NY Fed study links Spanish flu to extremist voting in 1930s Germany
James Politi in Washington
A staff report by the Federal Reserve Bank of New York has found a correlation between deaths from the influenza pandemic in 1918-1920 and extremist voting in Germany in 1932 and 1933, in research that will fuel concerns about the long-term social and political implications of the coronavirus outbreak.
The NY Fed study, released on Monday, found that German cities hit hardest by the disease that spread at the end of the first world war ended up, more than a decade later, with lower public spending and a higher propensity to vote for Adolf Hitler’s Nazi party.
“Influenza deaths themselves had a strong effect on the share of votes won by extremists, specifically the extremist national socialist party,” the NY Fed research, authored by Kristian Blickle, found. “This effect dominates many other effects and is persistent even when we control for the influences of local unemployment, city spending, population changes brought about by the war, and local demographics or when we instrument for influenza mortality,” it said.
The NY Fed report said the coronavirus outbreak had “renewed age-old questions about the economic and social effects of pandemics”, saying the 1918 outbreak had “profoundly shaped German society going forward” .
Its findings could raise alarm bells about the long-term ramifications of coronavirus at a time when western democracies are already grappling with the reality of populist leaders in power or close to power. Germany has not been hit as hard as other European nations such as Spain, Italy and the UK by pandemic – and one big difference compared to the 1918 influenza outbreak is that last century’s disease affected young people more.
The NY Fed research suggested that one of the 1918 influenza pandemic’s consequences was a disturbing “resentment” towards foreigners and minorities. “The correlation between influenza mortality and the vote share won by right-wing extremists is stronger in regions that had historically blamed minorities, particularly Jews, for medieval plagues,” it said.
California to ease restrictions for some businesses by Friday
Hannah Murphy in San Francisco
California governor Gavin Newsom said on Monday that he would begin to relax lockdown restrictions for certain businesses from the end of the week, as the state begins to reopen its economy.
Mr Newsom said that florists, bookstores and clothing and sports stores would be permitted to reopen for curbside pickup from Friday. However, individual counties will be able to keep stricter restrictions in place if they choose, he said.
The decision by Mr Newsom to issue a shelter in place order on March 20 — one of the first states to do so — is believed to have helped keep coronavirus case numbers fairly low relative to some other states — as of May 2, it had reported nearly 54,000 cases and 2,215 deaths.
However, several smaller California counties have moved to defy the statewide lockdown in recent days and there have also been a handful of protests against the quarantine order. Mr Newsom added that offices, restaurants and shopping malls would remain closed.
China reports 1 new coronavirus case, no new deaths
Health authorities in China reported one new coronavirus case to the end of Monday with no new deaths.
The new case was found in a person returning to Shanghai from overseas and takes the total number of cases in mainland China to 82,881. The number of reported deaths linked to Covid-19 remains at 4,633.
There were 15 new cases of people found to test positive for the virus while not showing any symptoms.
Asia-Pacific stocks set to follow Wall Street’s narrow gain
Australian stocks gained on Tuesday and Hong Kong stocks were set to rise after Wall Street staged a late comeback overnight.
In early trading, Australia’s S&P/ASX 200 rose 0.4 per cent, with futures pointing to a 0.2 per cent gain for the Hang Seng index in Hong Kong.
Japanese, Chinese and South Korean markets are closed for public holidays.
On Wall Street on Monday, the S&P 500 eked out a 0.4 per cent gain after shaking off concerns over a resurgence in US-China tensions while the tech-heavy Nasdaq Composite closed 1.2 per cent higher. S&P 500 futures point to a 0.3 per cent rise when US markets reopen on Tuesday.
Andrew Cuomo, New York governor, suggested that part of the state could end its most stringent lockdown measures by mid-May, while California also moved to allow some businesses to reopen.
Oil prices rose, with West Texas Intermediate, the US marker, up 4.8 per cent at $21.36 a barrel. A collapse in demand sparked by the coronavirus outbreak has put pressure on prices in recent weeks.
Here’s some of the latest corporate news
AIG said its quarterly profits tumbled more than 90 per cent, dragged down by lower investment income and losses tied to the coronavirus outbreak, which chief executive Brian Dupperault said will be the single largest catastrophe loss the insurance industry has seen.
Quarterly earnings published on Monday showed average weekly sales at Shake Shack’s domestic outlets operated by the company had doubled from lows of $24,000 to $49,000 by the end of April, but remained 45 per cent lower than last year’s levels.
Cruise operator Carnival will resume some services in North America this summer, while extending a temporary suspension in services elsewhere in North America and Australia as it looks to gradually restart operations.
US banks moved to tighten lending standards to businesses and households as the coronavirus pandemic rippled across the American economy over the past three months, according to a closely-watched survey of senior loan officers conducted by the Federal Reserve.
News you might have missed
Hong Kong’s economy contracted at the fastest rate on record, shrinking by 8.9 per cent on an annual basis and by 5.3 per cent on a quarterly basis, according to the latest government data, as coronavirus seriously disrupted local economic activities and supply chains.
New York governor Andrew Cuomo detailed the conditions regions will have to satisfy in order to reopen on May 15 as New York recorded its lowest daily coronavirus death toll — 226 — in more than a month.
Greece cautiously loosened a six-week lockdown on Monday, lifting restrictions on movement and allowing 10 per cent of retailers to reopen, while enforcing strict social distancing in stores and on public transport.
Finland will let restaurants, libraries and sports facilities open up from June 1 while essential travel to other Schengen countries in the EU will be allowed from mid-May in the latest opening up in the Nordic country.
Turkey announced it would lift a ban on entering and exiting seven out of 31 Turkish provinces that are currently under lockdown, including the coastal regions of Antalya and Mugla, as part of a general easing of restrictions.
The UK has unveiled a “test, track and trace” strategy, saying the Isle of Wight will be used to trial the next stage of efforts to contain the spread of the virus and help ease the lockdown.
The US health regulator is tightening the rules around antibody tests after unreliable and unauthorised tests flooded the market.
China’s new normal may be major export after pandemic
As they squeezed cappuccinos through a doorway barricaded with tables and stools last month, staff at a Starbucks in the Chinese city of Wuhan were determined to keep their customers as far away as possible.
The improvisation was one small store’s answer to an urgent global problem: how to get the wheels of commerce turning again without unleashing a second wave of the coronavirus pandemic.
Starbucks is just one of dozens of multinationals that have resumed business in China, where the virus began and a version of life after the lockdown is slowly emerging.
As western governments begin to loosen the restrictions that have plunged economies into deep freeze, companies say they are drawing on the experience of their Chinese operations in recent weeks for lessons on how to reassure nervous consumers and employees.
Read more here.
Australia’s economy forecast to contract by 10%
Jamie Smyth in Sydney
Australia’s economy is forecast to shrink by 10 per cent in the June quarter as a result of Covid-19 restrictions, which are delivering a A$4bn ($2.6bn) hit to economic activity every week, according to Australia’s treasurer.
Extracts of a speech due to be delivered by Josh Frydenberg later on Tuesday show unemployment is forecast to double to 10 per cent due to the temporary closures of numerous businesses, including pubs, restaurants and cafes.
Gross domestic product is expected to fall significantly, with the Treasury forecasting a fall in the June quarter of around A$50bn, equivalent to a 10 per cent reduction.
Mr Fydenberg said Australia’s success in suppressing the virus provided it with an opportunity to begin easing restrictions in a way that minimises the health risk and maximises the economic activity.
“We must get people back into jobs and back into work. For every extra week the current restrictions remain in place, Treasury estimates that we will see close to a A$4bn reduction in economic activity from a combination of reduced workforce participation, productivity, and consumption,” the speech says.
Australia’s national cabinet will discuss the timeframe for a further easing of social distancing restrictions this week.
Australia has not imposed the strict lockdown that has been implemented in many European nations as well as New Zealand. The lighter restrictions have enabled the construction, mining and agriculture sectors to continue operating. Some retailers and takeaways have also been allowed to remain open.
Mr Frydenberg said if the restrictions were increased to the type of eight-week lockdown seen in Europe, the hit to GDP could double to 24 per cent of GDP in the June quarter.
US oil prices head higher as storage concerns recede
Hudson Lockett in Hong Kong
US Oil prices were on track for their fifth straight day of gains as traders shook off concerns over global storage capacity which have hammered energy prices in recent weeks, while Asian stocks built on an overnight gain from Wall Street.
The gains for crude came despite a decision by the Texas Railroad Commission, the state’s oil and gas regulator, to drop an effort to force producers to cut output after running into opposition from energy companies.
West Texas Intermediate, the US marker, was up 6.7 per cent at $21.76 a barrel, on track for its fifth straight day of gains. Meanwhile Brent crude, the international benchmark, was up 4.1 per cent at $28.31.
A collapse in demand sparked by the coronavirus outbreak has put pressure on prices in recent weeks, with US prices swinging into negative territory as producers paid buyers to take product they could not find storage for.
Robert Rennie, global head of market strategy at Westpac, said US oil prices had been boosted by an early estimate showing reserves at the key oil storage centre of Cushing, Oklahoma had risen by only 1.8m barrels last week. If confirmed by data from the American Petroleum Institute later today, that would mark the smallest increase since mid-March.
In equities, Hong Kong’s benchmark Hang Seng index rose 0.9 per cent in morning trading, while Australia’s S&P/ASX 200 climbed 1.5 per cent. Japanese, Chinese and South Korean markets were closed for public holidays.
The gains for Asian equities came after Wall Street eked out a slight gain overnight, despite concerns over a resurgence in US-China tensions. The S&P 500 closed 0.4 per cent higher and the tech-heavy Nasdaq Composite notched a gain of 1.2 per cent.
Sentiment also received a boost from New York governor Andrew Cuomo, who suggested that part of the state could end its most stringent lockdown measures by mid-May as the state reported its lowest daily coronavirus death toll in more than a month. That helped bring daily fatalities in the US below 1,000 for the first time in as long.
Korean baseball lands US deal as Seoul eases virus controls
Edward White in Wellington
South Korean baseball will be televised by US broadcaster ESPN starting from Tuesday giving global sports fans, who have been starved of live action, relief amid the coronavirus pandemic.
The opening of the South Korean season is part of a broader loosening of social distancing controls this week, after the country contained what was in February one of the world’s worst outbreaks outside China.
South Korea reported three new virus cases on Tuesday. New daily cases have been in the single digits since late April, compared to a peak of more than 900 in late February.
Of around 10,804 confirmed cases, 9,283 have made full recoveries while 254 people have died.
Seoul also announced that schools will be reopened in stages starting this month.
However, Yoo Eun-hae, education minister, warned that the return to the classroom should not be considered “the end of the coronavirus”, according to state news agency Yonhap.
“Schools cannot go back to the times before the Covid-19 outbreak,” she said.
India reports record surge of 3,890 new cases
Amy Kazmin in New Delhi
India has recorded another record surge in coronavirus cases, with 3,890 confirmed on Monday, highlighting the challenge the country still faces containing the virus even as it begins to ease its lockdown in the face of severe economic pressure.
The new cases bring the total to 46,352, of whom 1,559 have died and 12,732 have recovered.
India’s daily coronavirus data is difficult to interpret due to protracted lags in reporting cases and delays in processing tests by overstretched laboratories.
However, the huge jump in cases highlights how the virus continues to spread in a country where the benefit of a draconian six-week long lockdown — which saw virtually all economic activity and public transported suspended — has been undermined by acute poverty and overcrowding in residential areas of India’s major cities.
However, doctors on the frontline say that the pathogen does not appear to be causing as much serious illness in India as it has done elsewhere. Medical professionals also believe that many carriers in India might remain asymptomatic.
India has begun to ease its six-week lockdown amid fears of economic collapse and serious financial pressure on state governments.
Japan’s health system exposed as empty hospitals reject Covid-19 patients
Robin Harding, Kana Inagaki and Leo Lewis in Tokyo
Fumiue Harada thought his job was done when he sent a dehydrated 81-year-old off to the local hospital. Then a colleague called: the patient’s CT scan showed a risk of Covid-19 and they needed to get him to a specialised hospital immediately.
So began Dr Harada’s marathon search for a hospital willing to accept a suspected case of coronavirus. “It took seven hours but I eventually found a hospital that would take him 40km away,” said Dr Harada, who runs a primary care clinic in the east of Tokyo.
In some cases, patients have been turned away from dozens of hospitals, even though Japan, with fewer than 15,000 cases, has relatively few Covid-19 patients. It also has more hospital beds a head than any other country in the world: twice as many as France and almost five times as many as the US.
Japan has drawn close to the limit of its health capacity in recent weeks, forcing it to declare a state of emergency. The coronavirus outbreak has exposed longstanding structural problems caused by bureaucratic inflexibility and a plethora of small hospitals.
Read more here.
UK new car sales drop 97% in April
Peter Campbell in London
UK new car sales fell by 97 per cent during April, putting Britain’s motor industry on track for the worst year in almost three decades.
Preliminary figures released on Tuesday by the Society of Motor Manufacturers and Traders show around 4,000 cars registered during the month — the lowest monthly number since 1946.
Full figures for the month are due to be released at 9am.
The latest figures put the UK on track for annual car sales of 1.68m, which would be the worst year since 1992, and far below the 2.3m new cars sold during 2019.
April’s drop is comparable to Spain and Italy, which also witnessed near-100 per cent falls in their markets, as factories and dealerships were closed during the month and consumers told to stay at home.
India’s capital imposes coronavirus tax on alcohol after crowds rush to stock up
Amy Kazmin in New Delhi
India’s capital city, New Delhi, has imposed a 70 percent “coronavirus cess fee” on alcoholic beverages, after liquor stores were mobbed by desperate customers on Monday, the first day of spirits sales after a six-week long, nationwide prohibition.
Prime Minister Narendra Modi’s government banned the sales of alcoholic beverages anywhere in India in late March, as part of its lockdown to stop the spread of coronavirus.
But the prohibition on the sale of any beer, wine and spirits put huge pressure on the finances of India’s state governments, which typically derive between 15 to 30 percent of their revenues from excise duties on alcoholic beverages.
As it now starts easing restrictions to restart the stalled economy, Mr Modi’s government has lifted prohibition, permitting states to resume alcohol sales. Monday — the first day — saw massive crowds and serpentine queues at liquor shops across India, as desperate customers struggled to stock up.
Many liquor shops in New Delhi suspended sales early on Monday, as a result of the unruly crowds.
In response, New Delhi’s state government issued a late night notice, imposing a “coronavirus cess fee” of 70 percent on top of the maximum retail price. It hopes the fee will help it generate additional revenues, while perhaps also reducing crowds.
Arvind Kejriwal, chief minister of Delhi, said that the city had collected only 10 percent of its usual revenues in April.
Other states are considering whether they should follow suit and increase alcohol cess and excise duties on liquor to replenish their empty coffers, which have been drained by unexpected costs associated with the impact of coronavirus.
Duterte apologises to big business groups after their help with Covid-19
John Reed in Bangkok
President Rodrigo Duterte has apologised to two powerful companies he attacked in the past for his “hurting words”, and thanked them for their help in fighting Covid-19, marking a truce in a dispute that rattled investor confidence in the south-east Asian nation.
The Philippine leader apologised to the Ayala family, controlling shareholders of the country’s largest conglomerate, and to Manny Pangilinan, chief executive of First Pacific group — two companies Mr Duterte has targeted with verbal abuse and legal threats in recent months.
“I can promise you that I’ll be nice and if you want to see me, we can talk,” Mr Duterte said in a speech on Monday evening, in remarks quoted by the Manila Times. “And I am no longer snooty… the Covid humbled me.”
The Philippines’ family conglomerates such as Ayala Corp, which the populist president has branded as “tycoons”, have stepped up with emergency food aid, donations to hospitals and health workers, and other emergency supplies as the country struggles with one of south-east Asia’s highest coronavirus caseloads.
Jaime Augusto Zobel de Ayala, the company’s chief executive, and his brother Fernando Zobel de Ayala, its president and chief operating officer, said on Tuesday that they were “grateful” for Mr Duterte’s remarks.
“We have always believed in building a strong partnership between the private and public sectors in addressing our country’s problems and in investing in the country to create jobs and improve the lives of Filipinos,” they said.
Ayala’s share price surged by 7 per cent early on Tuesday afternoon and First Pacific’s by 6 per cent, with the overall market up about 2 per cent.
UK should consider border controls, say independent scientists
Camilla Hodgson in London
The UK should consider imposing border controls and prepare for a worst-case scenario that does not rely on an effective vaccine for Covid-19, an independent group of scientists said on Monday.
The group of experts, including former government advisers, has been set up to outline recommendations for ministers amid a push for greater transparency from the government’s influential Scientific Advisory Group for Emergencies (Sage).
Following two-and-a-half hours of deliberations, the independent group of 12 scientists made a series of recommendations, including the publication of more precise data and the immediate rollout of a border control policy to prevent imported cases of infection.
“There are countries that appear to have taken effective advantage of their island status, like New Zealand,” said Gabriel Scally, president of the Royal Society of Medicine’s epidemiology and public health section. But the UK had not and was one of the few remaining countries that still had open borders, which “places us in sudden jeopardy”, he said.
Read more here.
French mortality surged before lockdown bore fruit
Victor Mallet in Paris
Mortality across France rose sharply as a result of the coronavirus pandemic and peaked three weeks after the country’s confinement measures began in mid-March, according to the latest data from Insee, the national statistics institute.
Registered deaths between March 1 and April 20 reached 109,831, up more than 23,000 or 27 per cent compared with the same period last year, and up nearly 15,000 or 16 per cent from 2018.
General mortality is an imperfect measure of the additional toll from Covid-19, but the increase over last year closely matches the government’s official total of 25,201 coronavirus deaths in hospitals and care homes from March 1 until today this year. An influenza epidemic in early 2018 caused thousands of deaths in that year.
Meanwhile, the health ministry announced on Monday that a further 306 people had died from Covid-19 in the previous 24 hours, although the number of patients in intensive care continued its slow decline. The nationwide lockdown is due to be eased on May 11.
Singapore retail sales post biggest drop since 1998
Mercedes Ruehl in Singapore
Singapore retail sales have fallen by the sharpest rate in more than two decades after the coronavirus outbreak crisis curbed consumer spending in the Asian city-state.
Retail sales fell 13.3 per cent year on year, the most since 1998, according to data from the Singapore Department of Statistics.
Singapore’s economy is headed for its worst ever contraction after the government slashed its 2020 growth forecast in March and warned of a fall in gross domestic product for the full year due to the coronavirus pandemic.
Tuesday’s retail sales data followed manufacturing data released on Monday that showed activity at an 11-year low. The purchasing managers’ index (PMI) was 44.7 for April, the weakest reading since 2008 and the third straight month of declines. A reading below 50 signals contraction.
Singapore has reported that more than 18,000 have been infected with the virus, the highest number of cases in Asia after China and India. The government put in place strict social distancing measures, called a “circuit-breaker”, on April 7 to curb the virus’s spread.
Hugo Boss expects second-quarter sales to drop by 50%
Olaf Storbeck in Frankfurt
Hugo Boss has warned that sales over the second quarter will collapse by at least 50 per cent as the vast majority of its retail stores in Europe and the Americas are still closed due to coronavirus lockdowns while sales in China are picking up only slowly.
Between January and March, currency-adjusted sales at the German fashion house sales fell 17 per cent year on year to €555m, and the company suffered an operating loss of €14m, compared with an operating profit of €57m a year earlier.
“The company is confident that from the third quarter on, the retail environment will gradually improve,” Hugo Boss said in a statement.
In China, where all shops reopened at the end of March, sales in April were 15 to 20 per cent lower than a year earlier. “Hugo Boss expects that consumer behaviour and store traffic will continue to improve gradually in this strategically important market,” the company said.
The fashion house was struggling even before the outbreak of the pandemic and warned on profits twice in late 2019, citing macroeconomic uncertainties as well as the political unrest in Hong Kong, which dented sales in the area.
Over the past three months, shares in Hugo Boss fell 44 per cent to the lowest level in more than a decade. The company has embarked on a €600m cost-cutting programme as it is scrambling to safeguard its liquidity, and among other things is cutting its 2020 investment budget by a third.
Global stocks rebound
European stocks were on track to rebound on Tuesday, following strong gains in Asia and late in the session on Wall Street.
Futures trade pointed to gains of about 1.5 per cent for the major markets across Europe, which would go some way to wiping out Monday’s sharp losses.
The turnround in investor sentiment follows a recovery in the price of oil as concerns over global storage capacity eased ahead of weekly industry data. US gauge WTI was recently 8 per cent higher at $22 per barrel, while Brent crude rose 5.4 per cent to $28.66.
Jim Reid, a strategist at Deutsche Bank, said the rally on Wall Street also followed California recording the fewest Covid-19 deaths since early April and possibly opening some businesses as soon as this week.
“The bounce back overshadowed the US/China story as various news items over the last few days have all pointed to a further escalation in tensions,” he said.
Slight increase in daily cases in Germany
Guy Chazan in Berlin
Germany reported 685 new coronavirus cases on Monday, a slight increase on the day before, and also saw an uptick in recorded deaths from the disease.
According to official data from the Robert Koch Institute in Berlin, the number of people who died of Covid-19 over the past 24 hours rose by 139 to 6,831.
The total number of detected infections increased to 163,860, though about 135,100 of them have already made a full recovery.
Total keeps its dividend stable despite coronavirus
David Keohane in Paris
French energy major Total has kept its dividend stable despite a sharp fall in first quarter profit on falling oil prices and falling demand due to the economic impact of the coronavirus outbreak
Total saw its net adjusted profit fall by 35 per cent in the first quarter compared with the same period last year, to $1.78bn.
Oil companies are being hit by falling energy prices and collapsing demand for both fuel and chemicals as governments impose lockdowns and travel bans to stem the spread of coronavirus.
Total’s decision to keep its dividend stable is at odds with Royal Dutch Shell which at the end of April cut its dividend for the first time since the second world war.
As it grapples with the impact of the crisis, Total also further slashed at costs and investments.
The group cut net investment for this year by a quarter to €14bn, increasing the 20 per cent cut it made in March to 25 per cent. The 2020 cost savings plan was also increased by “at least one billion”.
European corporate news round-up
Low-cost carrier Ryanair said that its passenger traffic fell 99.6 per cent to about 40,000 people in April and that it expected “minimal traffic” in the months of May and June as European governments continue to restrict travel. Competitor Wizz Air said that it carried a total of about 78,000 passengers in the same month compared with 3.3m a year earlier.
BATM Advanced Communications, an Israeli technology company, announced that its subsidiary has launched antibody testing kits for Covid-19 and it has begun sales to European customers.
Scandinavian airline SAS said that it had signed a SKr3.3bn ($366m) three-year revolving credit facility agreement, 90 per cent guaranteed by the Swedish and Danish states.
Hugo Boss warned that sales over the second quarter will collapse by at least 50 per cent as the vast majority of its retail stores in Europe and the Americas are closed due to coronavirus lockdowns while sales in China are picking up only slowly.
German meal-kit provider HelloFresh revised upwards its financial guidance for the year, after reporting a 68 per cent growth in active customers in the first quarter on a year-on-year basis, as consumers turned to home cooking during lockdowns.
Danish jeweller Pandora said that sales to customers had improved to be only about 55 per cent lower than last year at the end of April due to strong online sales and a gradual reopening of physical stores, after falling by as much as 70 per cent.
Sales at world’s largest tuna producer rise as shoppers stock up
John Reed in Bangkok
Thai Union, the world’s largest producer of tuna fish, has reported its best first-quarter sales in three years as shoppers facing lockdowns worldwide stocked up on canned goods.
The Bangkok-listed company, whose brands include John West, Chicken of the Sea, King Oscar, and Petit Navire, reported first-quarter sales of Bt31.1bn ($960m) – a 5.9 per cent jump on a year ago. The company said its sales volume jumped nearly 25 per cent to 99,599 tonnes “as consumers around the world stocked up on shelf-stable products in response to Covid-19”.
The Thai company, which is also one of the world’s biggest seafood producers and majority owns the Red Lobster restaurant chain, said that its sales of frozen and chilled seafood dropped in volume by only 1 per cent to 61,179 tonnes. However, seafood sales fell 5 per cent because of the impact of the coronavirus pandemic on the hospitality and food and beverage industries.
Thai Union said its net profit in January to March was 20 per cent lower than a year ago, mainly because of the impact of the virus on its strategic investments, and foreign exchange loss.
Among other companies that produce cupboard staples being snapped up for lockdowns, Kraft Heinz and Kellogg’s both reported surges in their first-quarter sales.
Business activity slides in the UAE
Simeon Kerr in Dubai
The economic contraction in the United Arab Emirates accelerated in April amid tight lockdown measures seeking to stem the spread of coronavirus.
The Gulf state’s non-oil sector faced “steep falls in activity, new business and export sales,” according to new purchasing managers’ index data released by IHS Markit on Tuesday. As companies sought to lower expenses, there were drops in employment, wage cuts and weaker purchases.
The index fell for the sixth consecutive month to 44.1 in April from 45.2 in March – a record low for the second successive month. A level of 50 signals neutral business activity.
The UAE late last month eased restrictions on movement, including a 24-hour curfew in the region’s commercial and tourism hub of Dubai, as the holy fasting month of Ramadan began. Shopping centres and restaurants have been allowed to reopen at reduced capacity if they maintain social distancing protocols. The UAE has registered 14,730 cases with 137 deaths.
What you may have missed
Volkswagen says the cost of crucial car components has risen sharply because of the coronavirus outbreak, putting further pressure on profits as the industry enters deep recession.
Some of the world’s largest hedge funds are raising their bets on gold, forecasting that central banks’ unprecedented responses to the crisis will lead to devaluations of major currencies.
Argentina’s economy minister has raised the stakes with the country’s bondholders by suggesting his government would consider defaulting on $65bn of foreign debt unless investors engaged in negotiations to alleviate its financial burden.
Australia expects the shock caused by the Covid-19 lockdown to dwarf the impact of the global financial crisis, with the economy set to shrink by 10 per cent in the second quarter.
India has recorded another surge in coronavirus cases, with 3,890 confirmed on Monday. The capital, New Delhi, has imposed a 70 per cent “coronavirus cess fee” on alcoholic beverages, after liquor stores were mobbed by desperate customers on Monday, the first day of spirits sales after a six-week long, nationwide prohibition.
French energy major Total has kept its dividend stable despite a sharp fall in first quarter profit on falling oil prices and a drop in demand.
California governor Gavin Newsom said that he would begin to relax lockdown restrictions for certain businesses from the end of the week.
A staff report by the Federal Reserve Bank of New York has found a correlation between deaths from the influenza pandemic in 1918-1920 and extremist voting in Germany in 1932 and 1933.
Russia records over 10,000 daily cases for the third day running
Henry Foy in Moscow
Russia recorded more than 10,000 new coronavirus cases for the third consecutive day on Tuesday, cementing its position as the world’s second fastest growing outbreak after the US.
Russia’s prime minister Mikhail Mishustin, who temporarily stepped down on Thursday night after testing positive for coronavirus, is “undergoing treatment as planned” in a state hospital and feels “generally normal,” his spokesman told local newswire Interfax on Tuesday morning.
Government officials have warned that if citizens do not adhere to the rules of a lockdown imposed until May 11 and cases continue to rise, they will be forced to extend the quarantine measures.
Another 10,102 new cases reported on Tuesday took the country’s total number of infections to 155,370, as the death toll from Covid-19 rose by 95 to 1,451.
Hong Kong to reopen bars, cinemas, gyms and salons
Nicolle Liu in Hong Kong
Hong Kong is set to relax its social distancing measures after reporting no local coronavirus infections for more than two weeks.
Gyms, beauty parlours, cinemas, bars and other entertainment venues will be allowed to be reopen on Friday under special hygiene requirements, said chief executive of the territory Carrie Lam. However, “high-risk” spots such as karaoke rooms and nightclubs must remain shut for another 14 days, she added.
The limit on public gatherings will be expanded from four to eight people, Ms Lam told the media. Students will return to classrooms starting from May 27 in stages, starting from high-school then followed by primary school pupils in June.
The government also revealed plans to distribute masks to all citizens, including reusable masks as well as disposable ones.
The territory reported its 16th consecutive day without any new local cases of coronavirus infections on Tuesday, keeping the overall tally of cases at 1,041 and fatalities at four people.
Starmer calls for revamp to furlough scheme
Keir Starmer has urged the government to revamp its centrepiece furlough scheme to include part-time work and to let some sectors continue to receive support even after its current end date in June.
The Labour leader said ministers should “urgently” adapt the existing programme, which will cost about £40bn, ahead of the imminent easing of Britain’s coronavirus lockdown.
Under the “job retention scheme” the government covers 80 per cent of the wages of workers who are staying at home and not working at all, up to a cap of £2,500 a month.
Sir Keir, launching his proposals for a “national consensus” on ending the lockdown, said: “Ministers should urgently make the existing furlough more flexible to manage people’s gradual return to full and part-time work.”
He told the Radio 4 Today programme that he was urging chancellor Rishi Sunak to allow companies to keep some workers “semi-furloughed” so they can gradually return to business.
UK National Lottery licence contest delayed
Alice Hancock in London
The competition for the UK’s new National Lottery licence has been delayed due to coronavirus.
The Gambling Commission, which runs the competition for the licence, said that lockdown had created too much uncertainty for the contest to launch on May 7 as expected. It told potential bidders that an update on the timetable would be provided in late May.
The National Lottery licence is among the government’s most lucrative contracts. The current holder of the licence, Camelot, generated sales of £7.2bn in the year to the end of March last year.
Sir Richard Branson’s Virgin had intended to make a bid for the lottery but pulled out last week citing a need to focus resources on other parts of the Virgin Group. Sir Richard is currently seeking new investors to save Virgin Atlantic, in which he holds a 51 per cent stake, after the government refused to support its initial submission for a bailout of the airline.
This is the fourth time the competition for a new licence holder has been run. Bidders that have registered an interest include the Czech lottery operator Sazka, Richard Desmond, the owner of the Express newspapers, and Camelot, which is owned by the Ontario Teachers Pension Plan.
India to begin repatriating stranded citizens
Amy Kazmin in New Delhi
India will begin repatriating hundreds of thousands of its citizens stranded abroad from Thursday, nearly seven weeks after its ban on all incoming passenger flights left millions of Indian migrant workers, students and holidaymakers stranded overseas.
In an official announcement, New Delhi said it would use aircraft and naval ships to begin ferrying home citizens “stranded abroad on compelling grounds in a phased manner”.
The moves follow an intense clamour by stranded Indians – and in some cases the host governments – for assistance in getting back to their home country.
Much of India’s early repatriation effort was expected to focus on countries in the Gulf, where many migrant workers have lost jobs. So far, about 200,000 have applied for repatriation from the UAE, where an estimated 2m Indian citizens reside.
Indian naval ships are also being dispatched to the Maldives, where Indian citizens play a critical role in the archipelego’s tourism industry, which has been battered by the coronavirus.
Citizens will have to pay for the transport services, and only those with no symptoms of coronavirus will be allowed to travel. On arrival in India, they will be quarantined for two weeks either in a hospital, or another institutional quarantine facility, as directed by their own state governments.
Delays in government loan support for most pubs threaten their survival
Alice Hancock in London
Three-quarters of UK pubs and breweries are still waiting for loan support from the government, prompting the British Beer & Pub Association to warn that many pubs will not survive the lockdown period unless immediate financing becomes available.
According to the BBPA’s survey, more than half of pubs have also not received grants they were eligible for. The BBPA said it was a “postcode lottery” as to which pubs had been successful with the lowest rates of payouts in the cities of Manchester, Birmingham and Brighton. Only 11 per cent of the 418 pubs in Birmingham had received the grants they were due.
“If the Government doesn’t take decisive action now to both widen and speed up the delivery of grant payments and their loans, then pubs and breweries are at real risk of not surviving the lockdown and jobs will be lost across the UK,” said Emma McClarkin, chief executive of the BBPA.
The BBPA said it welcomed the government’s ‘Bounce Back Loan’ scheme, which offers loans to small businesses backed 100 per cent by the government. Applications for these loans reached more than 100,000 on Monday, the first day they were available.
German court rules ECB’s debt purchases were legal but calls for review
Martin Arnold in Frankfurt
Germany’s constitutional court ruled on Tuesday that the European Central Bank’s vast purchases of public sector debt were legal, but called for it to review if they were “proportionate” in pursuit of its monetary policy objective.
The court ordered the German government and parliament to ensure that the ECB carries out a “proportionality assessment” of its government debt purchases to ensure that their “economic and fiscal policy effects” do not outweigh its monetary policy objectives.
While most observers had expected the court in Karlsruhe to grudgingly accept that the ECB’s purchases of government debt were legal, some still feared it could rule against them, which could have triggered a serious crisis in eurozone monetary policy.
The court said in a decision published on its website that it “did not find a violation of the prohibition of monetary financing of member state budgets”.
It added: “The decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis.”
However, it said that Germany’s central bank would no longer be allowed to participate in public sector bond purchases if the ECB had not shown that its policy was not disproportionate within a three month transitional period.
The ECB has bought more than €2.2tn of public sector debt since launching its quantitative easing (QE) programme in 2014 to try and halt a slide in inflation. This year it has vastly expanded its purchases to stop the coronavirus pandemic spiralling into a wider debt crisis.
UK business activity plunges to record low
The coronavirus lockdown has sent manufacturing and services activity in the UK tumbling to the lowest level on record, leading analysts to predict a more severe downturn than “anything seen in living memory”.
The latest IHS Markit/Cips composite purchasing managers’ index for the UK, a measure of economic performance in manufacturing and services, fell to 13.8 in April, the lowest since the survey began more than two decades ago.
“April’s PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory,” said Tim Moore, economics director at IHS Markit.
Just one-in-five service providers managed to avoid a drop in business activity since March, and those hardest hit by social distancing measures and travel restrictions often reported complete stoppages of business operations.
The reading is down from 36 in March, but slightly higher than the early estimates of 12.9. A score below 50 indicates the majority of businesses reporting a deterioration compared to the previous month.
Nearly 80 per cent of survey respondents reported a drop in business activity during April, almost double the survey-record set in March, according to the survey.
Prior to the last two months, the survey’s record low was 40.1 in November 2008.
World’s largest diamond miner temporarily closes two mines in Russia
Henry Foy in Moscow
Russia’s Alrosa, the world’s biggest diamond miner by volume, will temporarily shutter two mines later this month as the coronavirus pandemic reduces demand for the precious stones.
Alrosa said it would suspend operations at the Aikhal underground mine and Zarya open pit in Russia’s far east from May 15 for four and seven months respectively, “due to the decrease in demand and sales for diamonds, as the major consuming economies are struggling with economic headwinds caused by the global spread of Covid-2019 virus”.
“A change to the 2020 production plan will be considered at the company’s Board meeting in May. The Company intends to recommence production at suspended assets as the market situation improves,” Alrosa said in a statement.
The two mines together produced 2.6m carats in 2019, 7 per cent of Alrosa’s total output of 38.5m carats.
Some of the two mines’ 682 staff would be involved in maintenance work, some would be transferred to other assets and some would be laid off, the company added.
UK coronavirus deaths passed their peak — but only just
Chris Giles in London
Deaths in England and Wales linked to the coronavirus outbreak passed their peak, but only just, according to figures from the Office for National Statistics based on registrations recorded up to April 24.
The latest official figures of total deaths, directly or indirectly linked to the Covid-19, suggest that there have now been 42,140 more deaths than normal for this time of year recorded across the UK since coronavirus took hold in mid March.
The figure is 47 per cent higher than the government’s daily total of 28,734 announced on Monday and reflects data on deaths that occurred only up to about April 20.
The government’s figures count deaths from people who have tested positive, while the ONS figures count all deaths compared with the seasonal average, reflecting a high number of deaths in the community and in care homes of people who were never tested for the disease.
For registrations in the week ending April 24, there were 7,911 deaths in care homes, a record number for a single week and 595 higher than the previous week. While it is not certain the epidemic has peaked in care homes, the official figures confirmed that it has in hospitals with 8,243 death registrations, 1,191 lower than the week before.
In London, half of all deaths in that week had Covid-19 mentioned on the death certificate.
UK government scientist reports wave of imported infections
Camilla Hodgson in London
A wave of imported Covid-19 infections flowed into the UK in early March as people returned from European countries that were already experiencing significant outbreaks, the government’s top scientist has said.
Patrick Vallance, the government’s chief scientific adviser, told the House of Commons health and social care committee:
It looks like early in March the UK got many different imports of the virus from different places, particularly from European countries… such as Spain and Italy.
Those cases “seeded right across the country,” he said.
On March 23, the government’s top advisers on the pandemic said in written evidence to ministers that there had been a “major import to the UK” of cases from “locations with large epidemics and high travel volumes, notably Italy and other parts of Europe”.
However, the UK’s borders remained – and remain – open.
Only 273 passengers who arrived into the country from Spain, China, Italy, the US, Iran, Turkey and France were taken to government quarantine centres from the start of the year until March 23.
Euro slides following German court ruling
The euro and German government bonds sold off after Germany’s constitutional court ruled that the European Central Bank’s debt purchases were legal but called for a review into whether they were “proportionate” in pursuit of its monetary policy objective.
Analysts and economists had marked out today’s ruling as a potential ‘black swan’ event for markets.
While it does not cover the central bank’s response to the coronavirus pandemic, a definitive ruling against the ECB could have triggered a serious crisis in eurozone monetary policy.
The single currency fell 0.7 per cent against the US dollar to $1.0835, having wavered in choppy trading following the release of the minutes as traders gauged the implications of the ruling.
German 10-year bund yields rose 0.03 percentage points as investors moved out of the debt, while the decision also dented a rally in eurozone stocks. Germany’s Dax was recently 0.8 per cent higher, having opened up more than 1.5 per cent.
Helen Thompson, professor of political economy at the University of Cambridge, said the ruling presents a political problem.
Former ECB VP warns German ruling risks hitting pandemic response
A former vice-president of the European Central Bank has warned that a German court ruling calling on the central bank to justify its asset purchasing programme risks undermining the region’s monetary response to coronavirus.
The ruling delivered on Tuesday refers to the ECB’s quantitative easing programme (PSPP), which began in 2014 to try to halt a slide in inflation, and does not refer to actions taken to help the economy through the coronavirus pandemic.
But Vitor Constâncio, who was a senior official at the ECB during the eurozone crisis, said the judgment risks hitting the pandemic response (PEPP) and tying it up in more German court cases.
The central bank has vastly expanded its purchases this year in an effort to stop the coronavirus pandemic spiralling into a wider debt crisis.
Banks halt dividends to focus on real economy, says ECB supervisor
Jim Brunsden in Brussels
Banks have largely halted dividend payments in response to the coronavirus pandemic, Europe’s chief banking supervisor has said.
Andrea Enria told members of the European parliament that €27bn of planned dividend payments had been “fully retained on bank balance sheets”, after supervisors told financial companies to pause discretionary payments and focus on financing the real economy.
A total of €35bn of payments had been in the pipeline at the start of the crisis, Mr Enria, the chairman of the European Central Bank’s supervisory board, said. Some dividends could not be stopped because they had already been approved by shareholder assemblies, he explained.
“The legal corporate law in the countries where this happened did not allow the banks not to pay,” he said. “In all other cases there has been very good discipline.”
Iranian presidents hits out at US sanctions in call with Japanese PM
Najmeh Bozorgmehr in Tehran
Iran’s president Hassan Rouhani said in a telephone conversation with the prime minister of Japan that US sanctions had obstructed his country’s procurement of food and medicine during the pandemic.
“Unfortunately, the US’s illegal sanctions against the Iranian nation have intensified during the very difficult times of fighting against coronavirus and its very difficult economic consequences,” Mr Rouhani told Shinzo Abe on Tuesday. “Today, we face numerous problems even in [imports of] medical equipment and foodstuff.”
Mr Abe, according to Iranian wires, said humanitarian issues had to be the top priority during the pandemic.
The US denies creating any obstacles to Iran’s purchases of medicine and food. The Trump administration has, however, threatened to trigger fresh sanctions on Iran using a provision in the international nuclear deal that the US pulled out of two years ago.
Mr Rouhani has ratched up international lobbying against US sanctions since the beginning of outbreak, which has caused 6,340 deaths in Iran.
Spain’s government faces political pressure on lockdown
Daniel Dombey in Madrid
Spain’s government is struggling to keep control of the country’s seven-week-old lockdown on the eve of a potentially decisive parliamentary vote.
Health ministry numbers released on Tuesday attested to the impact of the restrictions on movement, with deaths in the most recent 24-hour period at 185 – the third successive toll below 200 – and just a 0.4 per cent daily increase in the number of people with positive results for coronavirus, according to the relatively reliable PCR test.
But the leftwing coalition government is facing opposition from its political opponents and regional governments over its request to extend the state of alert, the extraordinary legal order that underpins the lockdown and gives Madrid the power to rule by decree and restrict mobility.
The cabinet was meeting on Tuesday afternoon to draft the request, which will be voted on by parliament on Wednesday. The government said that extending the state of alert was also necessary to continue special temporary leave schemes that limited a rise in unemployment by providing income to some 3.5m people.
However, the centre-right opposition People’s party said it would no longer back the state of alert now that Spain was relaxing the lockdown- a phased process the government said could take about two months. The Catalan Republican Left, a pro-independence party whose votes have been crucial for the government in the past, has added that it will now oppose the measure.
Covid-19 may have come to Sweden in November, chief epidemiologist says
Richard Milne, Nordic and Baltic Correspondent
Sweden could have had its first case of coronavirus as early as November, two months before it officially arrived, according to the Scandinavian country’s chief epidemiologist.
Anders Tegnell, the Swedish state epidemiologist, told local media that it was probable that travellers from Wuhan in China came to Sweden in November or December. “It doesn’t sound at all strange but very natural,” he added.
Sweden’s first official case came in January from a 20-year-old woman returning from a trip from Wuhan, the presumed source of Covid-19.
The debate about when the pandemic first came to Europe intensified this week after a French doctor said a patient diagnosed with pneumonia on December 27 actually had coronavirus, according to a recent retest of a swab taken at the time.
Pfizer begins vaccine testing in the US
Hannah Kuchler in New York
The first US participants have been dosed in Pfizer’s vaccine trial to study the effects of four different candidate drugs on hundreds of volunteers.
The US trials — conducted at sites in New York, Ohio and Maryland — follow the dosing of the first cohort in Germany last week. Albert Bourla, Pfizer’s chief executive, said it was a “unique and robust” clinical study programme.
“The short, less than four-month time frame in which we’ve been able to move from pre-clinical studies to human testing is extraordinary and further demonstrates our commitment to dedicating our best-in-class resources, from the lab to manufacturing and beyond, in the battle against Covid-19,” he said.
Pfizer is partnering with BioNTech, a Germany company, on messenger RNA vaccines, which send genetic information to a cell so it can create proteins to fight the disease.
The partners are already expanding manufacturing capacity at sites in the US, Belgium and Germany. If successful, they could produce millions of doses of vaccine by the end of 2020 and hundreds of millions of doses in 2021, they said.
New documents reveal UK government’s virus testing quandary
Clive Cookson in London
The UK government’s scientific advisors discussed last month whether a system of testing people for immunity against coronavirus could be gamed for selfish reasons, documents released on Tuesday show.
The discussion over the effectiveness of using antibody tests to establish whether immunity had been built up against Covid-19 was revealed in a paper presented to Sage, the Scientific Advisory Group for Emergencies, by its behavioural committee on April 13.
The paper warned that people who needed a positive result, for example to return to work, might deliberately seek out infection or try to buy a fake test result.
Other “possible negative behavioural consequences” of antibody testing discussed in the paper range from people with “false positive” results indulging in risky behaviour to “false negatives” refusing to return to work or suffering discrimination.
The paper is the most recent of 16 further documents showing evidence presented to Sage, which are now available online.
All but two of the papers date back to March and February, however, meaning they do not give reliable insights into Sage’s current thinking.
Brussels affirms ECB primacy following German court ruling
Mehreen Khan in Brussels
Brussels has insisted on the independence of the European Central Bank and the primacy of EU law after Germany’s constitutional court called for more evidence from Frankfurt to justify mass government bond buying.
Eric Mamer, spokesman for European Commission, on Tuesday responded to the ruling from Germany’s constitutional court, which said Germany’s central bank should stop participating in ECB bond buying after three months if the central bank provides no assessment of the impact of its quantitative easing programme before then.
“Notwithstanding the analysis of the detail of the German constitutional court’s decision today, we reaffirm the primacy of EU law and the fact that the rulings of the European Court of Justice are binding on all national courts,” said Mr Mamer.
The commission has always respected the independence of the ECB in its implementation of monetary policy. We will now study this national judgement of the German constitutional court in more detail.
BNP Paribas warns coronavirus could dent 2020 profits by a fifth
David Keohane in Paris and Stephen Morris in London
BNP Paribas warned coronavirus could knock a fifth off its 2020 profits as it revealed a €184m blow to its equities trading division, caused by companies across Europe cancelling or cutting their dividends under pressure from regulators.
The French bank said on Tuesday its net income could fall 15 to 20 per cent this year, with the Covid-19 pandemic prompting a “drastic revisit of the 2020 macroeconomic scenario”.
“The health crisis has had major repercussions on macroeconomic outlook and produced extreme shocks on the financial markets,” BNP said in a statement along with its quarterly earnings report.
Local rival Société Générale reported a surprise first-quarter loss last week after weakness in the same equities business.
Read the article here
Scotland cautious on easing restrictions as virus could resurge
Mure Dickie in Edinburgh
The Scottish government believes about 26,000 people in Scotland could currently infect others with the coronavirus, “much too high” to consider the epidemic under control.
A Scottish government paper released on Tuesday said that while the Covid-19 reproduction rate was now between 0.7 and 1, implying falling numbers of cases, “extreme caution” was still needed about any easing of current lockdown restrictions.
The paper gave, as an example, estimates showing that the “most likely” result of a full reopening of nurseries and schools would be “a resurgence in the virus such that hospital capacity in Scotland would be overwhelmed in less than two months”.
“The weight of evidence…indicates that there is very little room, if any, for changing the restrictions at this time,” Nicola Sturgeon, Scotland’s first minister, wrote in the paper.
Teachers demand more testing and tracing before schools reopen
Andrew Jack in London
Ten teachers’ unions in the UK and Ireland urged “significant caution” over plans to begin reopening schools in the absence of a clearer plan to ensure testing, safety and mental health support to returning students and staff.
The British and Irish Group of Teacher Unions, an umbrella body jointly representing almost 1m teachers, wrote to ministers in the two countries demanding sufficient capacity to “test, trace and isolate” coronavirus as a prerequisite for school reopening.
It called for strong hygiene measures and personal protection equipment, alongside a phased return that would likely start with most pupils attending school part-time.
Fiat Chrysler posts €1.7bn loss as sales and production fall
Peter Campbell in London
Fiat Chrysler reported a €1.7bn loss in the first quarter as coronavirus halted its factories and sapped sales.
Car sales fell by a fifth to 818,000, while revenues dropped 16 per cent to €20.6bn in the three months as showrooms and plants across the world closed because of the outbreak. The business burned through €5.1bn of cash in the quarter, of which €3.5bn was working capital.
While Chinese operations restarted in March, the group was forced to close its US plants — which make its profitable pickup trucks — during the month. Profits in its North American heartland halved to €548m, with vehicle deliveries dropping by 90,000 units to 469,000. The company’s other divisions — in Europe, Asia, and Latin America, as well as the Maserati brand — all fell to a loss.
The company said it is “confident” about its ability to restart operations, with factories in China open again and some plants in Europe coming back online.
The company said:
We have worked closely with all relevant stakeholders to develop and implement robust plans to effectively restart production and vehicle sales once governments in various jurisdictions permit such activities.
The company also stressed it remains committed to its merger with France’s PSA, which it aims to complete later this year or early in 2021.
LendingTree says Q2 revenues to fall as virus squeezes credit markets
Robert Armstrong in New York
The online debt marketplace LendingTree sees a sharp drop in revenues and profits in the June quarter, as the Covid-19 shutdown squeezes credit markets.
The company expects revenue in the second quarter to be between $160m and $175m, down from $278m in the second quarter of last year, when the growth rate was 51 per cent. It expects adjusted ebitda (earnings before interest taxes depreciation and amortisation) to fall by more than half, to $12m-$18m.
The company provides quotes on mortgages, personal and small business loans as well as insurance, earning revenue when it refers a customer to a lender. It released the new guidance on increased insurance and mortgage referrals, and also released first-quarter results, which included revenue that grew eight per cent to $283m.
Credit card revenue fell 5 per cent, however, as “unsecured credit and the flow of capital in certain corners of the market” tightened at the end of the first quarter.
The company’s shares have fallen by almost 30 per cent since coronavirus first gripped markets in late February.
Americas: what you might have missed
For our readers just waking up, here is a summary of the latest coronavirus news from Financial Times reporters around the world.
Pfizer’s first US vaccine trials kicked off in New York, Ohio and Maryland. The pharma company said it could be producing millions of doses of vaccine as early as the end of the year, if successful.
The Euro slid after Germany’s constitutional court ruled that, while legal, the European Central Bank’s debt purchases called for a review of whether they were “proportionate” in pursuit of its monetary policy objective.
Spain’s government struggled to keep control of the country’s seven-week-old lockdown on the eve of a potentially decisive parliamentary vote to extend the country’s state of alert.
BNP Paribas warned coronavirus could knock a fifth off its 2020 profits as it revealed a €184m blow to its equities trading division, caused by companies across Europe cancelling or cutting their dividends under pressure from regulators.
Covid-19 deaths in England and Wales have passed their peak — but only just. Meanwhile, UK manufacturing and services activity tumbled to its lowest level on record, leading analysts to predict a more severe downturn than “anything seen in living memory”.
Virgin Atlantic prepares to cut almost a third of its workforce
Tanya Powley in London
Virgin Atlantic is preparing to cut almost a third of its 10,000 workforce and close its London Gatwick operations as the airline scales back to survive the coronavirus crisis.
The British airline on Tuesday warned it would take up to three years to return to 2019 traffic levels and announced plans to cut up to 3,150 jobs.
It will exit its base at Gatwick airport, where it has been headquartered for the past 35 years, and move leisure flying to London Heathrow as well as keeping its base at Manchester airport.
In an internal post to staff, seen by the FT, Shai Weiss, chief executive at Virgin Atlantic, warned current cost measures and support packages were “not enough”.
“If we are to safeguard our future and emerge from this crisis a sustainably profitable business, now is the time for further decisive action to reduce our costs and preserve cash,” he wrote.
Virgin Group, which owns 51 per cent of Virgin Atlantic, is racing to find new investors within the next month as the airline fights for its survival.
It has also been in talks with the UK government for the past month over a £500m bailout of commercial loans and guarantees.
Global Covid-19 outbreak slows with number of new fatalities slipping
The global Covid-19 outbreak has shown further signs of cooling, with the number of new fatalities slipping to its lowest level for a Monday since late March.
Just fewer than 3,500 people died of the disease caused by coronavirus on Monday, health authorities reported.
In the US, 938 people died over the period, bringing the death toll there to 62,806. However, it marked the first time in a month that fewer than 1,000 people lost their lives. Globally, the number of newly confirmed Covid-19 cases climbed by 76,091 on Monday, bringing the total number of infections to 3.5m.
The UK recorded its lowest death toll since March 29 as 288 fatalities were registered on Monday. This brings the total to 28,447; it is expected to surpass Italy this week to become the hardest-hit country in Europe by deaths.
Russia once again recorded more than 10,000 new cases in a single day. It registered 30,257 infections over the past three days alone as the total number of cases hit 155,370.
Explore data about the pandemic to better understand the disease’s spread and trajectory in the live-updating and customisable version of the FT’s Covid-19 trajectory charts.
US trade deficit widens as exports fall by most on record
The US international trade deficit ballooned in March with a record fall in exports as international travel and tourism collapsed and trade was disrupted by the coronavirus pandemic.
The trade gap in goods and services swelled to $44.4bn, the Commerce Department said Tuesday, from $39.8bn in February.
“The declines in March exports and imports were, in part, due to the impact of Covid-19, as many businesses were operating at limited capacity or ceased operations completely, and the movement of travelers across borders was restricted,” the department said.
Exports fell by a record 9.6 per cent to $187.7bn. The flow of goods such as auto parts and industrial supplies out of the US fell by $9.2bn, while that of services such as travel and transport fell $10.8bn. Meanwhile, imports fell 6.2 per cent to $232.2bn — the biggest such drop since 2009.
“A deep global recession is going to pummel trade volumes, and given that the US is a chronic deficit nation (importing far more than we export), the result is going to be a sharply narrower trade deficit for some time,” said Joshua Shapiro at MFR. “While hardly a signal of economic health, this will provide some offset to the massive damage to overall real GDP growth that will be caused by an evaporation of demand in the economy.”
S&P 500 resilience: weakened by coronavirus
The Lex column
The FT’s premium business and finance Lex column has stress tested the businesses in the S&P 500 index and found that a third of them can be classed as “weak” or “vulnerable” if their annual earnings are discounted to allow for the impact of Covid-19.
There is higher vulnerability to the virus among the blue-chip US index’s constituents than in the UK’s FTSE 350, although a series of big bankruptcies is unlikely.
Read more here
Marathon Petroleum takes $12.4bn impairment charge amid weak fuel demand
Derek Brower in London
Marathon Petroleum, the US’s biggest oil refiner, posted a first-quarter loss of $9.2bn, including a $12.4bn impairment charge, worse than a $7m loss a year earlier, as fuel demand began to fall amid widespread coronavirus lockdowns.
The company said it would slash $1.4bn, or 30 per cent, from capital expenditures this year and reduce expenses by $950m in response to the “Covid-19” environment. About half of the capex reductions would be made in the company’s midstream business, including subsidiary MPLX.
The company also sharply cut its outlook for refining throughput in the second quarter, which it expects to be 2.1m barrels a day, down 30 per cent from 3m b/d in the first quarter, as the coronavirus lockdowns hit fuel demand.
“These are unprecedented times, leading us to make prudent tactical changes for 2020,” said chief executive Michael Hennigan.
On top of the capex reductions, Marathon suspended share buybacks and said it would temporarily idle some facilities. Analysts said this would involve reducing run-rates at refineries.
Marathon’s shares jumped by almost 8 per cent in pre-market trading, after the results beat analysts’ forecasts. The adjusted quarterly income loss of $106m was well below the forecast loss of $203m. Adjusted loss per share of $0.16 was about half the loss expected. Total revenues in the first quarter dropped from $28.6bn a year earlier to $24.1bn, below expectations.
The FT’s free-to-read Covid-19 content
Manchester university sociology professor Gary Younge asks – in a Financial Times column that we have made free to read – what Britain’s weekly habit of clapping and banging pots and pans for the National Health Service and care workers really means.
I am clapping for the NHS and the people who work in it, as my mother did; for the disproportionately black and brown migrant and low-paid labourers who keep the institution going, have done so since its inception and are now disproportionately vulnerable to both the disease and lockdown’s challenges.
I’m clapping with pride that I live in a nation that has created and sustained this, but also with rage that they still do not all have the protective equipment or testing they need, and with hope that one day soon they’ll get the pay they deserve and the service the investment it needs.
Here is the rest of our free-to-read content on Covid-19.
Foxconn’s Chinese factories return to business-as-usual
Kathrin Hille in Taipei
Apple supplier Foxconn saw its sales stabilize in April, reflecting the return of its largely China-based production to normal seasonal levels after the coronavirus-induced disruption.
Revenue in April was NT$380.9bn, up 0.3 per cent from the same month last year, Honhai Precision Industry, the group’s Taiwan-listed flagship company, said in a statement on Tuesday.
In January, revenue had decreased by 12 per cent year on year, in February by 18.1 per cent and in March by 7.7 per cent.
In February, the lockdowns imposed in many Chinese provinces to stop the coronavirus outbreak forced factories to remain shut for weeks after the Lunar New Year holiday.
Foxconn had previously said that its China-based production would return to normal seasonal levels by the end of March.
Foxconn, the world’s largest electronics contract manufacturer, employs about 1m people, most of them in China where the company makes components and assembles a myriad of electronics gadgets as well as electronics for industrial and automotive applications.
Sports executives reassess business models as pandemic threatens to keep fans home
Samuel Agini in London
Senior figures from across the sports industry have highlighted the need to reassess business models, as football, cricket and rugby brace for potentially hundreds of millions of pounds of losses because of the pandemic.
With matches still on hold and fears that stadiums will remain closed to fans when events resume, the sports industry is reviewing how it can become more sustainable.
Giving evidence to Parliament’s Digital, Culture, Media and Sport Committee, Rick Parry, chairman of the English Football League, which runs the professional divisions below the Premier League, warned of a £200m hole by the end of September.
Calling for a “complete reset”, Mr Parry said the pandemic presented an opportunity for the EFL to develop a more “sustainable” business model, referring to player salaries. In the Championship, which is England’s second-highest division after the Premier League, clubs paid wages of £795m in the 2017/18 season, equivalent to 106% of revenues, according to Deloitte.
The EFL is looking at the possibility of cost controls to limit how much clubs are allowed to spend, according to Mr Parry, who also hit out at so-called parachute payments that are paid by the Premier League to clubs that are relegated into the lower division, giving them greater firepower to compete and putting pressure on other teams.
Also giving evidence was Tom Harrison, the chief executive of the England and Wales Cricket Board, who said the sport was facing a £380m loss in the worst-case scenario.
Cricket must look at its cost base and look to appeal to a wider audience, said Mr Harrison, who rejected the view that the Hundred, a new shorter-format tournament that was due to launch this summer, was a “gamble”.
He said the tournament, which has been delayed until 2021, appealed to young adults and parents with children, and will help to fund the growth of the sport.
Meanwhile, Rugby Football Union, the governing body for English rugby, could miss out on revenue of £107m on top of the £15m already lost if international matches scheduled to go ahead in the autumn are called off.
Bill Sweeney, chief executive of the RFU, said there was an opportunity to address “fault lines” in the game that go back to 1995 by aligning the global rugby calendar.
Brent crude back above $30 a barrel as lockdowns ease
Brent crude, the international oil benchmark, has climbed back above $30 a barrel for the first time since mid-April as the cautious reopening of economies spurs a recovery in demand.
Global oil demand has plummeted as a result of restrictions imposed across the world to stem the spread of coronavirus. But signs that lockdown exits have already begun to boost consumption have underpinned a rebound in prices.
Countries such as Spain, Italy and India have tentatively eased lockdown measures this week, allowing some businesses to reopen. California, the most populous US state, is set to relax its restrictions from Friday.
Brent added 10 per cent to trade at $30.12 a barrel as markets opened in New York. It had dropped below $16 a barrel last month as a supply glut coupled with storage concerns prompted traders to offload contracts.
West Texas Intermediate, the US marker, was up 16 per cent at $23.66 a barrel – setting it on track for its fifth consecutive day of gains.
“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” said Per Magnus Nysveen at consultancy Rystad Energy.
US president Donald Trump — who has sought to boost prices through a push for international supply cuts — welcomed the rally in oil prices.
Wall Street also opened higher, with the S&P 500 adding 1 per cent as trading began in New York.
Johnson did not see warnings before shaking hands ‘continuously’
Sebastian Payne and Jim Pickard in London
Downing Street has said that Boris Johnson did not read advice from the government’s scientific advisory group that warned against handshakes and other human contact.
In minutes from a meeting of Sage March 3, the report said:
There was agreement that the government should advise against greetings such as shaking hands and hugging, given existing evidence about the importance of hand hygiene. A public message against shaking hands has additional value as a signal about the importance of hand hygiene.
On that same day, the UK prime minister delivered the government’s daily briefing and said there was no issue in shaking hands:
I’m shaking hands continuously. I was at a hospital the other night where I think there were actually a few coronavirus patients and I shook hands with everybody, you’ll be pleased to know. I continue to shake hands.
On Tuesday, his spokesperson said he had not seen Sage’s advice on handshaking when he delivered those comments. Mr Johnson also shook hands with TV presenter Philip Schofield on March 5 and boxer Anthony Joshua on March 9.
The spokesperson said the papers were sent up to Sage but may not have ended up in formal advice to ministers.
“They are not final Sage advice to ministers,” he said. “I can’t say whether he [Mr Johnson] would even have ever seen that document.”
Mr Johnson has recently recovered from a bout of Covid-19. He was diagnosed with coronavirus less than a month after he gave the briefing. He spent a few nights in a London hospital’s intensive care unit at the beginning of April and was off work for about three weeks.
Turkey’s virus deaths may be 25% higher than official figure
John Burn-Murdoch in London and Laura Pitel in Ankara
Turkey’s death toll from coronavirus could be as much as 25 per cent higher than the government’s official tally, adding the country of 83m people to the raft of nations that have struggled to accurately capture the impact of the pandemic.
Ankara has previously rejected suggestions that municipal data from Istanbul, the epicentre of the country’s Covid-19 outbreak, showed that there were more deaths from the disease than reported.
But an analysis of individual death records by the Financial Times raises questions about the Turkish government’s explanation for a spike in all-cause mortality in the city of almost 16m people.
Read the article here
US services sector contracts for first time since 2009
The US services sector slipped into contraction for the first time in more than a decade last month, as restaurants, retailers and other businesses were forced to shut down amid the coronavirus outbreak.
Economic activity in the vast non-manufacturing sector fell to a reading of 41.8 in April, down from 52.5 a month earlier, according to a closely watched survey from the Institute for Supply Management. The services sector was last below 50 – the threshold that separates growth and contraction – in December 2009, and it was the weakest level recorded since March of the same year.
Economists polled by Thomson Reuters were expecting a sharper fall to 36.8.
“Respondents are concerned about the continuing coronavirus impacts on the supply chain, operational capacity, human resources and finances, as well as the uncertain timelines for the resumption of business and a return to normality,” said Anthony Nieves, chair of the ISM’s non-manufacturing business survey committee.
Sub-indices for employment and new orders showed steep declines from March to April, while a reading of 26 for business activity was the lowest since the ISM survey launched in 1997. Supplier deliveries also slowed, primarily due to supply problems related to the pandemic.
Public administration and finance and insurance were the lone services industries to report growth in April.
United Airlines to shed more than 3,400 jobs
Claire Bushey in Chicago
United Airlines plans to lay off more than 3,400 management and administrative employees and reshuffle its pilot ranks as soon as restrictions on government aid expire this fall.
As the coronavirus pandemic cripples demand for air travel, the fall will bring a 30 percent “displacement” among the approximately 13,000 pilots who fly for the Chicago airline, with some furloughed and others reassigned to new hubs to accommodate an altered flight schedule. Meanwhile, a four-day workweek for the company’s 11,500 management and administrative employees begins May 16.
“Governmental restrictions on travel, stay-at-home orders and the lack of a medical solution for Covid-19 have brought bookings and demand for travel basically to zero,” said Kate Gebo, executive vice president for human resources in a memo to employees. “This is forcing us to come to terms with the fact that our airline—and our entire workforce—will have to be smaller than it is today.”
Ms Gebo said employees should consider a voluntary layoff package that offers employees continued medical benefits and travel privileges, but in a “significant change” from usual policy, no cash payout.
United will receive $5bn from the US government, which prevents airlines from laying off or furloughing workers through September 30. JPMorgan Chase analyst Jamie Baker said in a note: “We’ve recognized for some time that October 1 is likely to emerge as one of the darkest days in history for airline labor.”
Norwegian Cruise Line flags ‘substantial doubt’ about its business
Norwegian Cruise Line on Tuesday raised doubts about its ability to continue to operate its business and warned it may need to file for bankruptcy as it looked to raise about $2bn to fend off the impact of the cornavirus lockdown on the travel industry.
Shares in the company tumbled 22 per cent after the company said in a filing with the Securities and Exchange Commission that “as a result of the impact of the Covid-19 pandemic, our financial statements contain a statement regarding a substantial doubt about the company’s ability to continue as a going concern”.
The Miami-based cruise operator also announced $1.6bn in proposed equity and bond offerings and a $400m investment from an affiliate of buyout firm L Catterton.
Norwegian warned that if it were unable to fulfil its liquidity needs through borrowings, it “may be necessary for us to reorganise our company in its entirety, including through bankruptcy proceedings, and our shareholders may lose their investment in our ordinary shares”.
Norwegian said it sees “meaningful softness in near-term demand and elevated cancellations” and that as of April 24, advanced bookings for the rest of the year were “meaningfully lower than the prior year with pricing down mid-single digits”. However, the company said booking trends do signal demand in the medium and longer term, “with the booked position for 2021 slightly lower compared to same time last year at pricing that is down mid-single digits versus prior year”.
Norwegian has identified about $515m of capital expenditure reductions. The company expects to report first quarter losses of between $1.8bn to $1.93bn, but said it would delay filing its quarterly earnings report.
US household debt rises to record high
By James Politi in Washington
US household debt increased to a record level of $14.3tn in the first quarter of 2020, the Federal Reserve Bank of New York reported on Tuesday, highlighting the financial exposure of many American individuals and families to the economic slump produced by the coronavirus pandemic.
The quarterly report by the New York Fed showed that household debt levels in the US rose by $155bn during the first three months of the year, largely on the back of higher mortgage debt.
Aside from housing, student loans increased by $27bn over the quarter, while car loans rose by $15bn. However, the value of credit card balances declined by $39bn as Americans reined in their spending during the coronavirus pandemic.
The $14.3tn debt level is $1.6tn higher than the peak of $12.68tn reached at the height of the financial crisis in the third quarter of 2008, raising the question of whether the US is about to be hit by a wave of defaults in the coming months as Americans are unable to make their payments.
Delinquency rates were essentially unchanged as of late March compared to three months earlier, but Fed officials cautioned that much of the impact from Covid-19 was still to come.
Said Andrew Haughwout, senior vice president at the New York Fed:
It is critical to note that the latest report reflects a time when many of the economic effects of the COVID-19 pandemic were only starting to be felt.
We do see a larger-than-expected decline in credit card balances based on past seasonal patterns, but it is too soon to confidently assess its connection to the pandemic.
We will continue to monitor these developments and the broader state of household balance sheets closely as key data are updated and the economic situation evolves.
In the last quarter of 2019, household debt hit $14.2tn, having risen by $193bn compared to the third quarter of last year.
Canada seeks to protect farmers by buying up extra food
Canada will buy “large quantities” of surplus food that is at risk of spoiling as the government tries to protect farmers and producers from the economic shocks caused by the coronavirus pandemic.
The C$50m (US$35m) food purchase programme comes as part of C$252m funding for farmers and food processors announced by the prime minister.
“Some producers have no choice but to throw out their product,” Justin Trudeau said, as the closure of hotels and restaurants has led to excess production of some items, including milk, butter, and potatoes.
Mr Trudeau said “much of that surplus” will be bought by the government, who will then work to redistribute it to programmes for those in need.
The funding fell short of the C$2.6bn demanded by Canadian Federation of Agriculture to aid the sector. Several meat-processing plants in Canada have been hit by outbreaks of Covid-19 among staff. President Donald Trump drew criticism last week for moving to force US plants to stay open.
Mr Trudeau said Canadian food processors would receive C$77m to buy protective equipment, adapt their facilities, and to increase domestic processing capacity. Farmers would meanwhile benefit from a C$125m fund to help them keep cattle and pigs on their farms if there was not enough capacity to process the animals, he said.
Canada is one of the world’s biggest food producers, and Mr Trudeau said the government is working to safeguard exports, especially to the US, as the pandemic disrupts trade routes. Canada’s food exports rose 12.1 per cent in March, although this was partly due to the lifting of railway blockades.
Heath Canada has confirmed 61,159 cases of Covid-19. The death toll rose to 3,915 as some regions have begun to reopen stores and ease other lockdown measures.
UK electricity demand falls by one-fifth in lockdown
Britain’s demand for electricity has dropped by almost one-fifth since lockdown measures to control the spread of coronavirus were introduced six weeks ago, according to a new study.
As industry has closed down and people have taken to their homes, daily usage of electricity fell by 17 per cent in the UK, triggering a drop in carbon emissions of 17.5 per cent per kWh compared to the same period last year.
Renewable energy sources have stepped in to take a greater share of national grid output, leading to a significant fall in polluting emissions, the energy consultancy Cornwall Insight’s report released on Tuesday showed.
“The main reduction in generation has come from the lower CCGT (Combined Cycle Gas Turbines output), with output slumping almost 90 per cent in the face of both lower demand and record renewable output,” said senior analyst Tom Andrews.
After the UK, Spain has sustained the greatest fall in energy demand, which sank by 16.7 per cent over the assessed period, with a 27.4 per cent fall in emissions per kWh. In Germany, demand fell by 11.5 per cent on average, with a 35.9 per cent drop in carbon intensity.
“Many system operators are now proving able to manage grids at 70 per cent or more renewable energy and with a much lower level of demand than would – even a few months ago – have been expected,” said Mr Andrews.
But analysts are doubtful that any tilt toward greener energy will survive the health crisis.
“The generation balance is likely to return to normal as countries come off lockdown. However, this has demonstrated that managing a grid with high renewable penetration is feasible,” he added.
UK death toll rises by 693
The UK has recorded 29,427 deaths in hospitals, care homes and in the community after testing positive from Covid-19, with 693 fatalities as of 5pm yesterday.
The number of tests continued to fall short of the government’s goal of 100,00 per day, with 84,806 tests yesterday. A further 4,406 people tested positive yesterday, taking the total to 194,990.
Insurer Hiscox seeks to shore up its funding to back new business
Oliver Ralph in London
UK-listed insurer Hiscox is to seek up to £400m in a placing, becoming one of the first major insurers to raise new equity since the pandemic began.
The company said it would use the proceeds to back new business, especially in the US wholesale and reinsurance markets where it expects prices to rise.
“The board is optimistic about the scale of the opportunity which lies ahead,” the company said in a statement.
The coronavirus crisis is likely to be one of the most expensive events ever for the insurance industry, with some estimates pointing to claims of more than $100bn. In response, prices for many types of insurance are likely to rise significantly.
Hiscox has been at the centre of the controversy in the UK over whether business interruption insurance policies will pay out because of the lockdown. Hiscox says that most clients are not covered but hundreds of unhappy customers have joined an action group to add pressure to pay out.
Hiscox expects about $150m of claims arising from Covid-19, although on Tuesday it said that UK business interruption claims could cost it an extra £250m.
Lost jobs and work subsidies hit Ireland’s tax receipts
Arthur Beesley in Dublin
Ireland’s tax revenues fell in April and public spending surged as the government introduced health and welfare programmes to tackle the coronavirus crisis.
With 598,000 people on special welfare payments after losing jobs because of the pandemic’s impact and another 427,000 workers on government wage subsidies, Dublin on Tuesday reported a sharp deterioration in its public finances.
Monthly returns from Paschal Donohoe, the finance minister, show a €7.5bn exchequer deficit in the four months to April, compared with a €3.2bn deficit in the same period in 2019.
The €4.3bn year-on-year worsening of the exchequer balance was “primarily driven” by increases in current and capital expenditure, the finance ministry said.
Tax receipts in April fell 8 per cent year-on-year to €2.6bn, due to reduced income and consumption taxes and falling car sales. Spending in the first four months of 2020 reached €20bn, 23.5 per cent ahead of 2019 and 13.5 per cent ahead of the target.
The public finances were in surplus before Covid-19 struck but Mr Donohoe has already forecast a €23bn deficit this year that would equate to 7.4 per cent of gross domestic product.
New York governor demands ‘real’ discussion on cost of easing lockdown
Joshua Chaffin in New York
New York Governor Andrew Cuomo called for a frank national discussion about the costs of reopening the economy, as he cited forecasts predicting it would lead to tens of thousands of additional coronavirus deaths.
“That’s the real discussion that no one is admitting openly or freely – but we should,” the governor said.
Mr Cuomo was referring to a model prepared by IHME, a health research centre at the University of Washington.
As of mid-April, it predicted 60,000 US coronavirus fatalities. It has since raised that number to more than 134,000 after taking into account plans by US states to begin lifting restrictions on daily life that were imposed to halt the spread of the virus.
“How many more deaths are you willing to sustain to reopen quickly?” Mr Cuomo asked. “Let’s be honest about it. It’s a trade-off.”
The governor was speaking a day after he unveiled conditions for reopening the state on a regional basis. It would require a region to show declines in its caseload for 14 days and have a minimum capacity to test and trace new infections, among other conditions.
At present, none of the 10 regions satisfies all the requirements set out by Mr Cuomo. The governor also fired back at President Donald Trump’s comments in an interview with the New York Post, published on Tuesday, in which he ruled out “bailouts” for Democratic-leaning states, such as New York and California, whose economies and finances have been hit by the pandemic.
He dismissed such rhetoric as a partisan ploy that would fail, and reiterated that such states have long contributed more money to the federal government than they have received.
“If you want to be fair, just give back to New York the money you took,” Mr Cuomo said.
UK death toll overtakes Italy’s but Raab plays down significance
George Parker in London
The UK’s first secretary of state has downplayed the significance of government figures showing Britain has overtaken Italy as the European country with the most coronavirus deaths.
Although Downing Street produces daily slides comparing the death rates in different countries, Dominic Raab noted that each country produces statistics in different ways.
“I don’t think you can make the international comparisons you are making at this stage – at least, I don’t think you can make them reliably,” Mr Raab said.
Government figures put the number of Covid-19 deaths in the UK at 29,427 compared with Italy’s latest official figure of 29,316.
Angela McLean, chief scientific officer at the Ministry of Defence, told the daily Downing St news conference that full international comparisons could not be carried out until the pandemic was over.
Only the US has recorded more coronavirus deaths than the UK and Mr Raab was keen to provide some notes of optimism amid an otherwise bleak backdrop.
He said when the lockdown was eventually eased it would make life “more comfortable”, before adding quickly: “The next stage won’t be easy.”
Mr Raab said the government also hoped to see the return of professional sport when it was safe, saying it “would lift the spirits of the nation”.
French insurer Axa points to ‘material’ Covid-19 impact on earnings
David Keohane in Paris
Axa has said that the Covid-19 pandemic will have a “material” impact on its full-year earnings but added that the claims it has received related to the virus were “limited”.
Due to governments locking down economies to slow the spread of the infection, the French insurer expects “a material impact on the level of claims across a number of product lines, most notably in event cancellation and business interruption”.
A spokesperson for Axa said that events being cancelled due to the virus could cost the group about €500m.
“Although Covid-19-related claims notified in March were limited and the precise implications of the crisis remain uncertain at this stage, we believe that the effects of the Covid-19 crisis will have a material impact on our earnings in 2020,” said Axa chief executive Thomas Buberl in a statement on Tuesday.
Axa said that first quarter reported revenue fell 9 per cent over the same period last year to €31.7bn. On a comparable basis taking into account the deconsolidation of its US business, Equitable Holdings, revenues were up 4 per cent.
US small business needs ‘safe harbour’ from reopening risks – lobby group
Andrew Edgecliffe-Johnson in New York
America’s 3m small businesses need Congress to provide a safe harbour from litigation risks if they are to reopen, the US Chamber of Commerce argued on Tuesday as a survey of its members found that more than one in five are within two months of closing permanently.
One-third of small businesses have applied, or tried to apply, for the Payroll Protection Program loans provided by Washington, the survey found, and another 13 per cent still plan to apply. Despite such government support, however, 17 per cent have needed to ask their landlords for flexibility on their rents, up from 9 per cent a month ago.
“There’s no amount of government assistance that is going to be able to replace the ability to safely reopen,” Neil Bradley, the Chamber’s chief policy officer, told reporters, so businesses needed both clear guidance from public health officials and reassurance that if they followed that guidance “they shouldn’t have to worry about being sued”. That was not the same as immunity for gross negligence, he added.
The call for safe harbour protections follows a letter from several manufacturing groups to House and Senate leaders on Sunday calling on them to put similar limits on the legal risks to businesses as they plan to reopen. “Congress should not allow good actors to be held liable for events beyond their control,” the letter argued.
In the week that Texas allowed restaurants, shops and cinemas to reopen, but only at 25 per cent of their usual capacity, Mr Bradley said businesses which usually depend on accommodating large numbers of customers may need additional bridge financing.
The Chamber’s survey showed that small businesses continued to close, with another 29 per cent shutting their doors temporarily in just the past two weeks, but it also found signs of optimism. Half of those polled expected the economic climate to be back to normal in six months, and 79 per cent expected to maintain or increase their staffing in the next year.
Two businessmen charged in first case of individuals attempting to defraud PPP
Laura Noonan in New York
Two East Coast businessmen have been charged with inventing dozens of employees to apply for more than $500,000 in small business rescue loans, in the first case taken against individuals for allegedly attempting to defraud the $610bn Paycheck Protection Program.
Prosecutors for the District of Rhode Island said the two men engaged in “conspiracy to make false statements” and “conspiracy to commit bank fraud” when they applied for around $550,000 of forgivable loans under the PPP.
“It is unconscionable that anyone would attempt to steal from a program intended to help hard working Americans continue to be paid so they can feed their families and pay some of their bills,” said US attorney Aaron Weisman for the District of Rhode Island.
“Attorney General Barr has directed all US attorneys to prioritise the investigation and prosecution of crimes related to coronavirus and Covid-19, and we are doing just that.”
Treasury Secretary Steven Mnuchin last week warned that companies would face “criminal liability” for keeping PPP loans they were not entitled to.
The two defendants in the Rhode Island case are David A Staveley, a 52 year-old from Andover, Massachusetts, who also goes by the name Kurt D Sanborn, and David Butziger, a 51-year-old of Warwick, Rhode Island.
Prosecutors alleged that the duo emailed each other about “the creation of fraudulent loan applications and supporting documentations” that would support their PPP applications. Mr Staveley allegedly applied for $438,500 to pay “dozens” of employees at three restaurants. Prosecutors say that two of the restaurants were not open for business before the coronavirus crisis, and that Mr Staveley had no role in the other restaurant he listed in his application.
Mr Butziger is alleged to have applied for $105,000 in PPP loans for six employees whom he “falsely represented” he had employed in January and laid off in late March.
“This is a critical time for our nation’s small businesses. It is well known that fraudsters prey upon those in vulnerable positions,” said Inspector General Hannibal “Mike” Ware of the Small Business Administration, which is overseeing the PPP.
“As this result shows, SBA-OIG (Office of Inspector General) and its law enforcement partners are actively working together to root out fraud in SBA’s programs and bring those responsible to justice.”
Coronavirus kills 330 more in France in 24 hours
Victor Mallet in Paris
France recorded a further 330 deaths in hospitals and old people’s homes on Tuesday, bringing the total death toll since March 1 to 25,531.
The number of patients in hospital and in intensive care for Covid-19 continued to decline, however. There are now 3,430 people in intensive care for the disease across the country. Nearly 25,000 remain in hospital, although the number fell by 773 in the past 24 hours.
A total of 132,967 cases have been confirmed in France by testing, with 1,104 positive tests announced on Tuesday.
French President Emmanuel Macron visited a school in Poissy west of Paris on Tuesday ahead of planned easing of the country’s coronavirus lockdown on May 11, which should see school pupils beginning to return to classes next week.
“I know there are uncertainties but we must reopen,” he said, admitting that the “ice will be thin” as France cautiously emerges from confinement. “You can’t say that for months and months the country should no longer live its life.”
Mr Macron said the coming weeks would not be a complete return to normal life. “We have not won the battle against the virus,” he said. “It’s still there even if we’ve slowed it down.”
Goldman says New York and London staff to work remotely longer than others
Laura Noonan, in New York
Goldman Sachs has warned staff that it will “take longer” for employees in London and New York to follow the slow return to the office already underway by colleagues in areas less badly hurt by the coronavirus.
In a memo to the bank’s staff on Tuesday, chief executive David Solomon said while Goldman’s progress had been “energising” during the coronavirus crisis “many of us are stretched by the challenges posed by the pandemic, including managing homeschooling, caring for family members and friends, adjusting to new routines and coping with prolonged uncertainty”.
The company’s management has begun “carefully thinking through” a gradual return to work for its global staff, and is already implementing that in Hong Kong, China, Stockholm and Tel Aviv.
“In certain cities, such as New York and London, it will take longer before we start to slowly increase the number of people in our offices,” Mr Solomon added, stressing that staff would only return to work after consultation with local government and health authorities, enhanced cleaning protocols and social distancing.
At one point 98 per cent of Goldman’s global staff were working from home, including traders who were operating outside of the office for the first time in Goldman’s history.
BMW warns pandemic fallout may wipe out 2020 profits at car-making unit
Joe Miller in Frankfurt
BMW has warned that profits at its car-making division may be reduced to zero in 2020, as it grapples with factory shutdowns and plummeting sales.
Margins at the unit, which includes the Mini and Rolls-Royce brands, were likely to range between 0 and 3 per cent for the financial year, the Munich-based company said.
“Measures to contain the coronavirus pandemic are lasting longer in several markets and are thus leading to a broader negative impact than was foreseeable in mid-March,” BMW said in a statement.
“It is therefore apparent that delivery volumes in these markets will not – as was previously assumed – return to normal within a few weeks.”
The premium manufacturer, which is due to release its quarterly results on Wednesday, said its updated guidance did not take into account the implications of a possible second wave of infections, and subsequent lockdowns.
Ousted US virus official files whistleblower complaint
Hannah Kuchler in New York
Rick Bright, the former head of the US government biomedical research agency, has filed a whistleblower complaint alleging that he was removed as retaliation for pushing for robust scientific evidence and a more aggressive response to the Covid-19 crisis.
In a complaint filed with the US Office of Special Council, an independent federal agency with prosecutorial powers, Mr Bright claims his reluctance to push chloroquine and hydroxychloroquine, antimalarial drugs championed by President Trump, played a part in the decision to transfer him to another job against his wishes.
The complaint said he “resisted efforts to fall into line with the Administration’s directive to promote the broad use of chloroquine and hydroxychloroquine and to award lucrative contracts for these and other drugs even though they lacked scientific merit and had not received prior scientific vetting”.
Mr Bright accuses the leadership of the department of health and human services of having a “lax and dismissive attitude” in the face of the “deadly threat confronting our country”. HHS did not respond to a request for comment.
Spanish government set to retain lockdown power
Daniel Dombey in Madrid
Spain’s leftwing government appears likely to maintain control over the country’s lockdown — and the process of phasing it out — after striking a deal with the pro-market Ciudadanos party on Tuesday night.
Parliament is due on Wednesday to vote on the government’s request to extend the so-called state of alert, the extraordinary legal order that underpins the lockdown and which grants the government the power to rule by decree and restrict mobility. The outcome of that vote had been cast into doubt after the People’s party, the biggest opposition force, said it would not support any further extensions of the state of alert.
Although Ciudadanos has only 10 seats in the 350 member chamber of deputies, its support makes it far more likely that the governing coalition – which has 155 seats – will win the vote. It also signals a potential rift with the PP, which governs with Ciudadanos in several regions across Spain.
Under the deal, the government agreed to brief Ciudadanos on a weekly basis on the health emergency and to reach consensus with it on phasing out of the lockdown, which Madrid hopes to accomplish by late June. The two sides agreed to work together on what health measures should be put in place when the state of alert is no longer in force. They will also seek to adapt Spain’s temporary leave programmes — which currently support some 3.5m people who might otherwise have been fired. At present these programmes are due to expire when the state of alert ends, but business groups say they will need to remain in place to avoid a huge surge in unemployment.
US stocks rise on strong day for healthcare shares
Wall Street closed higher as healthcare shares rallied and Brent crude breached $30 a barrel for the first time since mid-April.
The S&P 500 climbed 0.9 per cent, having trimmed its gains in afternoon trading. The Nasdaq Composite was up 1.1 per cent, leaving the tech-heavy index about 1 per cent short of reentering positive territory for 2020.
The healthcare sector was the top performer in the S&P 500 after Pfizer said it had begun human testing for a potential coronavirus vaccine, while Regeneron Pharmaceuticals said an experimental treatment may be ready by the fall.
The cautious reopening of global economies have helped buoy markets. In the US, more states began the process of restarting their economies. California, the largest state by gross domestic product, will allow some retailers to reopen with restrictions later this week.
Investors have also bet that demand for fuel will begin to recover as governments unwind coronavirus lockdowns. Brent added 13.9 per cent to settle at $30.97 a barrel, rebounding from a drop to less than $16 a barrel last month. West Texas Intermediate was up 20.4 per cent at $24.56 a barrel, the US marker’s fifth consecutive day of gains and nearly doubling its value from a week ago.
Pence says coronavirus task force could be wound down later this month
Lauren Fedor in Washington
The White House coronavirus task force could be wound down as soon as the end of this month, US vice-president Mike Pence told reporters on Tuesday, saying disbanding the group was a “reflection of the tremendous progress we have made as a country”.
“I think we are starting to look at the Memorial Day window, early June window as a time when we could begin to transition back to having our agencies begin to manage…our national response in a more traditional manner,” Mr Pence said. Memorial Day, a US bank holiday, is May 25.
There have been nearly 1.2m confirmed cases of Covid-19 in the US since the start of the year; more than 60,000 Americans have died from the virus. Many US states have taken steps to reopen businesses and ease social distancing measures despite a lack of widespread testing and concerns that the number of positive cases continues to climb.
Beyond Meat beats forecasts as cooped-up consumers try its wares
Beyond Meat expects to continue benefiting from consumers staying at home and cooking during coronavirus lockdowns, extending a trend that helped it beat Wall Street’s earnings expectations in the first quarter.
Still, disruptions related to Covid-19, prompted the maker of alternative meat products to suspend its outlook for the year, like many companies across all industries.
“The Company continues to expect to benefit from food-at-home consumer demand in its retail channel,” it said in a statement on Tuesday, however, given the “ongoing uncertainty related to the Covid-19 pandemic, including the magnitude and duration of the impact to the foodservice channel, in particular,” it was suspending its previously announced guidance.
Beyond Meat reported a 141 per cent jump in net revenue from a year ago to $97.1m in the three months ended March 31, with an increase in volume helping the effect of discounts to its products. Reported earnings were 3 cents a diluted share compared with a loss of 95 cents last year.
That topped the mean forecasts among analysts for revenue of $88.3m and a loss of 7 cents a share. Investors welcomed the results and pushed Beyond Meat shares 4.8 per cent higher in after-hours trade.
Disney earnings sliced in half as lockdowns hit theme parks
Disney’s quarterly earnings were sliced in half compared with a year ago, as the world’s largest media group grappled with coronavirus lockdowns that have left its most profitable businesses at a virtual standstill.
The Burbank-based company posted adjusted earnings of 60 cents a share in the three months ending March 28, down 63 per cent from a year ago. Wall Street analysts had been looking for 89 cents a share.
Few companies in Hollywood are more vulnerable to a pandemic than Disney, which in recent years has relied on its theme parks, cruise ships and blockbuster movies to deliver strong returns even as the media industry underwent turmoil.
Now the parks are shut, cruises are docked and cinema screens have gone dark in much of the world. Disney on Tuesday estimated the pandemic had inflicted as much as a $1.4bn hit to operating profit in the quarter.
Chief executive Bob Chapek, who replaced Bob Iger in late February just before the coronavirus crisis took hold of the US, said there was an “appreciable financial impact on a number of our businesses”.
During the quarter, Disney’s theme parks from Shanghai to Paris to Orlando shut their gates. Operating income at the theme parks business unit, which includes Disney cruises and resorts, shrunk to $639m in the quarter, down 58 per cent from the same period last year.
The company experienced similar damage for its film studio, where operating income dropped 8 per cent year-over-year to $466m.
Disney+, the company’s new flagship streaming service to rival Netflix, has been a silver lining: with people stuck at home, consumers have flocked to online video to bide their time. Disney had signed up 33.5m subscribers by the end of March, less than five months after launching.
However the streaming business is expected to lose money for years as Disney invests in programming and technology to expand the service. The direct-to-consumer business unit posted an operating loss of $812m in the quarter on $4.1bn in revenues.
Tinder parent Match says first-time subscribers stabilised in April
Match Group, the parent of dating app Tinder, said fewer new users signed up in March, before stabilising last month, but added that people were more willing to have virtual dates as social distancing measures took effect in response to the coronavirus pandemic.
Match, which also owns apps like OKCupid and Hinge, said it is “seeing some headwinds to new users signing up and the motivation to pay” and this was particularly notable among older users and in markets that were hardest hit by the outbreak.
This prompted a decline in first-time subscribers at Tinder in March from February. The trend stabilised in April. New subscribers were up “meaningfully” on an annual basis in each month, the company said.
In response to the current environment Match said Tinder will launch an in-app one-to-one video feature in the second quarter. This comes as the group reported higher user engagement among those using its apps.
The average number of daily messages sent across all its apps in April was 27 per cent higher than during the last week of February. On Tinder, daily active users and so-called swipes, to connect with or skip other users, reached all-time highs, and the biggest increase in activity was driven by females younger than 30, considered a key driver for a dating product’s success.
Overall, revenues rose 17 per cent from a year ago to $544.6m in the first quarter, just shy of analyst expectations. Total average subscribers climbed 15 per cent to 9.9m. Net income rose to $160.4m or 55 cents a share, up from $123m or 42 cents a share in the same quarter a year ago, ahead of Wall Street estimates for 34 cents.
The company reported 9 per cent revenue growth last month and said barring a “dramatic change relative to April trends”, it expects revenues to decline by low-single digits sequentially, but remain up on the year. Match shares rose 1 per cent in after-hours trade.
Gilead prepares to make remdesivir available in developing countries
Hannah Kuchler in New York
Gilead is preparing to make the potential Covid-19 drug remdesivir available in developing countries, after a positive trial result for the antiviral was announced last week.
To address intellectual property issues, the California-based biotech is in discussions with the Medicines Patent Pool, a UN-backed organisation that shares intellectual property to improve access in low and middle income countries.
To expand manufacturing, the company is negotiating long term licenses with generic drugmakers in India and Pakistan to see if they could produce the drug for emerging economies.
To manage delivery, Gilead said it is in “advanced talks” with UNICEF, the UN body that focuses on humanitarian aid for children, about using its distribution networks.
Social distancing gives boost to video game sales
Video game makers anticipate strong sales this year as consumers search for entertainment amid stay-at-home orders and social distancing.
Activision Blizzard on Tuesday raised its outlook for 2020, saying its business showed “accelerating momentum” heading into the second quarter from Call of Duty sales and “increased engagement as people turned to our interactive content as they sheltered at home”.
Rival Electronic Arts, the group behind the Battlefield and Madden NFL franchises, projected higher full-year sales than forecast. “With more people staying at home, we have experienced, and are continuing to experience, heightened levels of engagement and live services net bookings growth to date,” the company said.
Gamers have increased spending on consoles, games and accessories while spending more time at home because of the pandemic. Sales hit $1.6bn in March, a 35 per cent increase compared with a year ago, according to the NPD Group. Hardware registered the sharpest rise in sales among all categories, surging 63 per cent.
Activision Blizzard forecast net revenue of $6.8bn, up from a prior outlook of $6.45bn. It expects net bookings, a form of adjusted revenue, to be $6.9bn. Analysts had expected $6.86bn.
The company’s net bookings for the first quarter jumped to $1.52bn from $1.26bn and beat analysts’ forecast of $1.32bn. Profits also beat Wall Street’s view, with adjusted earnings per share coming in at 76 cents versus a consensus estimate of 38 cents. Shares in Activision Blizzard were up more than 5 per cent in after-hours trading.
EA predicted $5.55bn in net bookings for its fiscal year, higher than the $5.37bn estimate from analysts. However, its shares fell 5 per cent.
EA’s Star Wars Jedi: Fallen Order, which was released during the holiday season last year, has amassed more than 10m unique players. The company recorded net bookings of $1.21bn, down from $1.36bn, in its fourth quarter ending in March.
Greek environmentalists ignore social distancing rules in protest
Kerin Hope in Athens
Several hundred environmentalists deliberately ignored social distancing rules during a protest outside Greece’s parliament against a new law that will allow oil drilling and tourist development in several regions of outstanding natural beauty.
The protesters stood close together in the square outside parliament shouting “Withdraw this law” as MPs wrapped up a fast-tracked debate and approved the legislation.
The demonstration took place one day after Greece eased a six-week lockdown following a steady decline in coronavirus cases, lifting restrictions on movement while warning that people should keep at least 2 metres away from each other in shops and on the street.”We can’t make our point if we’re scattered far apart,” one protester said.
Prime minister Kyriakos Mitsotakis said the new law would cut bureaucracy and accelerate investment in renewable energy and tourism, telling parliament: “Projects will no longer be left to stagnate in officials’ desks.”
The Athens arm of the Worldwide Fund for Nature said 30,000 people had signed an online petition for the law to be dropped. It said that oil and gas exploration and construction of tourist resorts in Natura 2000 conservation areas and national parks would irretrievably damage rare wildlife habitats that should be preserved for future generations.
US suffers third-highest daily increase in deaths
The US suffered its third-highest daily increase in deaths from coronavirus, taking the national total above 65,000 at a time when a growing number of states take steps to reopen their economies.
Over the past 24 hours, a further 2,527 people died, according to data compiled on Tuesday by the Covid Tracking Project. That was the third-highest daily increase since the outbreak began, owing to a jump in new deaths in New Jersey – partly because of a system outage over the weekend – and a record daily increase in Pennsylvania.
New Jersey, the second-hardest hit state, saw a further 334 people die over the past day. That was up from 39 on Monday, after the system shutdown. The total death toll stood at 8,244, lagging only New York.
Pennsylvania cemented its place as the fifth-hardest hit state overall, with a record 554 new deaths over the past 24 hours. Since the pandemic began, 3,012 people have died there.
New York’s daily death rate remains on a downward trend, with 230 over the past 24 hours and close to Monday’s increase of 226.
Since the outbreak began, 65,307 people have died nationally, according to CTP.
Lending Club forecasts 90% drop in loan origination in second quarter
Robert Armstrong in New York
Online lender Lending Club, which specialises in credit-card debt consolidations loans, says it expects loan origination to fall 90 per cent in the June quarter, relative to the quarter just finished, as investor demand has plummeted and the company has tightened its underwriting standards.
Chief executive Scott Sanborn said the company has sufficient liquidity from its balance sheet, debt facilities, and loan servicing revenue to cover its expenses were there to be no further loan originations this year, a situation “we do not anticipate.”
The company presented its outlook along with its results from the quarter ending in March. The company originated $2.5bn in loans in the quarter, down from $2.7bn in the year ago period, and generated $120m in revenue.
But profits were hit by a $102m write down of loans held on its balance sheet, $64m of which was Covid-19 related. The write down took the value of the loans held by Lending Club down by about 10 percentage points, the company said.
About 11 per cent of active borrowers at Lending Club have requested payment forbearance. The company noted, however, that requests for forbearance have slowed significantly in recent weeks, and that over 90 per cent of those who requested forbearance were current on their loans at the time of the request.