World
Two new economic forecasts highlight today’s place in history:
The global economy is expected to shrink by 3.0% during 2020 in a stunning coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s, the International Monetary Fund said on Tuesday. The IMF, in its 2020 World Economic Outlook, predicted a partial rebound in 2021, with the world economy growing at a 5.8% rate, but said its forecasts were marked by “extreme uncertainty” and that outcomes could be far worse, depending on the course of the pandemic. Most countries’ economies set to be at least 5% smaller, even after recovery. Meanwhile, the International Monetary Fund approved $500 million on Monday to cancel six months of debt payments for 25 of the world’s most impoverished countries so they can help tackle the COVID-19 pandemic. (Reuters, Financial Times, MarketWatch)
The global economic hit likely will be rate four times worse than the financial crisis and the U.S. will see its highest unemployment rate since World War II, according to a Goldman Sachs forecast. With most of the world’s developing economies on a near total shutdown to try to stop the coronavirus spread, Goldman sees a second quarter GDP decline of 11% from a year ago and 35% from the previous quarter on an annualized basis. (CNBC)
More than 2,100 U.S. cities are anticipating major budget shortfalls this year and many are planning to slash programs and cut staff in response, according to a survey of local officials released Tuesday, illustrating the widespread financial havoc threatened by the coronavirus pandemic. The bleak outlook — shared by local governments representing roughly 93 million people nationwide — led some top mayors and other leaders to call for greater federal aid to protect cities now forced to choose between balancing their cash-strapped ledgers and sustaining the public services that residents need most. (Washington Post)
The agreement by major oil producers on Sunday to reduce their daily production by 9.7 million barrels was the largest cutback in history and a feat of remarkable coordination by more than 20 nations led by Saudi Arabia and Russia with unusual mediation from the United States. But it probably still won’t be enough. Demand for oil has tumbled in recent weeks as the coronavirus pandemic has crippled global commerce and eliminated untold numbers of commutes, plane trips and cargo shipments. Experts estimate that demand has fallen by somewhere between 25 million barrels and 35 million barrels a day — or up to three and a half times as much as what the oil nations are promising to cut. Meanwhile, private equity firms Quantum Energy Partners and NGP Energy Capital are asking a Texas regulator to help oil producers struggling with low crude prices in the coronavirus pandemic. (New York Times, Institutional Investor)
The nation’s food supply chain is showing signs of strain, as increasing numbers of workers are falling ill with the coronavirus in meat processing plants, warehouses and grocery stores. The spread of the virus through the food and grocery industry is expected to cause disruptions in production and distribution of certain products like pork, industry executives, labor unions and analysts have warned in recent days. Meanwhile, panic buying has put an incredible strain on food banks even as the need for them explodes. And now, grocers are wait-listing shoppers to cope with e-commerce demand: Amazon is putting new online grocery customers in a queue, while companies like ShopRite have installed virtual lines to manage site inflow. (New York Times, ProPublica, Grocery Dive)
Global airlines will lose $314 billion in revenue due to the coronavirus pandemic in 2020 according to a forecast from the industry’s representative body IATA, which raised its estimate from the $252 billion figure given on March 24. The $314 billion represents a 55% fall in passenger revenues compared to the previous year, on air traffic which is seen being 48% lower, said the International Air Transport Association in a weekly online news conference on Tuesday. Meanwhile, Boeing Co reported another 75 cancellations for its 737 MAX jetliner in March, and Heathrow passenger demand is expected to plunge by 90% in April. (Financial Post, Reuters, The Guardian)
China is pressing ahead in the global race to find a vaccine and treatment for the pandemic coronavirus, fast-tracking regulatory approval for a number of clinical trials. Meanwhile, Russia has become China’s largest source of imported cases, with a total of 409 infections originating in its northern neighbour. Chinese there should stay put and not return home, the state-owned Global Times said on Tuesday. (South China Morning News, Reuters)
The independence of Hong Kong’s judicial system is under assault from the Communist Party leadership in Beijing, senior judges in the city told Reuters. Three of Hong Kong’s most senior judges told Reuters that the independent judiciary, the cornerstone of the city’s broad freedoms, is in a fight for its survival. Beijing’s effort to hobble the judiciary is multi-pronged, according to more than two dozen interviews with judges, leading lawyers and diplomats in Hong Kong. The state-controlled press on the mainland has warned Hong Kong judges not to “absolve” protesters arrested during last year’s demonstrations. Judges and lawyers say there are signs Beijing is trying to limit the authority of Hong Kong courts to rule on core constitutional matters. And people close to the city’s top judge, Geoffrey Ma, say he has to contend with Communist Party officials pushing Beijing’s view that the rule of law ultimately must be a tool to preserve one-party rule. (Reuters)
A barrage of North Korean missiles fired from both the ground and fighter jets splashed down on the waters off the country's east coast on Tuesday, South Korea’s military said, a major show of force on the eve of a key state anniversary in the North and parliamentary elections in the rival South. The back-to-back launches were the most high-profile among a series of weapons tests that North Korea has conducted recently amid stalled nuclear talks and outside worries about a possible coronavirus outbreak in the country. (USA Today)
Israeli Prime Minister Benjamin Netanyahu and political rival Benny Gantz were nearing a deal on Tuesday to form a national emergency government to battle the coronavirus crisis and end the country’s unprecedented political deadlock. (Reuters)
French automaker Renault SA is ditching its main passenger car business in China following poor sales at the loss-making venture with Dongfeng Motor Group. A slowdown in Chinese automotive sales, which is expected to worsen this year due to the coronavirus crisis, has heaped pressure on carmakers that were already struggling to establish a big presence in China, the world's biggest vehicle market. (Yahoo Finance)
Have Millennials become the lost generation? The Millennials entered the workforce during the worst downturn since the Great Depression. Saddled with debt, unable to accumulate wealth, and stuck in low-benefit, dead-end jobs, they never gained the financial security that their parents, grandparents, or even older siblings enjoyed. They are now entering their peak earning years in the midst of an economic cataclysm more severe than the Great Recession, near guaranteeing that they will be the first generation in modern American history to end up poorer than their parents. Meanwhile, FDIC Chair Sheila Bair writes that “Our elected officials have ceded too much responsibility for the economy to the Federal Reserve. But the Fed is not well equipped for this role...Millennials are a growing political force and now the largest living adult generation, surpassing the baby boomers. More than any other group, their futures have been compromised by our perverse reliance on financialization.” (The Atlantic, CNBC)
From Axios:
Finance
Key Earnings:
JPMorgan Chase & Co.’s first-quarter profit tumbled 69% and the bank set aside a whopping $6.8 billion to cover potential losses on loans to consumers and businesses struggling to stay afloat during the coronavirus shutdown. In the past month, the bank temporarily closed hundreds of branches. Its biggest corporate clients drew down billions of dollars on credit lines and sought billions more in new debt. Many of its customers, both small businesses and individuals, are struggling to pay their debts. And all this while its longtime heart and soul, Chief Executive James Dimon, was out for a month for emergency heart surgery. (Wall Street Journal)
Wells Fargo reported first-quarter earnings results that were well below expectations as the company set aside money for credit losses amid the coronavirus pandemic. The banking giant sets aside $4bn for loans and securities writedowns, while net income falls 90% even as deposits and commercial activity surges. (CNBC, Financial Times)
Johnson & Johnson raises dividend but cuts 2020 earnings outlook over coronavirus outbreak. J&J raised its dividend from 95 cents a share to $1.01, a 6.3% increase, and it beat Wall Street’s earnings and revenue expectations. The company lowered its 2020 adjusted earnings forecast to between $7.50 and $7.90 earnings per share, from its prior estimate of between $8.95 and $9.10 a share. (CNBC)
Budweiser brewer Anheuser-Busch InBev on Tuesday said it would halve its final dividend for 2019 because of the uncertainty and volatility caused by the new coronavirus. (Wall Street Journal)
Over 70% of the federal government's $349 billion small business bailout program is already spoken for, as Democrats and Republicans continue to squabble over an expansion that both sides believe is necessary. At the same time, U.S. House Speaker Nancy Pelosi on Tuesday rejected Senate Majority Leader Mitch McConnell’s proposed emergency spending plan to help small businesses cope with the coronavirus outbreak, saying it did not do enough to help hospitals or state and local governments. Meanwhile, most corporate coronavirus relief money has no strings attached, a government watchdog warns. (Axios, Reuters, The Finance 202)
The Federal Reserve is facing sharp criticism over its plan to provide emergency funding to states and large cities but not smaller localities and organisations. On Thursday the central bank said it would purchase up to $500bn of short-term debt directly from US states, counties with at least 2m residents and cities with a population of at least 1m, with borrowers having to pay back the money within two years. The Fed’s action cleaved in two the $4tn municipal bond market, where governments and public organisations raise funds. Just 16 counties and 10 cities are eligible for the direct purchases, according to data from Bank of America. (Financial Times)
Private-equity firm General Atlantic is teaming up with veteran credit investor Tripp Smith to launch a roughly $5 billion fund that will provide financing to companies hit by the new coronavirus pandemic, according to people familiar with the matter. General Atlantic, which typically takes minority equity stakes in rapidly growing companies, is forming a joint venture with Mr. Smith’s credit-focused firm Iron Park Capital Partners LP, the people said. Atlantic Park, as they have dubbed the venture, will provide structured-equity and debt financing to previously healthy companies now facing distress because of the pandemic. (Wall Street Journal)
It makes little sense to view the coronavirus as some kind of perverse vitality test for liberal and authoritarian regimes. Instead we should learn from the countries that responded more effectively—namely, Asia’s advanced technocratic democracies. In the West the virus exposed creaking public services and political division. But Hong Kong, Japan, and South Korea have managed better, while Singapore and Taiwan have kept the disease almost entirely under control, at least for now. (MIT Technology Review)
Relatedly, Bloomberg’s John Authers tweets:
Technology
India could be key in U.S. effort to thwart Huawei on 5G. The country is allowing Chinese companies Huawei and ZTE to participate in 5G trials. Policy makers and phone companies in India, meanwhile, aren’t persuaded so far that using Huawei’s equipment presents a security threat for India’s telecom networks. Some powerful local voices argue that the risk is small and is far outweighed by Huawei’s competitive prices and capabilities. (Wall Street Journal)
Cisco Systems Inc. has joined Hewlett-Packard Enterprise Corp. in putting aside billions of dollars to send a big signal to its corporate customers: Don’t worry about your bills, just please stick around. Cisco made $2.5 billion available through its financing arm Tuesday to keep customers buying its tech products during the COVID-19 pandemic, with payment reprieves until next year. Cisco’s new program will be initially available in 19 locations, including the United States, Greater China, India and Germany. Hardware, software and services are covered, as are some fees charged by Cisco’s sales and installation partners. (MarketWatch, Reuters)
News viewership on YouTube soared 75% in recent weeks from the same time last year, with millions of people turning to the video site for updates on the coronavirus, Chief Product Officer Neal Mohan told Bloomberg Television. YouTube, part of Alphabet Inc.’s Google, reaches more than two billion viewers a month and has had a significant traffic surge since the pandemic took hold. (Bloomberg)
China’s venture capital funding rallies after lockdown. (Financial Times)
How Tencent’s WeChat poses a creeping threat to Apple: Three years ago, Tencent’s top executives flew to Cupertino, California, for a meeting with Apple CEO Tim Cook. Their mission: mollify Apple executives worried that a new feature in Tencent’s WeChat, China’s top social-networking app, could upend the multibillion-dollar app ecosystem. The feature, called mini programs, would allow users to play casual games, hail taxis and make purchases without ever leaving the WeChat app. Instead, users would access a mini program from within WeChat, similar to opening a website in a browser, without needing to download another app. Soon after, Apple began delaying software updates to WeChat on iPhones, creating tensions between the two companies. (The Information)
San Francisco caps food delivery commissions at 15%, while DoorDash cuts commissions by 50% for local restaurants. (Restaurant Dive, Restaurant Dive)
Smart Links
No one knows how many kids attend school during crisis. (Wall Street Journal)
The Los Angeles Unified School District says no student will receive a failing grade on their spring report card. (Los Angeles Times)
Chris Cuomo: My CNN Job Is Pointless and I Can’t Stand It. (Daily Beast)
WWE deemed 'essential business' in Florida. (ESPN)
XFL files for Chapter 11 bankruptcy. (Axios)
Tour de France to be postponed. (BBC News)
Former president Barack Obama plans to endorse Joe Biden on Tuesday. (Washington Post)