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Stock Markets Slide as New Outbreaks Loom: Live Updates Stocks Climb After Fed Details Bond-Buying Plan: Live Updates
(about 10 hours later)
Global markets fell on Monday on renewed fears of more coronavirus outbreaks, setting the stage for sharp losses when Wall Street opens later in the day. The Federal Reserve said on Monday that it would begin to buy debt issued by individual corporations based on a broad index of corporate bonds in the United States, a new step in the central bank’s efforts to keep credit flowing freely amid the coronavirus pandemic.
Stocks in London, Frankfurt and Paris were 1 to 2 percent lower. That followed some sharper losses in the Asia-Pacific region, including a 4.8 percent drop in South Korea and a 3.5 percent fall in Tokyo. Officials voted unanimously to expand the so-called Secondary Market Corporate Credit Facility, which it unveiled in May. The program is meant to allow companies to continue borrowing money at a time of high stress on the financial system following the steep economic decline from the pandemic. Originally, the Fed did that by purchasing exchange traded funds, which trade like stocks but have broad exposure to corporate bonds.
Futures markets were predicting that the pain would spread to Wall Street. Futures that track the S&P 500 forecast that the index would open about 2 percent lower. Under the expansion approved on Monday, which Fed officials had foreshadowed in their creation of the program, the Fed will now “begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers,” officials said in a news release. The purchases, they added, will “create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds.” Fed officials had not previously signaled that the individual corporate bond purchases would follow an index approach.
The pessimism was spread broadly across markets. Oil and gold fell in futures trading. Prices for U.S. Treasury bonds, which generally rise when market sentiment is weak, gained sharply, sending yields lower. Even before buying a single bond, the Fed managed to achieve its main goal with its primary and secondary bond-buying programs: restarting the frozen corporate debt market. It first announced that it would set up the programs on March 23, and the mere promise of a backstop revived the market, allowing companies to issue debt to raise needed cash amid the coronavirus economic downturn.
Investors were reacting in part to bad news out of China, where some monthly economic indicators were weaker than expected, and where officials are battling a new spate of coronavirus cases in Beijing. In the United States, Arizona, Texas and Florida have also reported higher infection numbers, and Gov. Andrew M. Cuomo of New York said that the state might have to reinstate lockdown conditions. Once they are fully up and running, the Fed’s programs will buy both newly issued debt on the primary market and debt that is already being traded on a secondary market. The programs were expanded on April 9 to include some junk bonds.
In Europe, governments continued to loosen economic restrictions on Monday, with nonessential retailers in Britain now allowed to open their doors and travel restrictions easing among several European Union countries. A rout on Wall Street turned into a rally on Monday, with stocks crossing into positive territory for the day after the Federal Reserve said it would soon start to buy debt issued by individual companies in a new effort to keep credit flowing.
But BP offered a reminder of the cost of the pandemic, warning shareholders that the value of its oil and gas holdings could shrink as much as $17.5 billion. The S&P 500 was up about 1 percent by midafternoon, after having spent most of the day in negative territory. Though stocks had already recouped the worst of their losses the index fell as much 2.5 percent earlier shares jumped after the Fed’s new plan was released.
The Fed’s earlier intervention in financial markets, aimed at smoothing out the functioning of credit markets, was credited by many investors for driving a 45 percent rally in stocks from their March lows. The expansion of its program to include individual companies is meant to ensure businesses have access to funding during the economic downturn.
The turnaround on Monday came as sentiment in financial markets had grown somewhat unsteady after the run-up from those March lows. Stocks plunged Thursday as warnings that the economic recovery would be slower than hoped for, and the prospect of a second wave of coronavirus infections, seemed to shift the focus back to risks.
On Monday, investors were still contending with bad news. In China, some monthly economic indicators were weaker than expected, and officials are battling a new spate of coronavirus cases.
In the United States, Arizona, Florida and Texas have also reported higher infection numbers, and Gov. Andrew M. Cuomo of New York said that the state might have to reinstate lockdown conditions.
The Academy of Motion Picture Arts and Sciences said on Monday that it would push back the next Oscars ceremony to April 25 from Feb. 28, citing the coronavirus pandemic.
The eligibility window for films will extend to Feb. 28 instead of Dec. 31. The organization did not say whether the April 25 show would involve the usual red carpet and live audience.
“Our hope, in extending the eligibility period and our awards date, is to provide the flexibility filmmakers need to finish and release their films without being penalized for something beyond anyone’s control,” David Rubin, the academy’s president, and Dawn Hudson, the organization’s chief executive, said in a statement.
The academy said that its Governors Awards, at which lifetime achievement Oscars are handed out, would not take place this fall as planned. The academy also pushed back the opening for its long-delayed museum in Los Angeles; it will now open on April 30.
For its part, the Academy of Television Arts and Sciences said on Monday that its Creative Arts Emmys, at which the majority of Emmys are awarded annually, would be held virtually in September. The main Emmys telecast remains scheduled for Sept. 20 on ABC. The television academy said that discussions were underway “regarding the format.”
The fitness chain 24 Hour Fitness filed for Chapter 11 bankruptcy protection on Monday, after the coronavirus pandemic forced its clubs to shut for nearly two months.
“Put simply, the Covid-19 pandemic upended the debtors’ operating model, leaving the debtors without a source of revenue to fund their operations,” the filing stated.
The national gym chain said in its bankruptcy filing that it had permanently closed 100 locations across 14 states. But the chain is expected to re-emerge: It has secured $250 million in funding to reopen some of its clubs, and expects a majority of its remaining 300 locations to be open by the end of June.
The pandemic has been particularly devastating to the gym industry. Also on Monday, Town Sports International said that it was considering bankruptcy because of revenue losses as a result of the shutdown. The company, which owns about 200 gyms including New York Sports Club and Boston Sports Club, said in a regulatory filing that the “scope and duration of the interruption to our operations has substantially reduced our cash flow.”
A Federal Reserve official recommended further government spending to help ensure that the recovery from the pandemic-induced recession was faster — and reached vulnerable populations much more quickly — than those that followed previous deep downturns.
“The hardest lesson from both the Great Depression and the Great Recession is that it took a decade or more for the economy to fully recover and for the benefits of growth to reach all of those displaced by the shock,” the president of the Federal Reserve Bank of San Francisco, Mary C. Daly, said on Monday.
“A decade is too long,” she added. “We can’t wait 10 years for an economic recovery to reach everyone.”
Ms. Daly said that many of the recent job losses were likely to be permanent and that unless policymakers worked to “build the foundations for a sustained and robust recovery,” the job market was at risk of losing workers.
“We have to commit — now — to not letting this happen,” she said, adding that the Fed should leave interest rates low even as the economy recovered.
“We also need fiscal policymakers to commit to sustained investments in our economic future,” she said, noting that Congress has already approved emergency spending packages but specifically recommended further investments in health, education and digital infrastructure.
“Much more will be needed in order to build a strong economic foundation that will allow a full recovery and sustained expansion,” she said.
Facing backlash for keeping the recipients of a $660 billion small-business bailout secret, Treasury Secretary Steven Mnuchin on Monday said that he would look for a way to allow for more oversight of where the government-backed loan money was going.
The apparent reversal comes days after Mr. Mnuchin told a Senate committee that information about who was receiving the loan money was “proprietary” and not subject to public release. The lack of transparency threatened to derail future economic relief efforts and was quickly becoming a political problem for the White House, as Democrats and Republicans sought additional information about the loans offered through Paycheck Protection Program.
“I will be having discussions with the Senate Small Business Committee and others on a bipartisan basis to strike the appropriate balance for proper oversight of PPP loans and appropriate protection of small business information,” Mr. Mnuchin said on Twitter on Monday.
Not long after, House Democrats announced that they had started an investigation into how the administration had allocated money under the program. The seven Democrats on a special oversight committee created to scrutinize how the administration is spending pandemic relief money sent letters to the Treasury Department and the Small Business Administration, as well as eight large banks, asking for documents and information about how the funds were distributed and the businesses that received the funds.
“The administration should release the names of all PPP borrowers — as the SBA routinely does for similar loan programs,” the lawmakers wrote in letters to eight banks, including JP Morgan Chase, Bank of America, Wells Fargo and Citibank. “Contrary to Secretary Mnuchin’s recent testimony, there is nothing ‘proprietary’ or ‘confidential’ about a business receiving millions of dollars appropriated by Congress, and taxpayers deserve to know how their money is being spent.”
They said they were concerned that a “two-tiered system” for processing applications “may have diverted PPP funds intended for vulnerable small business owners in underserved and rural markets.”
Senator Marco Rubio, Republican of Florida, said last week that he had heard concerns from small businesses that disclosure of their loan value could become a “trade secret and a competitive disadvantage.”
On Monday, Nick Iacovella, a spokesman, said that Mr. Rubio planned to work with the administration “to ensure enough data is disclosed about the program to determine its effectiveness and ensure there is adequate transparency without compromising borrowers’ proprietary information.”
United Airlines said Monday it had secured a $5 billion loan backed by its MileagePlus frequent flier program, part of its plans to have up to $17 billion in cash by the end of September.
That amount, about three times the airline’s typical target, would be enough to help United survive a second or third wave of coronavirus shutdowns and sharp drops in ticket revenue. The $17 billion figure includes a $4.5 billion federal loan that United has not yet committed to.
So far, American Airlines is the only large U.S. airline to confirm that it would borrow money from the federal government under a provision of a $2.2 trillion stimulus measure Congress approved this year. American said on Friday that it planned to borrow $4.75 billion under that program, a loan that would be backed by its frequent flier program. Separately, all the large airlines have accepted money from a $25 billion program Congress created to help the industry meet its payroll through September.
Loyalty programs have become a significant part of the airline business. They have helped companies protect themselves against the ups and downs of the economy by creating new income streams. Under the terms of the loan announced on Monday, United will retain control over MileagePlus, which generated more than $5 billion in cash flow last year and about 12 percent of the airline’s revenue.
United also said it expected to average $40 million in daily losses throughout the second quarter of the year. The company said it hoped to reduce that to $30 million in the third quarter. American and Delta Air Lines said last week that they expected to end June with $40 million in daily losses.
BP told shareholders on Monday that the company expected to write off $13 billion to $17.5 billion of the value of its oil and gas holdings when it reports second-quarter earnings on Aug. 4.BP told shareholders on Monday that the company expected to write off $13 billion to $17.5 billion of the value of its oil and gas holdings when it reports second-quarter earnings on Aug. 4.
The write downs — a reflection that oil and gas fields have fallen in value — come as Bernard Looney, who became chief executive in February, pursues a rapid makeover of the London-based oil giant.The write downs — a reflection that oil and gas fields have fallen in value — come as Bernard Looney, who became chief executive in February, pursues a rapid makeover of the London-based oil giant.
A reorganization led by Mr. Looney is expected to result in a reduction of 10,000 jobs, or nearly 15 percent of the company’s work force. He also wants to change the way BP does business in order to meet a commitment to become carbon neutral by 2050. A reorganization led by Mr. Looney is expected to result in a reduction of 10,000 jobs, or nearly 15 percent of the company’s work force. He also wants to change the way BP does business to meet a commitment to become carbon neutral by 2050.
The company said that the write downs of up to 12 percent of the previous book value were partly a result of a reduction in its long-term forecasts of the price of oil by about 30 percent, to $55 a barrel. It is also similarly downgrading its long-term price for natural gas.The company said that the write downs of up to 12 percent of the previous book value were partly a result of a reduction in its long-term forecasts of the price of oil by about 30 percent, to $55 a barrel. It is also similarly downgrading its long-term price for natural gas.
The company said it assumed that the pandemic would have “an enduring impact” on the global economy and accelerate a shift to lower-carbon energy consumption as countries seek to rebuild their economies.The company said it assumed that the pandemic would have “an enduring impact” on the global economy and accelerate a shift to lower-carbon energy consumption as countries seek to rebuild their economies.
The write downs will come both from existing oil and gas fields and from those in places like the Gulf of Mexico and Canada where the company has undeveloped holdings that it may decide not to exploit in the current circumstances.The write downs will come both from existing oil and gas fields and from those in places like the Gulf of Mexico and Canada where the company has undeveloped holdings that it may decide not to exploit in the current circumstances.
Mr. Looney said in a statement that he was “confident that these difficult decisions” would help the company to compete as the energy industry changes. Shares in Hertz fell about 15 percent Monday morning after the car rental agency announced a $500 million stock offering. A judge approved the unusual sale on Friday at Hertz’s request after the company saw an opportunity in its surprisingly buoyant share price.
BP’s share price was down about 4 percent in morning trading. Reporting was contributed by Gillian Friedman, Alan Rappeport, Emily Cochrane, Jeanna Smialek, Jim Tankersley, Niraj Chokshi, Jack Ewing, Matt Phillips, Mohammed Hadi, Keith Bradsher, Stanley Reed, Jason Karaian, Carlos Tejada, Brooks Barnes, Nicole Sperling, Paul Sullivan and Kevin Granville.
China appeared to have nearly eradicated the coronavirus within its borders last month, but that was not enough to get people in the country spending again — and with a new outbreak in Beijing over the past several days, a full economic recovery could be even further away.
Restaurants, bars and shopping malls were open across China last month except for in a small area near the border with North Korea and Russia, which had a coronavirus outbreak in May. But retail sales nonetheless fell 2.8 percent nationwide in May compared with a year ago.
That result, which was worse than most economists expected, is likely to prompt renewed discussion over a politically difficult question: whether to reopen the country’s cinemas, which are practically the only large category of retail spending that remains completely closed.
The closure of cinemas has been a big blow to shopping malls at a time when buying is increasingly moving online.
Malls in China and around the world rely heavily on cinemas to draw people out of their homes, with the hope that they will stay after the movies to dine or shop. Unlike the malls, car dealerships had a fairly good month in May, with sales up 1.9 percent from an already strong month last year.
But Xi Jinping, the country’s leader, said at the end of March that cinemas were not needed, and no one has dared to challenge his decision publicly since then. “If anyone wants to watch a movie, just watch it online,” Mr. Xi said during a visit on March 31 to Zhejiang Province.
Exports were also weak in May. Beijing said last week that they had fallen 3.3 percent.
Industrial production was up 4.4 percent last month compared with a year ago, also slightly below expectations. Factory output has consistently run well ahead of retail sales this spring, raising worries that unsold inventories may pile up and set off another round of production cutbacks.
Warner Bros. on Friday pushed back the release of “Tenet,” a $200 million-plus movie from Christopher Nolan that was supposed to arrive in theaters on July 17 and jump-start the pandemic-stricken movie business. Instead, “Tenet” will be released on July 31.
The move means that theaters will largely sit fallow for an extra week. Disney’s extravagant “Mulan,” directed by Niki Caro, will now signal the return of megawatt Hollywood movies when it comes out on July 24 — unless Disney also decides that market conditions are too harsh. A Disney spokesman had no immediate comment.
After being closed for months by the pandemic, movie theaters around the world are reopening, albeit with limited attendance and heightened safety requirements.
AMC Theaters, the world’s largest cineplex operator, said on Tuesday that “almost all” of its locations in the United States and Britain would reopen next month. Over all, theaters in 90 percent of overseas markets are due to be running again by mid-July, according to the National Association of Theater Owners, a trade organization for movie exhibitors in 98 countries.
It is unclear whether people will feel safe from the coronavirus, the spread of which rose to a worldwide high on Sunday, as measured by new cases.
As the United States has started to reopen public life, new virus hot spots have emerged. Texas, Florida and California all recently reported their highest daily tallies of new virus cases. And mass protests against police violence and racism have raised the specter of a coronavirus surge in the coming weeks.
People who might typically bet on sports are playing a sizable role in the market’s recent surge, some Wall Street analysts say — a shift that has helped largely erased its losses for the year.
Millions of small-time investors have opened trading accounts in recent months, a flood of new buyers unlike anything the market had experienced in years, just as lockdown orders halted entire sectors of the economy and sent unemployment soaring.
It is unclear exactly how many of the new arrivals are sports bettors, but many are behaving like aggressive gamblers. There has been a jump in small bets in the stock options market, where wagers on the direction of share prices can produce thrilling scores and gut-wrenching losses. And transactions that make little economic sense — like buying up the nearly valueless shares of bankrupt companies — are off the charts.
Even with modest investments, these newcomers can move the market, because stock prices are set by just a sliver of shareholders.
On most days, the overwhelming majority do nothing, while the buyers and sellers establish the prices. So even a small influx of hyperactive speculators can have a significant effect.
“Investors are increasingly asking us about the participation of individual investors in the shares and options market,” analysts from Goldman Sachs wrote in a note published late last month. “Our data suggests that individual investors are indeed a significant proportion of daily volume.”
The federal government’s multibillion-dollar aid program to help small businesses hurt by the pandemic prompted outrage after billions went to public companies while mom-and-pop businesses were sidelined.
Now, another group of recipients is being scrutinized for taking the money: independent wealth management firms, some of which manage billions of dollars on behalf of affluent Americans. Their fees, which are typically 1 percent, can bring in tens of million annually regardless of market fluctuations.
The initial $349 billion allocated in April for the Paycheck Protection Program went quickly, prompting Congress to approve an additional $310 billion. But some business owners found the guidelines for accepting the money confusing or too restrictive.
Now, a divide is growing between advisory firms that took the money and those that declined because of ethical concerns. The issue is more than a tempest in a teapot. Some firms could lose millions in fees if their clients start pulling their wealth out.
“We didn’t think it was very credible that these firms actually needed the money,” said Gary Ribe, the chief investment officer of Accretive Wealth Partners, which manages $130 million and did not apply a loan from the Paycheck Protection Program. “Getting it out of an abundance of caution — that didn’t seem credible, either.”
SAS, the Scandinavian airline, said on Monday that it would need an additional 12.5 billion Swedish krona, or $1.3 billion, to continue operating. The airline said that part of that sum was expected to come from the Swedish authorities, who will submit to Parliament a proposal to invest 5 billion krona. The Swedish and Danish governments last month agreed to back a loan facility valued at 3.3 billion krona for the ailing airline.
A bankruptcy court judge on Friday allowed Hertz to sell up to $1 billion in new stock, granting the car rental agency’s request as investors improbably bought up shares in recent days. The company’s stock price ended the day at $2.83 per share, up from a low of 40 cents after it filed for bankruptcy protection last month.
Reporting was contributed by Matt Phillips, Mohammed Hadi, Keith Bradsher, Stanley Reed, Carlos Tejada, Brooks Barnes, Nicole Sperling, Paul Sullivan, Niraj Chokshi and Kevin Granville.