• Beijing Virus Outbreak Contained, Top China Expert Says
• China Offers Vaccines Under Development to Beijing Workers
• Trump Says Coronavirus Will ‘Fade Away’ Even Without Vaccine

(…) “We’re very close to a vaccine and we’re very close to therapeutics, really good therapeutics,” Trump said Wednesday night in a television interview with Fox News. “But even without that, I don’t even like to talk about that, because it’s fading away, it’s going to fade away, but having a vaccine would be really nice and that’s going to happen.” (…)

But Fauci, a member of the White House’s mostly mothballed coronavirus task force, also warned last week that the infection won’t “burn itself out with mere public health measures.” (…)

• Fauci calls for action to prevent coronavirus ‘surge’

Sweden Says Herd Immunity “Surprisingly Slow” To Develop Despite Avoiding Lockdowns

Despite allowing its economy and schools to remain open during the coronavirus outbreak, Sweden is finding that the incidence of COVID-19 antibodies among its population is still surprisingly uncommon, suggesting that the country hasn’t yet reached the point of “herd immunity”, unlike other European countries which embraced much more drastic measures to stop the spread and the deaths.

Speaking to the nation during an interview on a Swedish radio station, Anders Tegnell, Sweden’s government epidemiologist and architect of its coronavirus containment strategy (a model that Goldman analysts claim wouldn’t work elsewhere in Europe or in the US), noted that the development of herd immunity is taking much longer than expected. Per Tegnell: “the trends in immunity have been surprisingly slow.” He also says “it’s difficult to explain why this is so.”

To be sure, Tegnell noted, there is “always a lag in all such measurements,” and the percentage of the population with detectable COVID antibodies is likely higher today than it was a few weeks ago, when a surveillance test carried out by a private Swedish company found that only 14% of Swedes have antibodies, compared to more than 50% of Italians in some of the hardest-hit parts of Northern Italy.

Critics of Sweden’s strategy have been more vocal lately now that the country’s death toll has surpassed the 5,000 mark, leaving Sweden with a mortality rate well above its Nordic neighbors. (…) (ZeroHedge)

There may be no immunity against Covid-19, new Wuhan study suggests

Humans may never develop immunity against Covid-19, according to new research on antibodies by Chinese and American scientists.

Their conclusion was based on a study looking at whether hospital workers in Wuhan who were directly exposed to infected patients at the early stage of the outbreak had developed antibodies. (…)

At least a quarter of the more than 23,000 samples tested could have been infected with the virus at some stage, according to the scientists. But only 4 per cent had developed antibodies as of April.

“People are unlikely to produce long-lasting protective antibodies against this virus,” the researchers concluded in a non-peer-reviewed paper posted on preprint website medRxiv.org on Tuesday.

Many efforts to fight the pandemic are being done on the assumption that people who have had Covid-19 will produce antibodies that will protect them from reinfection. (… )

But the new research in Wuhan suggested not everyone infected was producing antibodies, or producing long-lasting ones. Antibodies are the molecules generated by the immune system to bind with the virus spike protein and stop it from infecting cells. Some, like immunoglobulin G, or IgG, can remain in the system for a long time – it has been found in severe acute respiratory (Sars) patients 12 years after they were infected.

Led by Wang Xinhuan from Wuhan University’s Zhongnan Hospital and scientists from the University of Texas in Galveston, the study looked at samples from health care workers and general hospital staff in the city.

They found that 4 per cent of the health care workers and 4.6 per cent of general hospital staff had the IgG antibody.

Earlier research found that 2.5 per cent of hospital employees in Wuhan had contracted Covid-19 during the outbreak, but it has been estimated that the real proportion of infections among this group could be as high as 25 per cent. (…)

Patients with confirmed infections, where the symptoms were usually more obvious, tended to produce more antibodies, according to the researchers. An earlier study found all confirmed cases they looked at had developed the IgG antibody two weeks after the disease onset.

Wang’s team also suggested that more than 10 per cent of the people in their study may have lost antibody protection within a month or so.

“Our findings have important implications for herd immunity, antibody-based therapeutics, public health strategies, and vaccine development,” they said.

Based on their research, they said antibody tests may not be enough to tell whether someone had been infected, and the presence of antibodies like IgG may not necessarily provide immunity later.

“The idea of an immune certificate for recovered Covid-19 patients is invalid,” Wang wrote.

Meanwhile, a separate study by a team at Tsinghua University in Beijing suggested that the more antibodies produced by Covid-19 patients, the worse the outcome – the patient with the strongest antibody response in their study died.

They pointed to a phenomenon known as antibody-dependent enhancement, in which viruses “hitch a ride” on an antibody to infect cells they could not enter otherwise.

Wang said that was “a big concern to be closely monitored”.

But Wu Yingsong, director of antibody engineering research at the Southern Medical University in Guangzhou, said the Wuhan study should be treated with caution. He noted that most antibody tests only checked for a couple of antibodies to save time and cost – and that could mean false results.

“There are still a lot of fundamental things about the coronavirus we don’t understand,” he said.

EU in advanced talks with Johnson & Johnson on COVID-19 vaccine deal – sources The European Commission is in advanced talks with pharmaceutical giant Johnson & Johnson to reserve or buy up-front doses of its COVID-19 vaccine under development, two officials familiar with the talks told Reuters.

Powell Says Despite Signs of Stabilization, Risks of Long-Term Economic Damage Are Significant

(…) “Until the public is confident that the disease is contained, a full recovery is unlikely,” Mr. Powell told the Senate Banking Committee Tuesday at the start of two days of congressional hearings.

Mr. Powell also warned that because recent job losses have fallen hardest on low-income workers, including minorities and women, the current downturn risked aggravating longstanding socio-economic disparities in living standards. (…)

This last stage could take some time, keeping employment and activity below their pre-pandemic levels, said Mr. Powell. “There are parts of the economy that will struggle to return to their old ways of activity,” he said. (…)

Mr. Powell said the Fed hadn’t made any decisions about whether to employ yield caps. “If rates were to move up a lot and for whatever reason, and we wanted to keep them low to keep monetary policy accommodative, we might think about using it,” he said. “It’s sort of an early stage thing we’re evaluating.”

Almost Daily Grant:

Monday’s announcement that the Fed is set to begin outright corporate bond purchases took center stage in yesterday’s testimony, as such a program is uncharted territory for the 107 year-old institution.

That move to buy corporate bonds, the former Carlyle Group partner said, was made “out of an excess of caution” in order to maintain functioning markets.  “I don’t see us wanting to run through the bond market like an elephant snuffing out price signals and things like that,” Powell assured Congress. While the epic snap-back in credit spreads seemingly mitigated the need for such direct support, market credibility was front of mind for the chairman: “We feel we need to follow through and do what we said we would do.”

The corporate credit markets have been counting on it.  According to S&P’s LCD unit, the first 12 days of June have featured fresh junk bond issuance of $24 billion, the second-heaviest monthly pace on record.  Year-to-date supply of domestic high-yield debt stands at $181 billion, or 61% ahead of this time last year, while $1.1 trillion in new investment-grade supply stands 73% above that of 2019.

Not that balance sheets were too conservative before COVID-19 barged onto the scene. According to data from CreditSights, corporate liabilities stood near a record-high 135% of GDP as the calendar turned to 2020, up from 105% in 2007.

Banks rush to borrow record €1.3tn at negative rates from ECB Central bank offers ultra-cheap loans to prevent pandemic becoming credit crunch

CONSUMER WATCH

Unemployment Claims Are Still High but Have Eased Substantially A historically high number of workers continue to seek unemployment benefits each week, but applications have decreased substantially since an early spring peak amid signs the labor market and broader economy are recovering from the coronavirus-induced shock.

Americans Skip Millions of Loan Payments as Virus Exacts Toll The surge in skipped payments on debts including student loans suggests that the layoffs related to the coronavirus have taken a severe economic toll.

Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S., the latest sign of the toll the pandemic is taking on people’s finances.

The number of accounts that enrolled in deferment, forbearance or some other type of relief since March 1 and remain in such a state rose to 106 million at the end of May, triple the number at the end of April, according to credit-reporting firm TransUnion.

The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts.  Personal loans in deferment doubled to 1.3 million accounts.

The stimulus package signed into law in March, for example, allowed most borrowers to stop making monthly payments through Sept. 30 on federal student loans.

The stimulus package also allowed homeowners hurt by the coronavirus or its economic fallout to ask their mortgage servicers for permission to pause their payments for up to 12 months. If the mortgage is backed by the government, the mortgage servicer is generally supposed to grant the request. (…)

Capital One Financial Corp., COF -2.89% for example, has been working with customers who say they can’t pay their bills. The bank said earlier this month that about 2% of active card accounts were in forbearance at the end of May, up from 1% as of mid-April. Some 13% of its auto-loan accounts were in forbearance, up from 9%. (…)

Goldman Sachs: Consumer spending measures rose by 0.8pp to 88.9% of the pre-virus level over the last week, up from an April bottom of 74%. Of the highly-impacted consumer services industries, the retail sector has recovered the most, with foot traffic now back to 79% of the pre-virus level, while the entertainment and leisure industry remains the most depressed, now only back to 45% of the pre-virus level.

We have adjusted our real GDP growth forecasts and now expect -33% in Q2, +33% in Q3, and +8% in Q4 (vs. -36%, +29%, and +11% previously) in qoq annualized terms. This would bring 2020 to -4.2% on an annual average basis (vs. -5.2% previously) and -2.6% on a Q4/Q4 basis (vs. -3.8%).

The reason for our upgrade to Q2/Q3 is that the recent economic indicators—including the May retail sales report—suggest that the coronavirus hit is abating more quickly than expected. However, we still expect real GDP to return to its pre-virus level around mid-2021, which implies somewhat slower sequential growth in Q4 and early 2021.

Consumers are the Power Behind Reopening the Economy

(…) The recent reading on Refinitiv/Ipsos Consumer Sentiment around reopening the economy suggests that consumers have been very concerned for the most part, although progressively in favor of restarting the economy going into June 2020. The data below is a summary from the special Ipsos Covid-19 report, conducted from March through May 2020.

Here are the study highlights:

• 55% of consumers believe live concerts, theater performances and movie theaters should NOT reopen to the public before a vaccine is available.
• 76% are unlikely to attend a sporting game or event in person right now, if government restrictions were lifted.
• 41% expect to attend a live concert, theater performance or movie theater when there is a proven coronavirus vaccine, even if that’s a year or more from now.
• 35% expect to attend/go to a shopping mall when there is a proven coronavirus vaccine, even if that’s a year or more from now.
• Experiences are still important to consumers. More consumers (30%) miss entertainment including movie theaters, more so than going to shopping malls (27%).
• If the government restrictions were lifted, only 24% are likely to attend a sporting game or event in person right now.
• 79% of consumers are concerned that they or someone they know will be infected with the coronavirus, and are personally concerned about the spread of the coronavirus/COVID-19.
• When it comes to COVID-19, consumers are most fearful for their family members’ health and well-being (34%), followed by worries about continued economic disruption leading to a recession (17%).
• Over 50% of respondents have indicated that the amount of news coverage on COVID-19 has caused them to feel that it is getting worse.

Small-Business Loans Left Behind Many of America’s Neediest Firms The federal government’s Paycheck Protection Program failed to take into account the widely varying needs and limitations of small businesses caught in Covid-19 lockdowns.

Target to Raise Minimum Wage to $15 an Hour as Virus Accelerates Plans Target in 2017 said it would gradually move starting wages for hourly workers to $15 by the end of this year. Before the pandemic, Target paid hourly workers at least $13 an hour.

(…) Two years ago, Amazon.com Inc. raised its starting wage for hourly workers to $15, while cutting some bonuses. Costco Wholesale Corp. moved starting wages to $15 last year. Walmart Inc., the country’s largest retailer by revenue, starts hourly workers at $11, as it has since 2018. (…)

Target said Wednesday the company would spend $1 billion more this year than last on worker-related expenses, including wages, paid leave and safety equipment such as masks. In addition to the wage increases, Target will give hourly workers a one-time bonus in July of $200, the company said.

Some retailers have continued to extend temporary wage increases, including Dollar Tree Inc., which earlier this month said it would keep paying hourly workers an extra $2 an hour through June 27. Walmart has offered a series of one-time bonuses to hourly workers in recent months.

U.S. Housing Starts Crept Upward in May 

New residential housing starts increased 4.3% during May (-23.2% y/y) to 974,000 (SAAR) from 934,000 in April, revised from 891,000. Total starts remain 38.6% below their January peak.

Starts of single-family homes were little-changed last month (-17.8% y/y) at 675,000 following a 23.4% April weakening. It stayed near a five-year low. Multi-family starts improved 15.0% (-33.1% y/y) to 299,000, following three consecutive sharp monthly declines.

U.S. Mortgage Loan Applications Increase The Mortgage Bankers Association reported that its total Mortgage Applications Index rose 8.0% (65.5% y/y) during the week ending June 12. Applications to purchase a home increased 3.5% (20.1% y/y) while refinance activity jumped 10.3% (106.0% y/y).

The Economy Is in Disarray. But Borrowers Aren’t Getting Home-Equity Lines. New home-equity lines of credit dropped after the coronavirus pandemic struck the U.S., with many lenders tightening their standards.

CHINA WATCH

Some China growth indicators are in positive territory from a low base. The consumer sector is still negative YoY after reaching -20% earlier this year. U.S. retail sales were also down 19.9% in April and recovered some to -6.1% in May although still 7.9% lower than in February 2020..

European Car Makers Face Glut of Unsold Vehicles Production is well below levels before the coronavirus pandemic, but with comatose demand even this reduced output is creating an oversupply.

• The Car Industry’s $1.1 Trillion Debt Problem

(…) As of June 16, car manufacturers and their suppliers had raised $21.7 billion in extra long-term debt as a result of the Covid shutdowns, according to calculations by consulting firm AlixPartners. That further increases the total industry debt load to at least $1.1 trillion or 3.4 times earnings before interest, taxes, depreciation and amortization. At the end of last year the leverage multiple stood at 3.0 times. (…) Ford is the most widely held stock on the Robinhood stock-trading platform. (…)

Inflation Falls Further in Canada After Retailers Drop Prices

The consumer price index dropped 0.4% from the same month a year earlier, Statistics Canada reported Wednesday from Ottawa. That compares with a 0.2% drop in April. Inflation was running at 2.2% as recently as February. From April, prices climbed 0.3%, compared with a forecast of 0.7%. (…)

Core inflation readings, often seen as a better measure of underlying price pressure, declined to 1.67% in May, the lowest since December 2017, down from 1.8% in the prior month. (…)

Europe’s Wage Subsidies May Not Prevent 9 Million Job Losses One in five furloughed workers in Europe might lose their jobs despite generous support measures designed to prevent that

Close to a third of Europe’s workforce — or 45 million jobs in the five largest economies alone — are benefiting from state support schemes that compensate the lost pay of workers on reduced hours. While these programs are often credited with preventing the sort of short-term mass unemployment seen in the U.S., economists led by Katharina Utermoehl say about 9 million of them could lose their jobs once support measures run their course. (…)

Industries including accommodation, food services, entertainment and retail will likely not recover to pre-crisis activity levels until late 2021, the researchers said. (…)

• HSBC Restarts Plan to Cut 35,000 Jobs

EQUITY VALUATION

In yesterday’s post THE PROS AND THE CONS:

The glass-half-full vision embeds profit estimates of $164 in 2021 (they were $162.93 in 2019) and $187 (+14%) in 2022. The S&P 500 Index is already at 19.2 and 16.8 times 2021 and 2022 estimates respectively. Valuation history remains unfavorable using conventional P/E ratios.

Goldman has this MSCI World chart on 2-year forward EPS:

From Fortune’s Alan Murray:

How quickly will business recover from the business lockdown? We’ve got new data from a Fortune survey of CEOs, done last week in collaboration with Deloitte, that sheds light on the question. Half of the CEOs believe their revenues will have returned to, or exceeded, pre-crisis levels by January. And more than half–58%–say their employment levels will have returned to, or exceeded, pre-crisis levels by January. Not bad.

Of course, that still leaves almost half of the CEOs who expect their recovery to take longer. Another 20% of CEOs expect revenues to recover by June of 2021, and an additional 15% see revenue recovery by January of 2022. By June of 2022, all but 4% believe their revenues will have recovered, while all but 14% believe their employment levels will have recovered. So it’s not exactly a V–maybe more of a “square root” recovery.

The survey also provides compelling evidence that this economic downturn has been unique in modern times in that it 1) prompted an increase in investment, and 2) accelerated technological innovation. Some 77% of CEOs say that their company’s “digital transformation was accelerated during the crisis.” And a roughly equal percentage said the pandemic “created significant new opportunities for our company.” Moreover, significant percentages said they increased investment in workplace safety (50%), IT infrastructure (40%), innovation (36%) and consumer/end-user experience (35%). Only 16% said they didn’t increase investment in any area.
You can read more on the survey here.

Hertz pulls potentially worthless share offering

(…) Earlier Wednesday, SEC Chairman Jay Clayton told CNBC the regulator had issues with Hertz’s plan to sell potentially worthless stock, and that it had let Hertz know it had “comments” on the company’s disclosure. In most cases companies would then halt their efforts until the issues were resolved, Clayton said.

A bankruptcy judge late Friday ruled in favor of Hertz’s proposal, surprising many investors. In the Monday’s share-offering prospectus, Hertz repeatedly warned potential investors its shares could end up being “worthless” amid the bankruptcy proceedings.

The filing, studded with other dire warnings, was also notable for what it didn’t have: Any details about a reorganization plan and what would happen with Hertz assets, many of which are tied to securities.

Shares of Hertz shot higher after the halt,which came in midday trading. They pared some gains as the session drew to a close, however.

I am getting confused: what’s the difference between known unknowns, known knowns and unknown knowns? Must be age.

Anyhow, The SEC’s Clayton was smart enough to know what needs to be known: small investors were being taken to the cleaner by Hertz creditors.

I occasionally include charts on insider trading. Theses guys know more about their company than anybody else so their behavior is informative, especially when they buy.

Here’s one unusual insider buying via the Globe and Mail’s Report on Business, FYI:

Fairfax Financial Holdings Ltd. (FFH-T)

Between June 10-15, founder, chariman and chief executive officer Prem Watsa acquired a total of 482,600 shares at an average cost per share of approximately US$308.61 for an account in which he has indirect ownership (12002574 Canada Inc.), initiating a position in this particular account. The cost of these purchases exceeded U.S. $148-million.

PANDEMONIUM

Mnuchin Declares Global Corporate-Tax Talks at an Impasse More than 100 countries have worked for years to reshape rules for multinationals; dispute over taxing tech companies divides U.S., Europe

Treasury Secretary Steven Mnuchin declared an impasse in international talks on how countries tax multinational corporations, increasing the odds of an escalating trade and tariff dispute in the midst of a global downturn.

Mr. Mnuchin’s move made the already-fragile talks even less likely to reach a conclusion, solidifying a breakdown that had been months in the making. Without a deal, European countries are more likely to press ahead with targeted taxes on digital companies, including U.S. tech giants such as Facebook Inc. and Alphabet Inc. If that happens, the U.S. has threatened to impose retaliatory tariffs. (…)

The U.S. has suggested pausing the negotiations while countries focus on the coronavirus pandemic and economic recovery, the Treasury Department said in a statement late Wednesday. (…)

On Thursday morning, French Finance Minister Bruno Le Maire said that the four countries had sent a joint response to the letter, reiterating their position in favor of an international agreement on “fair taxation of digital giants” as soon as possible. (…)

• Europeans vow to pursue digital tax plans after US pulls plug on talks Paris, London and Brussels say they will look at new ways of taxing multinationals despite threat of trade war

Pompeo, Top Chinese Envoy Meet Amid Heightened Tensions The meeting in Hawaii is part of an effort by Washington and Beijing to manage a relationship that has deteriorated over issues ranging from the status of Hong Kong and Taiwan to the coronavirus pandemic.

Indians Rage at China After Bloody Border Clash Anti-China protests spread in India as people vented their anger about the death of 20 Indian soldiers in a brawl between Indian and Chinese forces along the countries’ disputed border.