Overall, new coronavirus infections in the U.S. are on the decline as the number of deaths surpassed 100,000. But a small handful of states, mainly clustered in the South, aren’t seeing any improvement. (Axios)
Yes, case are declining…
…but so is testing!
New Studies Add to Growing Evidence of Widespread Asymptomatic Covid-19 Infection
Two papers published today add to growing evidence that a significant portion of people infected with the novel coronavirus do not show symptoms, and may silently infect others. (…)
“COVID-19: in the footsteps of Ernest Shackleton” catalogs the plight of 217 passengers and crew on an isolated cruise ship that departed Argentina in mid-March on a quest to retrace the steps of the legendary Irish Antarctic explorer.
None aboard were found to have symptoms at the time of departure, and the first recorded fever among passengers emerged on day eight. Nucleic acid tests (NATs) delivered to the ship revealed that 59% of those on board were positive for SARS-CoV-2, the virus that causes Covid-19, by the 20th day of their journey.A troubling four-fifths of those showed no symptoms, according to the Australian team behind the paper.
- Facing its biggest one-day uptick in infections in more than 50 days, South Korean health officials ordered parks, churches, museums and art venues in the Seoul metropolitan area to close through June 14. Students would still be allowed to attend school, though private academies and internet cafes, where young Koreans often gather, were urged to shut down. South Korea, which had relaxed social-distancing measures nationwide in early May, reported 79 new cases Thursday, its biggest daily rise since early April. Many were tied to an outbreak at a distribution center in Bucheon, outside the capital.
- Australia: Authorities in the country’s two biggest states reported 11 new cases. The head of the country’s central bank said the economy is tracking a little better than the baseline scenario, as the number of new coronavirus cases has been less than expected and restrictions are being lifted earlier than initially thought.
PANDENOMICS
U.S. Businesses See Few Signs of Recovery Through Mid-May Federal Reserve report on business conditions finds evidence of a continued labor-market slide, lower consumer spending
(…) “Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery,” the central bank said.
The latest edition of the beige book contains information through May 18, some two months after nonessential businesses around the country shut down to help contain the spread of the novel coronavirus. (…)
A beach-area contact in New England reported a “stark increase in inquiries about bankruptcy procedures from small retailers.” The Fed’s contacts in commercial real estate, meanwhile, reported that large numbers of retail tenants had deferred or missed rent payments. (…)
In the New York Fed’s district, (…) while consumer spending continued to decline overall, “there have been scattered reports of a nascent recovery in early May.” (…)
Firms in several parts of the country reported concerns that generous unemployment benefits might make it more difficult to rehire workers. (…) In a survey of firms conducted by the Philadelphia Fed on impediments to rehiring workers, 33% noted fear of infection, 25% noted lack of childcare, and 29% pointed to the lure of expanded unemployment benefits.
- An estimated 67% of workers at U.S. technology companies are concerned about losing their jobs to digital capabilities powered by artificial intelligence, machine learning and robotic software, KPMG said in a report Friday. That compares with 44% among workers at companies outside the tech sector. Beyond automation, 70% of tech-sector workers are worried about having their jobs eliminated as a result of the economic fallout from the crisis, compared with 57% of workers employed by companies in other industries. (…) “Workers in the tech industry are closer to the technology and thus have a unique understanding, more so than other industries, of technology and its capabilities,” said Mr. Zanni. (…) (WSJ)
- American Airlines to Cut 30% of Management and Administrative Staff The reduction amounts to more than 5,000 of American’s roughly 17,000 management and support workers. (…) Airlines agreed to keep their workforces intact through the end of September as a condition for receiving billions of dollars in government aid, with no layoffs, furloughs or reductions in pay rates allowed until then.
- Amazon to offer permanent roles to 70% of 175,000 new U.S. hires The remaining 50,000 workers it has brought on will stay on seasonal contracts that last up to 11 months, a company spokeswoman said. (…) Amazon said it had 840,400 full and part-time staff at the end of last quarter while it still was in the process of hiring. It has not reported an updated number.
- Big Bankruptcies Sweep the U.S. in Fastest Pace Since May 2009
- More than half of small and medium-sized businesses in a recent study by Facebook in collaboration with the World Bank said they will not rehire the same workers they had before the crisis. And about a third of businesses that closed do not expect to reopen. (Axios)
- This Goldman Sachs chart shows the recovering, but bumpy trajectory for China consumer activity — includes hotels, movie, theater, retail sales, airline seat miles — post pandemic, versus the U.S., where it is obviously deeply depressed. Is China the shape of things to come? (MarketWatch)
Paul Krugman Is Pretty Upbeat About the Economy In a Q&A, the Nobel-winning economist says the pandemic recovery probably won’t be like the one from the last recession.
(…) My take is that the Covid slump is more like 1979-82 than 2007-09: it wasn’t caused by imbalances that will take years to correct. So that would suggest fast recovery once the virus is contained. But some big caveats.
One is that we don’t know how long the pandemic will last. Right now, we’re probably opening too soon, which will actually extend the period of economic weakness.
Another is that even if we didn’t have big imbalances before, the slump may be creating them now. Think of business closures, which will require time to reverse.
And I also wonder how much long-term change we’ll experience as a result of the virus. If we have a permanent shift to more telecommuting and less in-person retail, then we’ll have to shift workers to new sectors, which will take time. That was an argument lots of people made, wrongly, in 2009, but it could be true now.
All that said, right now I don’t see the case for a multiyear depression. People expecting this slump to look like the last one seem to me to be fighting the last war.
Did you miss The Day After…?
EU Plans $2 Trillion Coronavirus Response Effort The bloc proposed an $824 billion recovery plan and a $1.2 trillion budget over the next seven years, which, if approved, would deepen its economic union in a way that even the eurozone debt crisis failed to achieve.
(…) If backed by all 27 member states, the plan would represent a historic step in knitting together national finances across the bloc. The proposal from the European Commission, the EU’s executive arm, follows a similar Franco-German plan set out last week and would establish significant new transfers of wealth among members, funded by commonly issued debt. (…)
German Finance Minister Olaf Scholz recently compared the proposed assumption of debts across EU borders to Alexander Hamilton’s move in 1790 for the new U.S. government to assume states’ debts from the Revolutionary War. But unlike the U.S. under the Constitution, the EU remains a club of sovereign states, many of which oppose sharing financial burdens. As the crisis fades and political winds shift, even Europe’s more supportive countries could turn against the idea. (…)
The plan’s most controversial element, the EU’s issuance of debt, would be repaid over several decades, starting only in 2028, through a combination of bloc-wide taxes and increased member-state contributions to future multiyear budgets. Some extra money would start flowing this year to stop companies from collapsing and keep public investment flowing. (…)
- News Corp to Stop Printing 100 Australian Newspapers News Corp said it would stop printing more than 100 Australian newspapers, closing 36 outright and moving the rest solely to the Internet, in its latest response to media shifts accelerated by the coronavirus pandemic.
- Some 8.4m workers in Thailand “are at risk of termination” because of the impact of Covid-19 on demand for labour, the kingdom’s state planning agency said on Thursday. The number is higher than previous estimates, and reflects growing concerns over the impact of the coronavirus and an ongoing drought on tourism and other industries in south-east Asia’s second-largest economy. (FT)
Moscow says Putin and Saudi Arabia’s Mohammed bin Salman agreed to ‘close coordination’ on oil output According to the current deal, the output curbs should be eased starting in July. Various sources have said there are discussions on whether to continue with the current level of production cuts from July onwards.
PANDEMONIUM
The End of Hong Kong’s Special Status Threatens China’s Grand Financial Ambitions Scrapping the privileges the U.S. affords Hong Kong would downgrade the city’s economic role, but a broader basket of financial sanctions could be even more painful for China
The U.S. determination that Hong Kong is no longer autonomous from mainland China has significant implications for the city’s exporters and businesses. But that could pale in comparison to further action by the U.S. to use its dominant position in the global banking system against Beijing.
The most immediate threat is the possible end of the city’s special status as separate from mainland China for import and export purposes under the Hong Kong Policy Act of 1992. Sensitive U.S. technologies could no longer be imported into Hong Kong, and the city’s exports might be hit with the same tariffs levied on Chinese trade.
But the act doesn’t cover the far more extensive role Hong Kong plays as China’s main point of access to global finance. That’s the context in which the Senate’s tentative discussion of penalties against banks that do significant transactions with “persons or entities that materially contribute to the contravention of China’s obligations” should be viewed. (…)
While the U.S. doesn’t directly control Hong Kong’s status as a financial center, Washington has demonstrated its extensive reach over the dollar system, with penalties against Korean, French and Lebanese financiers for dealing with sanctioned parties. The U.S. recently threatened Iraq’s access to the New York Federal Reserve, demonstrating a growing willingness to use financial infrastructure as a tool of foreign policy.
Even though the U.S. can’t legislate Hong Kong’s ability to support Chinese banks out of existence, the role of an international funding hub is greatly reduced if your counterparties are too fearful to do business with you.
Putting the ability of Chinese banks to conduct dollar-denominated activities at risk would be deleterious to China’s ability to operate financially overseas, posing a challenge for the largely dollar-denominated Belt and Road global infrastructure initiative. It would also put the more financially fragile parts of the country, like its debt-laden property developers, under strain. (…)
Any action from the U.S. that strikes a serious blow to Chinese banks is likely to come in piecemeal stages rather than all at once. But the determination that Hong Kong is no longer autonomous could mark the beginning of a squeeze on China’s international financial operations, for which Beijing has no equivalent ability to retaliate.
- Taiwan will help fleeing Hongkongers move to island, Tsai says
- Canada braces for economic retaliation from China following Meng Wanzhou court ruling Ottawa sought to assure China that the court’s decision was a product of Canada’s legal system and out of its hands
Huawei’s role in British networks comes under fresh review
The U.K. government is launching a review into Huawei Technologies Co. as officials draw up a plan to reduce the Chinese tech giant’s involvement in new-generation mobile networks over the next three years.
The British government is reevaluating its posture toward Huawei after the Trump administration imposed fresh U.S. curbs this month on China’s largest technology company. The U.K. now needs to assess the potential impact that the fresh U.S. sanctions could have on British networks, officials said. That review will be conducted by the government’s National Cyber Security Centre. Huawei represents a political headache for Prime Minister Boris Johnson. His administration decided in January to give Huawei a limited role in 5G wireless networks and fiber while capping its market share and restricting it from the network core.
- Iran Warns U.S. on Naval Activity in the Gulf
- Richard Grenell, the outgoing U.S. ambassador to Germany, issued a warning to his former host country as part of his departing remarks. The United States is preparing new sanctions with bipartisan support to prevent the launch of the Nord Stream 2 natural gas pipeline between Russia and Germany, Grenell said. (Geopolitical Futures)
- And then there’s the issue of Indian and Chinese troops scuffling at the two countries’ Himalayan border. There have been quite a few skirmishes on the border over the years, but analysts fear this standoff, which relates to disputed territories, could escalate. Thousands of Chinese troops are on what India claims is its soil. The Chinese side says India has been building defense facilities on Chinese land. And each country has a fervently nationalistic government right now. (Fortune)
EARNINGS WATCH
We now have 480 reports in and a blended earnings decline of -12.6%. Trailing EPS are $158.75 and the 12-m forward estimate at $128.63. Interestingly, trailing EPS rose $0.81 since the end of April but forward EPS declined 5.2%.
Q2 estimates: -42.8%, unchanged in the past 10 days. Full year EPS are seen dropping to $125.58, a little lower than the $126.15 of 10 days ago.
83 companies have suspended or canceled their dividends this year, the highest number in a calendar year since 2001. In fact, more companies have cut their dividend —142 of them—in 2020 than in the last 10 years… combined. And it’s only May! (Mauldin)