country and essentially the world being offline, we want to lead from the front.”

The NYSE said most of its designated market makers, who oversee trading in the exchange’s 2,200 listed companies, will continue to work from home, as will most exchange employees.

The 100 or so traders, regulatory, and operational staff heading into the building, in a still-largely deserted lower Manhattan, have been asked to avoid public transportation, and everyone entering will be screened for signs of the virus.

The NYSE floor is the last physical U.S. stock trading venue, as a slew of all-electronic competitors have emerged and eaten away at the Big Board’s once dominant market share.

Since the move to electronic-only trading, there have been no major disruptions, even with record volumes and volatility, prompting rivals to say the floor, where stocks have changed hands since 1792, has no real utility.

The NYSE says recent data show there was less volatility and tighter bid-ask spreads for NYSE-listed stocks when floor brokers were present, translating into millions of dollars a day in savings for investors.

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LATAM becomes largest airline to file for bankruptcy amid coronavirus

(Reuters) – LATAM Airlines Group SA (LTM.SN) filed for U.S. bankruptcy protection on Tuesday, becoming the largest carrier to seek an emergency reorganization amid the coronavirus crisis.

Latin America’s largest airline follows rival Avianca Holdings AVT_p.CN of Colombia in seeking U.S. bankruptcy protection.

But unlike Avianca, Chile’s LATAM posted profits for four consecutive years totaling more than $700 million. It had recently approved a dividend payment.

LATAM laid off 1,800 employees out of over 40,000 in the lead-up to its bankruptcy filing.

“We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option,” CEO Roberto Alvo said in a statement regarding the filing.

LATAM is an instantly recognizable brand for South Americans, dominating international air travel in the region, as well as a leading domestic flight operator in Brazil, Colombia, Chile, Argentina, Peru and Ecuador.

Carriers in Latin America have sought bailouts to no avail so far, unlike rivals in the United States and Europe.]

LATAM will continue to fly while it is in bankruptcy protection. Its affiliates in Argentina, Brazil and Paraguay were not included in the Chapter 11 filing.

In Brazil, LATAM for weeks has been negotiating a bailout of up to 2 billion reais ($367.45 million) that has yet to materialize.

If negotiations are successful, it could provide a lifeline to LATAM’s largest subsidiary.

Chile has so far declined to help LATAM.

LATAM said it had secured funding from major shareholders, including the Cueto family which controls the airline through various companies, the Amaro family and Qatar Airways, to provide up to $900 million to support operations through its bankruptcy reorganization.

Delta Air Lines Inc (DAL.N) last year paid $1.9 billion for a 20% stake during better times for the industry.

“To the extent permitted by law, the group would welcome other shareholders interested in participating in this process to provide additional financing,” the airline said, adding it had about $1.3 billion in cash on hand.

LATAM said that as of Tuesday it had $7.6 billion in debt, including $460 million in loans tied to its Brazilian subsidiary which is not part of the bankruptcy process.

The airline was downgraded by S&P and Fitch on Friday after the company confirmed it did not pay interest and principal on three tranches of 2015 $1 billion worth of debt tied to the financing of new aircraft purchases.

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Lufthansa says Germany approves stabilization package

FRANKFURT (Reuters) – Germany’s new Economic Stabilization Fund (WSF) has approved a 9 billion euro ($9.80 billion) stabilization package for Lufthansa (LHAG.DE), Germany’s flagship carrier said on Monday.

“The Executive Board also supports the package”, Lufthansa said, adding that the bailout still need consent from shareholders as well as the European Commission.

The bailout comprises an equity injection by the government, which will take a 20% stake by buying new shares at the nominal value of 2.56 euros apiece or for a total of about 300 million euros. The WSF plans to sell its shareholding by end-2023.

Separately, the WSF will make a capital contribution of 5.7 billion euros in the form of a so-called silent stake, which is unlimited in duration and can be terminated by company on a quarterly basis in whole or in part.

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A part of that silent stake can be swapped into an additional 5% equity stake if Lufthansa does not pay the coupon or Germany moves to protect Lufthansa against a takeover.

The coupon on the silent participation starts with 4% and rises to 9.5% by 2027.

The stabilization measures are supplemented by a syndicated credit facility of up to 3 billion euros with the participation of German state bank KfW and private banks with a term of three years.

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Stocks gain as German survey fuels optimism; dollar firm

LONDON (Reuters) – Stocks edged higher on Monday after a survey showed German business morale rebounded in May, boosting optimism around economic re-openings, although caution prompted the dollar to snap a rare losing streak.

MSCI’s gauge of world stocks gained 0.32%. The pan-European STOXX 600 index climbed 0.8%.

Lockdown measures introduced in mid-March have put the global economy on track for a recession this year. Only unprecedented stimulus by global central banks held up world markets in recent weeks.

With nervous investors wary of adding to their equity holdings over concerns on what a post-lockdown world would look like, Germany’s Ifo institute survey for May gave some relief.

Its business climate index rose to 79.5 from a downwardly revised 74.2 in April, higher than a Reuters poll had forecast, and fueling optimism about the outlook of Europe’s biggest economy after a drop in the first quarter

“Today’s Ifo index echoes more real-time signals that economic and social activity has started to pick up significantly since the first lifting of the lockdown measures in late April,” ING economists said in a note.

“In short, the low point of the slump should now be behind us and there even is the chance for a short-lived strong rebound in the coming months.”

But with financial markets in Singapore, Britain and the United States closed for public holidays on Monday, market moves were relatively small and held within well-worn ranges.

U.S. stock futures gained 1%. MSCI’s index of Asia-Pacific shares outside Japan was 0.3% higher on thin volume.

DOLLAR GAINS

The bullishness in the stock markets contrasted with caution in currency markets, where the dollar ended a rare weekly loss to rise to a one-week high against its rivals.

The dollar, which tends to behave like a safe-haven asset during market turmoil and political uncertainty, gained after China’s move to impose a new security law on Hong Kong heightened concerns about the stability of the city and global trade prospects.

Investors were rattled on Friday when Beijing announced details of the security legislation, which critics see as a turning point for the territory.

Sino-U.S. ties have worsened since the coronavirus outbreak, with the administrations of President Donald Trump and President Xi Jinping trading barbs over the pandemic, including accusations of cover-ups and lack of transparency.

“Rising tensions between the U.S. and China around Hong Kong, trade policy and who is responsible for the 2020 economic dislocation are threatening to end the post March-trough rally,” said Perpetual analyst Matthew Sherwood.

Bond markets were stable with Italy’s 10-year yield at 1.60%, just off six-week lows hit on Friday, and safe-haven German 10-year yields down 1 basis point at -0.50%.

Meanwhile, U.S. crude oil rose 32 cents, or 1%, to $33.57 a barrel. Brent crude was up 9 cents, or 0.26% higher, at 35.22. [O/R]

Spot gold was off 0.3% at $1,729.2 an ounce.

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Rudderless after a rally, stock markets look for next catalyst

LONDON/NEW YORK (Reuters) – Global equity markets have shuffled up about 1% this month despite the world starting to re-open after the coronavirus-driven lockdowns and U.S. and European economic data showing glimmers of a recovery.

The sideways movement is in sharp contrast to the roughly 30% rally in late March and April, when investors were able to shrug off far more dire economic data and look towards recovery backed by government support.

In some ways, not much has changed in the world’s understanding of the coronavirus and its economic impact. Some investors, economists and public health experts have been warning for weeks that re-opening will be slow, vaccines will take months and the recovery will be prolonged.

And yet, investors appear to be taking heed only now.

In interviews, investors said the explanation partly lies in the failure of the market’s collective wisdom. Stock markets misread how fast growth may rebound. And now they need a new catalyst, such as a vaccine or substantial new stimulus, before they can decide whether to flee or hold the course. But it is proving to be elusive.

“Markets have essentially been range bound for more than a month now waiting for a new driver to emerge,” said Mohamed El-Erian, chief economic advisor at Allianz. He said that positive news on reopenings and vaccines were insufficient to compensate for the string of negative data and concerns about the sharpness of the recovery.

The market’s conundrum underscores a larger predicament facing global policymakers in the battle against the coronavirus. The $15 trillion-plus pledged in global stimulus inflated stock markets in April, as investors took heart that governments will not let the global economy completely melt down. But while the money kept economies afloat, it cannot engineer a recovery.

For that, the virus must first be brought under control.

(GRAPHIC: Dead cat bounce? – here)

TUG OF WAR

Kasper Elmgreen, head of equities at Europe’s largest asset manager, Amundi, described markets as caught in a “tug of war” between bull and bear forces.

Elmgreen described the bullish forces as “the extraordinary fiscal and monetary stimulus that came much faster and more forcefully than during the past crisis.”

On the other side, he said is persistent uncertainty over the pace and shape of economic and earnings recovery. Markets are being premature in pricing a return to normalcy even next year, he added.

“If there is light at the end of the tunnel, corporates are not seeing it,” said Elmgreen.

Indeed, measured against forward earnings, European and U.S. equities are trading back at early-March levels, when the COVID-19 impact was yet to be felt.

But with the world economy predicted to witness its biggest contraction since the Great Depression, U.S. and European earnings should decline 40-45% in the second quarter, Refinitiv data shows.

Influential U.S. investors David Tepper and Stanley Druckenmiller recently described markets as overvalued and with terrible risk-reward. Druckenmiller dismissed V-recovery hopes as “a fantasy”.

(GRAPHIC: Rebound in global equity valuations – here)

EARLY WARNINGS

To be sure, many investors and policymakers initially believed the economic impact of the crisis could be brief, supporting the market’s optimism.

But the stock market has a history of missing warning signals. In the current crisis, too, signs that it was not going to be smooth sailing got downplayed.

Paul O’Connor, head of multi-asset at Janus Henderson, said April “wasn’t a rally that said the world is feeling better about growth or a reappraisal of the macro environment.”

Nervousness was evident all along in bond yields that didn’t rise, gold’s 7% price gain and investors’ refusal to deploy the $4.7 trillion stashed in U.S. money market funds, he noted.

There were other loud warnings, too.

Anthony Fauci, the top U.S. infectious disease expert, said as early as March 3 that it would take at least 12-18 months until a coronavirus vaccine is ready to be deployed. On April 7, former Federal Reserve Chairman Ben Bernanke warned against expecting a quick recovery, saying it was likely that activity will only be restarted gradually and may need to be slowed again if the virus resurges.

CUTTING RISK

The sobering calls are coming true. Experience of countries in Asia, which had dealt with the virus for longer than the West, show that even after months of lockdown, consumers won’t necessarily head out en masse to dine or shop, reducing the likelihood of a V-shaped recovery.

A slow, U-shaped recovery, or worse, a W-shaped double-dip is now expected by 75% of the investors polled by Bank of America Corp’s  securities division.

“We thought central bank interventions had taken out some of the tail risks in the market,” said Wouter Sturkenboom, who helps formulate investment strategy for $350 billion in client assets at Northern Trust Asset Management.

Sturkenboom added risk, including equities, to his portfolio during the March rout and stayed overweight through April. But last week he cut the weighting of risky assets by 7% in favour of cash and cash-like assets. 

“We worry that the initial bounce in growth will be smaller and more gradual than hoped for. The risk of a downside surprise looks about equal to the likelihood of an upside surprise at this point,” Sturkenboom said.  

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Asia shares set to fall as Sino-U.S. strains hit confidence

WASHINGTON (Reuters) – Asian shares were set for another retreat on Friday as U.S.-China tensions curbed investor risk appetite and caused global equity markets to stumble.

Hong Kong futures HSIc1 fell 1.59% and Nikkei futures NKc1 were trading below the Nikkei 225 index’s .N225 previous close, pointing to opening loss of 0.1%.

Australian S&P/ASX 200 futures YAPcm1 eased 0.13%.

Global equities pulled back after Beijing was set to impose new national security legislation on Hong Kong. The move drew a warning from President Donald Trump, who said the United States would react “very strongly” against it.

The back-and-forth between the world’s two largest economies stoked worries that the tensions could threaten “Phase 1” of a U.S.-China trade deal reached early this year.

That prompted Wall Street shares to slip from the two-month highs made in the previous session on hopes of a economic recovery as governments began to lift their coronavirus restrictions.

The majority of the 11 S&P sector indexes declined, leaving the main benchmark S&P 500 .SPX down 0.78%. Dow Jones Industrial Average .DJI finished down 0.41% and the Nasdaq Composite .IXIC fell 0.97%.

The U.S. dollar, seen as a safe-haven, rose amid those concerns. The dollar index =USD, which measures the greenback’s strength against six major currencies, was up 0.1%.

Spot gold XAU=, also typically seen as a risk-off option, was little-changed after losses of 1% as investors booked profits or opted for cash.

Brazil’s real BRBY jumped after the central bank said it was ready to increase support for the currency. The country is expected to soon become the second-worst hit globally by the pandemic as cases approach 300,000.

Crude oil futures LCOc1 rose to their highest since March, as recovering demand and production cuts offset investor jitters seen in other markets.

“Thus far, traders were right to call a trough in global demand in April,” AxiCorp Chief Global Markets Strategist Stephen Innes said in a daily note. “Still, oil prices will remain sensitive to any hint that the easing of global lockdowns might result in the 2nd wave of COVID-19 infections and, therefore, a more protracted impact on demand.”

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Hewlett Packard to cut costs by $1 billion, reduces CEO pay by 25% on pandemic woes

(Reuters) – Hewlett Packard Enterprise (HPE.N) on Thursday unveiled a plan to cut costs by at least $1 billion by 2022 and said it would reduce the base salary of its chief executive officer by 25%, in response to the impact of the COVID-19 pandemic.

The cost-savings plan will include changes to the company’s workforce and is expected to deliver annualized net run-rate savings of at least $800 million, the company said.

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Michigan Governor Whitmer further opens state economy ahead of Trump visit

DETROIT (Reuters) – Michigan’s governor announced more steps to re-open the state’s economy on Thursday, offering timelines for the resumption of some businesses and allowing some social gatherings as long as guidelines to curb the spread of the coronavirus are observed.

Governor Gretchen Whitmer made the announcement ahead of a trip by President Donald Trump to a Ford Motor Co plant in Michigan making ventilators for patients with COVID-19, the disease caused by the novel coronavirus.

In a news briefing on Thursday morning, Whitmer said effective immediately people could meet in groups of up to 10, so long as they observed social distancing restrictions.

Retail stores and auto showrooms can resume operations by appointment beginning on May 26, while increased veterinarian, dental, and medical services will be allowed starting May 29.

“We’ve taken significant steps forward to re-engage our economy safely and responsibly over the past few weeks. Now we are going to take some time to ensure that these new measures are working,” Whitmer said.

She said that she would likely announce another short-term extension of her broader stay-at-home order, which is set to run through May 28.

The move follows the announcement on Monday of a partial reopening in dozens of northern counties starting Friday in an acknowledgement that the outbreak has had less impact on those areas.

Trump, a Republican who is basing his re-election bid in part on a strong economy, has been critical of Whitmer and other Democratic governors over the pace of their re-openings.

Michigan is one of the states harder hit by the virus and has had some of the most restrictive stay-at-home orders in the country.

While polls show she remains popular in Michigan, Whitmer has faced mainstream backlash against the orders, with a growing number of local officials and business leaders arguing the restrictions have outlived their usefulness.

In April, hundreds of protesters, some armed, gathered at the state Capitol in Lansing to demonstrate against the orders.

On Wednesday, Trump threatened to withhold funding from Michigan over its plan for expanded mail-in voting, saying without evidence it could lead to voter fraud. He seemed to back away from the threat later.

Trump won Michigan narrowly in 2016, and it is expected to be a battleground state again in November.

Whitmer is frequently cited as a potential running mate for the likely Democratic presidential nominee, Joe Biden.

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Trump to visit Ford plant in battleground state Michigan amid tensions with governor

WASHINGTON (Reuters) – U.S. President Donald Trump travels to the political swing state of Michigan on Thursday to visit a Ford plant amid tension with the state’s Democratic governor and differences over the speed at which the country is reopening from its COVID-19 shutdown.

Trump, a Republican who is running for re-election this November, has urged states to loosen coronavirus-related restrictions so the economy can recover.

Michigan Governor Gretchen Whitmer, a potential running mate for presumptive Democratic presidential nominee Joe Biden, is facing backlash against her stay-at-home orders.

Trump threatened on Wednesday to withhold funding from the state over its plan for expanded mail-in voting, saying without evidence that it could lead to voter fraud. He seemed to back away from the threat later.

Trump will travel to Ypsilanti to tour a Ford Motor Co plant that has been recast to produce ventilators and personal protective equipment. He will also hold a meeting with African-American leaders to discuss vulnerable populations hit by the virus. The president has declined to wear a mask on similar factory tours despite guidelines for employees to do so.

Michigan is a critical presidential battleground that Trump won narrowly in 2016, the first Republican to do since 1988. Winning the state again is part of his campaign’s strategy for victory in November.

Trump has made only a handful of trips out of Washington since the pandemic went into full force. They have focused on politically important states such as Arizona and Pennsylvania and have included campaign-style music and rhetoric despite being official White House visits. Trump’s signature political rallies have been suspended because of the outbreak.

Trump and Ford have been at odds for nearly a year over the automaker’s decision in July 2019 to back a deal with California for stricter fuel economy standards than his administration proposed.

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