HEALTH MATTERS
Europe’s Covid-19 Cases and Deaths Are Climbing, a Warning for the U.S. Europe is once again at the epicenter of the pandemic. It is now recording more and faster-rising deaths than the U.S. in an abrupt reversal of fortunes that is leading some governments to reimpose lockdowns.
(…) Around 1,370 Covid-19 patients are dying in the European Union and the U.K. every day on average, compared with 808 in the U.S. Not since March has Europe suffered more recorded deaths than the U.S. On a per-capita basis, deaths from Covid-19 in Europe are now rapidly approaching the U.S.’s level, after running significantly below U.S. fatalities since May.
Europe’s daily new infections, which averaged 176,400 this past week, have outstripped the U.S.’s seven-day average of 72,300 daily cases, according to data from the European Center for Disease Prevention and Control.
Until this fall, Europe appeared to have the pandemic under better control than the U.S., where the contagion curve never dropped to a low level. (…)
October’s explosive growth of contagion in Europe, despite many targeted government efforts short of lockdowns, is a sign of faltering popular cooperation and policy lagging behind the curve, health experts say. But many epidemiologists say the speed of the increase is a surprise, and say it shows how quickly the coronavirus can escape from control. (…)
“We have to look at the things which are going on in Europe at the moment and think that’s a glimpse of our near future,” said William Hanage, an epidemiologist at the Harvard T.H. Chan School of Public Health. “We think that it won’t happen where we are, and people come up with reasons why it’s not going to be there or why it’s not going to be as bad. And then it is.” (…)
In the U.S., the virus is still circulating mostly among younger people, whereas European data show that infections are now rising rapidly among people over 65, who are more likely to become seriously ill. (…)
In most of Europe, a high percentage of tests for the virus are coming back positive, an indication that many infected people are going undetected and that testing programs are insufficient. The positivity rate, which the ECDC recommends should stay below 3%, has reached 11% in Spain, 18% in France and 26% in both the Netherlands and the Czech Republic. (…)
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ECONOMY MATTERS
U.S. Jobless Claims Fell to 7-Month Low of 751,000 Last Week The number of Americans filing initial claims for unemployment fell to the lowest level since the pandemic began, suggesting layoffs are easing despite a rise in coronavirus infections.
Initial jobless claims, a proxy for layoffs, fell by 40,000 to 751,000 in the week through Oct. 24, the Labor Department said Thursday. That was the lowest level of claims since mid-March, just before the pandemic shut down much business activity throughout the U.S. (…)
In total, more than 20 million Americans are still receiving unemployment benefits through regular state and emergency programs. (…)
Data: U.S. Department of Labor; Chart: Axios Visuals
U.S. Pending Home Sales Unexpectedly Fall in September
Pending home sales fell 2.2% (+20.5% y/y) in September, the first m/m fall since April, after an 8.8% rise in August, according to data released by the National Association of Realtors (NAR). The index level was at 130.0 (2001=100) in September, down slightly from 132.9 in August but up meaningfully from a recent trough of 69.0 in April.
Pending home sales slid in most of the major regions of the country. Sales in the Midwest dropped 3.2% (+18.5% y/y) in September, reversing an 8.6% gain in the previous month. Sales in the South fell 3.0% (+19.6% y/y) following an 8.9% rise. Sales in the West declined 2.6% (+19.3% y/y) after a 12.7% advance. These monthly drops were the first since April. To the upside, sales in the Northeast rose 2.0% (27.7% y/y) after a 4.3% increase, registering the fifth consecutive m/m gain.
U.S. Economy Recovered Significant Ground in Record Third-Quarter GDP Rebound Jump in output follows steep drop earlier in pandemic; still, analysts project the economy will end 2020 smaller than a year earlier
The economy grew at a record pace in the third quarter—increasing 7.4% over the prior quarter and at a 33.1% annual rate—recovering about two-thirds of the ground it lost earlier in the coronavirus pandemic. (…) That puts the economy about 3.5% smaller than at the end of last year, before the pandemic hit. (…)
Per University of Michigan economist Justin Wolfers, the economy is roughly as far below its peak as it was in the darkest days of the last recession.
Data: BEA; Chart: Danielle Alberti/Axios
The WSJ editorial board is clearly getting involved in the elections:
The Economy’s Post-Lockdown Comeback No new government stimulus, no problem, as GDP grows 33.1% in the third quarter.
The U.S. economy grew at a record 33.1% in the third quarter, even after most government transfer payments expired. When politicians lift their lockdowns, and Americans can get on with their prudently cautious lives even in a pandemic, people work, business invests and the economy grows.
Thursday’s GDP report looks like the long-predicted V-shaped recovery after the second-quarter’s lockdown-induced collapse. The rebound was almost across the board. Personal consumption contributed 25.27 percentage points to growth, with 16.04 from services and 9.24 from goods. Industries most hurt by spring lockdowns bounced back strongly, including motor vehicles, health care, and even food services and recreation. (…)
All of this happened even without more government fiscal spending. Imagine that. Remember predictions that the economy would fall off a “demand cliff” once $1,200 checks stopped and $600 enhanced jobless benefits ended on July 31? Nancy Pelosi and economists who are also advising Joe Biden predicted doom. (…)
Sorry to disappoint. (…) The personal savings rate was a healthy 15.8%, indicating there’s plenty of consumer spending capacity. (…)
But the economic signals in October have shown strong momentum as businesses have reopened and rehired employees. Many have had to boost wages to attract workers. (…)
The biggest economic risk now is a policy mistake like new lockdowns, new taxes on business, and regulatory uncertainty that slows investment. The American economy is showing in this pandemic year that it is remarkably resilient if politicians don’t crush it.
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The Biden Contradiction He’s running on Covid and character, but his policies are the most left-wing in decades.
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Joe Biden’s Covid Fairy Tale
Eurozone Economy Soars but Covid-19 Resurgence Leaves It the Global Weak Spot The eurozone economy grew at a record pace in the third quarter, but has already stalled in the face of a resurgence of coronavirus infections and tough new restrictions, leaving Europe lagging even further behind the U.S.
Figures released by the European Union’s statistics agency Friday showed the combined gross domestic product of the eurozone’s 19 members was 12.7% higher in the three months through September than in the previous quarter, having declined 11.8% in the three months through June.
Growth during the third quarter was stronger than in the U.S. That largely reflected the fact that the second-quarter lockdown was more stringent and longer-lasting in Europe, leading to an especially large rebound after the restrictions were lifted. (…)
“It may be too early to call Europe the main loser of this Covid crisis, but for now it does look as if the fourth quarter will be worse for Europe,” said Christian Keller, chief economist at Barclays.
A double-dip contraction raises the risk of longer-term damage as businesses fail and jobless workers’ skills degrade. A dearth of investment could compound Europe’s longstanding problems with weak growth and a scarcity of new industries. (…)
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France Says Second Lockdown Will Cut Economic Output by 15%
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U.K. ‘Striving to Avoid’ Lockdown as Scientists Sound the Alarm
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Merkel decries attempts to play down Covid-19 as irresponsible
PROFIT MATTERS
Exxon to Slash Up to 15% of Global Workforce, Including 1,900 U.S. Jobs The struggling oil giant said it expects to make the cuts over the next year as the coronavirus pandemic continues to batter the oil-and-gas industry.
The steep job cuts, which follow similar layoff announcements by rivals Royal Dutch Shell PLC, RDS.A 6.62% BP PLC BP 2.42% and Chevron Corp. CVX 2.87% , are part of a wholesale effort by the beleaguered industry to restructure itself to weather the worst downturn in a generation. In all, big oil producers and services firms are collectively shedding more than 50,000 jobs. (…)
The International Energy Agency said earlier this month that a prolonged pandemic could eliminate more than 4 million barrels of oil a day from global demand for much of the decade. The world consumed nearly 100 million barrels a day before the pandemic. (…)
Shell and BP cut their dividends earlier this year to shore up their finances. Exxon and Chevron said this week they would maintain their current dividend payments. Exxon’s dividend, which currently yields around 10%, costs the company about $15 billion a year.
Exxon said earlier this year it would cut its capital expenditures by $10 billion to around $23 billion and has slowed projects from West Texas to Africa. It suspended matching contributions to U.S. employees’ retirement plans in October. (…)
Between 2009 and 2019, Exxon spent $261 billion on capital expenditures, while its oil and gas production remained flat, and it added $45 billion in debt, according to investment bank Evercore ISI. Its return on capital employed in 2009 was 16%; last year, it was 4%. (…)
(…) To be clear, this is each sector’s maximum decline from a 3-year high, minus the drawdown in the S&P 500 index. So, it shows losses that investors suffered beyond what they would have been exposed to in the broader market. (…) The current drawdown in energy is now about 60% more than the S&P’s, by far the worst of any sector in history. It exceeds the relative losses in tech after the internet bubble burst and devastation in financials following the Great Financial Crisis. (…)
Netflix Raises Prices as Competition Increases The streaming service raised the monthly price of its most popular plan for the first time since early 2019 as it competes with a growing number of cheaper alternatives.
Netflix NFLX 3.70% said Thursday its standard streaming plan will now cost $13.99 a month, up from $12.99. Its $8.99-a-month basic plan will remain unchanged, while the cost of its premium plan will rise to $17.99 from $15.99. The changes go into effect for new subscribers immediately, and current subscribers will see their fees go up within the next two months. (…)
In a statement, Netflix attributed the price increases to the costs of creating original programming. (…)
The WSJ informs us that “Disney doesn’t exactly skimp on resources now. Doug Mitchelson of Credit Suisse estimates the company spent $18 billion in the fiscal year ended September on content, excluding sports and news. That is 39% more than the $13 billion he expects Netflix to spend this year.”
Content is king. So is cash! NFLX guided to free cash flow of -1.0B to 0.0 in 2021 and breakeven in 2022. Goldman Sachs sees DIS’ FCF at $3.7B in 2021 rising to $10.8B in 2022.
VALUATION MATTERS
Juul Cuts Valuation to $10 Billion The e-cigarette maker has dropped its valuation to about $10 billion, down from $38 billion two years ago when tobacco giant Altria took a 35% stake, the company told employees on Thursday.
Juul’s previous internal valuation earlier this year was $13 billion. (…) In the first half of the year, Juul reported a loss of $423 million on sales of $764 million, according to a disclosure the company made to employees. (…)
Vaporizing value…
Megacap Tech Disappoints Market Where Nothing’s Good Enough
Big Tech’s Big Numbers Still Lack Some Punch Strong results from Apple, Amazon, Google and Facebook leave investors mostly unimpressed
(…) The numbers were predictably huge, and largely ahead of what analysts were expecting to see. Yet investors largely gave them a thumbs down. Alphabet shares jumped nearly 7% after hours, but it was the only one of the five to make gains following their respective reports. (…)
The company [Apple] declined to give a revenue forecast for the December period, which several analysts expect to kick off a “supercycle” of 5G iPhone sales. (…) Amazon and Facebook also posted strong growth for the third quarter while adopting a cautious tone for what lies ahead. For Amazon, that came in the form of an operating income projection for the fourth quarter that was below Wall Street’s target. Results for the company’s closely watched AWS cloud business were also only in line with the Street’s projections. Facebook doesn’t give specific forecasts, but Chief Financial Officer David Wehner projected more headwinds for 2021, which will include changes to Apple’s mobile operating system that could make life harder for advertisers, as well as “the evolving regulatory landscape.” (…)
Apple Shares Decline After iPhone Sales Miss, China Drops 29%
(…) Sales of the iPhone fell 21% on anticipation of the new models, which arrived later than usual this year. Cook said the response to the 5G iPhone lineup and other new devices has been “tremendously positive.”
In Greater China, one of the company’s most important regions, revenue fell 29% to $7.9 billion, the lowest since 2014. Products beyond the iPhone grew double digits in China, Luca Maestri, Apple’s chief financial officer, said in an interview with Bloomberg Television. He expects the iPhone 12 Pro Max with its larger screen to do “incredibly well” in the region and that the company is confident about growing there in the December quarter. (…)
Declining sales in the biggest and fast rising market…
AAPL’s last quarter: Revenues +1.0%, EBIT -5.4%, Net Income -7.4%. EPS, thanks to buybacks, -3.0%. P/E on trailing EPS: 35.3.
A chart from Goldman Sachs’ report: “Tick up”? Really? There has to be another way to qualify that trend!
Investors cool to record Shopify quarter as company cautions outsized gains may not continue
Ant IPO Sets Off $3 Trillion Scramble Among Small Investors More than 5 million individual investors lined up for the Shanghai segment of financial-technology giant Ant’s IPO, placing orders that exceeded the shares reserved for small investors more than 870 times.
Late Thursday, the Chinese financial-technology giant said individual investors in mainland China had placed the equivalent of more than $2.8 trillion of orders for their slice of Ant’s record-breaking initial public offering, in which it is listing simultaneously in Shanghai and Hong Kong.
That sum exceeds the value of all the stocks listed on the exchanges of Germany or Canada. Mom-and-pop investors in Hong Kong have also clamored to buy into this IPO, betting that Ant will soar in value after it goes public next Thursday. (…)
Some small investors have borrowed from banks and securities brokers to make their orders up to 20 times bigger in hopes of boosting their chances of getting shares. (…) He said he used all the funds in his Hong Kong brokerage account, equivalent to about $52,000, to secure a 95% margin loan and place a roughly $1 million order. He sees a good chance of getting shares by placing a comparatively large order.
“It’s absolutely a must-have regardless of the price,” Mr. Chang said, pointing to the company’s fast growth. (…)
Twelve major banks and brokerages in Hong Kong have extended loans totaling more than 470 billion Hong Kong dollars, the equivalent of $60.6 billion, to prospective retail buyers, according to figures tallied by The Wall Street Journal. (…)
“The deal is so hot, it’s literally a lucky draw,” she said.
In case you don’t know, ‘cause few people care about such mundane stuff, but the mega deal would value the company around $310 billion, equivalent to 115 times trailing profits.
Bloomberg smartly adds that “It also underscores China Inc.’s ability to marshal huge amounts of capital without tapping American markets, a win for Beijing as it tries to reduce its vulnerability to the threat of U.S. financial sanctions.”