Equities Rise on Optimism About Economies Reopening and Potential Coronavirus Vaccine

Posted on 05/26/2020 6:30 AM

Tensions in Hong Kong Continue | Trump to impose travel restrictions on Brazil

 


In Today’s Updates


 

* U.S./China continue barbs at each other on several topics
* Beijing warns U.S. is pushing countries towards ‘new Cold War’
* China’s central bank fixed its currency at weakest in 12 years
* Xi: China won’t return to planned economy, urges cooperation
* U.S. is considering sanctions on Chinese officials
* U.S. hits back at China over airlines
* Returning Americans, businesses boost stock price outlook
* A quarter of NYSE's usual population of traders back on the floor today
* Trump wants on-site G7 confab at Camp David
* Germany’s Ifo business sentiment index came in stronger than expected

* Lumber futures have soared since the start of April
* Rice prices continue higher
* GOP mulls cash incentives for unemployed Americans to resume working
* U.S. food supply update
* White House urges testing of all meatpacking employees
* NYT, WaPo have articles on meatpacking plants, employee issues
* Update on reopening America... and around the world
* Coronavirus update
* Biotech company Novavax started first human study of its coronavirus vaccine

* Dept. of Commerce seeking comment on possible changes to Section 232 tariffs
* Kim Jong Un back in the spotlight
* Trump threatens to move GOP convention
* Rural loan help
* Colorado joins water rule/WOTUS replacement suit
* VW loses landmark Dieselgate case

 


MARKET FOCUS


 

Equities today: Global stocks rose on optimism about economies reopening and the potential development of a coronavirus vaccine. Most major Asia-Pacific equity benchmarks ended higher. In Japan, where the government lifted its state of emergency Monday, the Nikkei 225 rose 2.6%. Australia’s benchmark index rose 2.9%, while Hong Kong’s Hang Seng Index advanced 1.9%. The Shanghai Composite gained 1%.The pan-continental Stoxx Europe 600 advanced 1.1%, led by gains in the U.K. and France. U.S. stock futures traded sharply higher early today, as optimism grew about the reopening of the economy and a potential coronavirus vaccine. Futures on the Dow pointed to an implied opening gain of around 500 points. Futures suggest the S&P 500 will open above its 200-day moving average as trading resumes after Memorial Day.

 

     U.S. equities Friday: The Dow eased 8.96 points, 0.04%, at 2,465.16. It was the Dow’s biggest gain since the week ended April 9. The Nasdaq was up 39.71 points, 0.43%, at 9,324.59. The S&P 500 gained 6.94 points, 0.24%, at 2,955.45.

 

     For the week, the Dow surged 3.29%, while the S&P 500 index rose 3.2% and the Nasdaq climbed 3.4%.

 

     NYSE floor to reopen with masks, waivers and a handshake ban. Only one-quarter of traders will be returning to the floor, and they must sign a liability waiver that prevents them from suing the exchange if they get infected there.

 

In currency markets, China’s central bank fixed its daily reference rate for yuan trading at 7.1293 to the dollar, the weakest level since February 2008. The onshore yuan is allowed to trade in a band around this fix, which the People’s Bank of China sets based partly on previous market prices. A weaker currency tends to make China more competitive, and makes it harder for U.S. exporters.

 

    China currency

 

Oil prices rose. West Texas Intermediate, the main U.S. crude gauge, advanced to $34.11 a barrel. Brent crude, the global oil benchmark, advanced over 1% to $36.62 a barrel.

 

    Oil rig count

 

Germany’s Ifo business sentiment index came in stronger than expected due to a strong increase in future expectations. The business-climate index released each month by the Ifo Institute in Munich, which surveys thousands of companies, reached 79.5 in May, up from a low of 74.2 in April. The improvement was linked to an easing in lockdown restrictions, though the institute cautioned that many enterprises were still pessimistic.

 

Global trade flows posted their biggest fall since the financial crisis. The first-quarter contraction is likely a preview worse to come as the coronavirus pandemic causes policy makers and multinationals to reconsider globe-spanning supply chains.

     Global trade

 

Lumber futures have soared since the start of April, driven by cutbacks at mills, signs that the home-building season might be salvaged and brisk business at home-improvement stores.

 

     Lumber prices

 

Rice futures keep climbing.

 

     Rice futures

 


POLICY FOCUS


 

Trump pushes on-site G7 confab at Camp David. President Donald Trump’s national security adviser says he thinks leaders of the world’s major economies “would love to get out of their offices and meet in person and plan the post-Covidworld” at a summit Trump is considering hosting in the United States in June. Trump had scheduled the Group of Seven (G7) summit for June 10-12 at Camp David, the presidential retreat in Maryland. But in March, he announced he was canceling the annual meeting because of the pandemic and that the leaders would confer by video conference instead.

 

     O’Brien said “we’d be looking at the end of June at this point,” adding that “so far we’ve got a great response” from the invitations that have been extended. O’Brien said U.S. officials will ensure that “everybody’s tested. We’ll make sure it’s a safe environment if the leaders can come here.” He made the comment on CBS' Face the Nation.

 

Update on China:

  • Beijing warns U.S. is pushing countries towards ‘new Cold War’. The U.S. should give up its “wishful thinking” of changing China, Foreign Minister Wang Yi said, warning that some in America were pushing relations to a “new Cold War.”

    “China has no intention to change the U.S., nor to replace the U.S. It is also wishful thinking for the U.S. to change China,” Wang said Sunday during his annual news briefing on the sidelines of National People’s Congress meetings in Beijing.

    “Some U.S. political forces are taking hostage of China-U.S. relations, attempting to push the ties to the brink of so-called ‘new Cold War,’” Wang said. “This is dangerous and will endanger global peace.”

    He also criticized the U.S. for slowing its nuclear negotiations with North Korea and warned it not to cross Beijing’s “red line” on Taiwan, after Secretary of State Michael Pompeo broke with tradition and congratulated the island’s President Tsai Ing-wen on her second-term inauguration. Beijing considers Taiwan a province. “We remind the U.S. side not to make any attempt to challenge China’s red line or misjudge 1.4 billion people’s strong resolve to defend national unification,” Wang said.

     
  • Xi: China won’t return to planned economy, urges cooperation. “We’ve come to the understanding that we should not ignore the blindness of the market, nor should we return to the old path of a planned economy,” Chinese leader Xi Jingping told political advisers gathered in Beijing for their annual legislative sessions on Saturday, according to the official Xinhua news agency. He reiterated the government’s stance that markets should play a “decisive role” in the economy.

    Xi said the coronavirus has put considerable pressure on China’s economy, and the country should seek “development in a world that is increasingly unstable and uncertain” as he listed risks ahead including a deepening global recession, a significant drop in trade investment, financial market turmoil, reduced international interactions and rising geopolitical tensions.

    Xi did not address Hong Kong in his remarks. China is using the legislative meeting to pass a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong, prompting swift pushback from pro-democracy activists in the city and condemnation from American politicians.

     
  • Hong Kong focus on Wednesday. Protesters returned to the city's streets over the weekend after Beijing moved to impose a new security law on Hong Kong, overriding its system of self-governance. Tensions will likely run high on Wednesday as Hong Kong’s legislature discusses a bill to criminalize disrespect of China’s national anthem.
     
  • The U.S. is considering sanctions on Chinese officials and waiting until the legislative session ends to submit an overdue annual review of Hong Kong, which could strip the city of its special trade status. Robert O’Brien, President Trump’s national security adviser, warned during Sunday interviews with NBC’s Meet The Press and CBS’s Face The Nation that the Chinese Communist Party’s efforts to crush protesters and impose its will over Hong Kong, a former British colony with semi-autonomous status, violated an international treaty it made with the United Kingdom. He said these moves by China would likely result in Hong Kong losing its special trading status with the United States and in the U.S. punishing China with sanctions.
     
  • U.S. hits back at China over airlines. Growing tensions between the U.S. and China have expanded to the airline industry as the Transportation Department (DOT) accused its counterpart in Beijing of blocking U.S. carriers’ attempts to resume service there. DOT on Friday said China violated a bilateral agreement allowing airline service between the two nations by ignoring requests by Delta Air Lines and United Airlines.

Update on likely next aid package — Phase 4/CARES 2:

  • Senate Republicans are considering cash incentives for unemployed Americans to resume working, as an alternative to the extension of enhanced jobless benefits supported by Democrats.
     
  • The House may consider changes to the Paycheck Protection Program (PPP) this week. The Senate also is expected to consider changes upon its return in early June. Business groups, including the ag sector, are requesting emergency legislative and administrative action to: (1) repeal the Paycheck Protection Program's (PPP) 75%-25% rule, (2) extend the eight-week period for purposes of calculating loan forgiveness, and (3) extend the June 30 safe harbor date for rehiring and restoration of pay.

U.S. food supply/industry update:

  • White House urges testing of all meatpacking employees. “What we’re asking [states] to do is proactively go and test everyone in meatpacking plants,” said Deborah Birx, members of the White House Coronavirus Task Force. She said it is critical that testing focus on “areas that you know are particularly susceptible to outbreaks,” and that includes meatpacking plants.
     
  • U.S. meat industry struggles to return as more workers get sick. More than 11,000 virus cases are tied to three major processors and more than 60 people have died throughout the industry, illustrating the challenge of reopening the country even for essential businesses. Link to Washington Post article.
     
  • A meatpacking mystery. Dozens of meatpacking plants are reopening, even as the extent of the viral outbreaks at many remains unknown. Meatpacking companies and local officials in some places have chosen to withhold the data, partly to avoid bad publicity, the New York Times reports (link). “At this point, we are not doing anything to cast them in a bad light,” a county health official in Colorado wrote in an email, referring to a Cargill plant. Trump issued an executive order last month designating meat plants “critical infrastructure” that must stay open. The order did not address issues like testing, leading many companies to reopen plants without fully assessing whether employees had contracted the virus, the article noted.
     
  • Demand for meat has not slowed down. Sales from April 12 to May 9 were 28% higher than in the four weeks ending Jan. 18, before the first reported case of coronavirus in the U.S., according to data from Nielsen (link).

    Plant-based meat substitutes had a jump of 35% in sales during the same period. Impossible Foods has been hiring more workers, increasing pay and adding more shifts. Beyond Meat reported record sales in the first quarter of this year, notes the New York Times (link). At the Impossible Foods factory in Oakland, Calif., machinery does most of the work. Employees can maintain social distance while working.

    Perspective: Plant-based meat sales are only 1% those of conventional meat. But there is growth ahead, with some estimates signaling plant-based meat will reach $28 billion by 2025, up from $12 billion in 2019.
    Meat sales
  • Investors group urges meat processor worker protections. Investors managing $2.3 trillion in assets called for companies that operate U.S. meat and poultry processing plants to better protect workers during the Covid-19 pandemic. The 118 corporate shareholders called for reductions of line speed, higher pay, coronavirus testing, sanitizing work stations and other practices to increase safety for employees working on factory floors, according to a document released by the Interfaith Center on Corporate Responsibility, a coalition of investors concerned with environmental, social and governance (ESG) issues. “Meat and poultry processing plants have emerged as among the most dangerous hot spots in the U.S. for Covid-19, with multiple facilities having been forced to close due to high numbers of infected workers,” the investors said in a statement. “For this reason, there is heightened concern among investors, legislators and the public for the essential frontline workers in this sector who are being exposed to increased health risks.”

    Signatories added that if companies implement their recommendations, they’ll emerge from the pandemic better positioned financially and with a healthier, more loyal workforce as well as the confidence of investors and the general public. They warned of reputational, legal and financial risks related to outbreaks and practices during the pandemic. The investors asked that meat processing companies initially sanitize plants and require all workers to receive Covid-19 tests before reentry, repeating the testing process if workers come into contact with people who are infected with the virus. They recommended that companies then establish workplace practices of enforcing physical distancing in plants, including: reducing line speeds; raising worker wages to reflect greater risk in going to work; offering full paid sick-leave for all workers who test positive for Covid; providing personal protective equipment on the production floor each shift; making tests available to workers and their families or others living in their residence; and establishing safety and risk reporting mechanisms.

    They also urged the companies to support union rights, work with regulators to give regular updates on total cases and deaths of workers at each plant, apply all measures regardless of workers’ immigration status, oppose federal or state policies that would deny industry workers unemployment benefits or other aid if they refuse to work because of fear of contracting the coronavirus, and publicly report on implementation of health and safety steps.

     
  • Three House Agriculture subcommittee chairmen sent USDA Sec. Sonny Perdue questions about how $1.2 billion in contracts for the new Farmer to Families Food Box program were awarded, how the department will determine if contracts are fulfilled and what actions it will take against an awardee not meeting contract requirements. Asking the questions were Reps. Marcia Fudge of Ohio, Jim Costa of California and Stacey Plaskett of the U.S. Virgin Islands. Link to letter and questions.
     
  • House Agriculture Committee member Jimmy Panetta (D-Calif.) and 71 Democrats urged House leaders to address farmworkers’ need for Covid-19 testing, protective equipment and hand-washing stations in the next economic relief bill through grant money to states and nonprofits or with a directive to the USDA to provide the funding. Link to letter.

Update on reopening America... and around the world:

  • The Blue State Lockdown Blues is the title of a Wall Street Journal editorial (link) which says the slow reopening in liberal states will hurt the national recovery.
     
  • WSJ: The worst may be over. “Truck loads are growing again. Air travel and hotel bookings are up slightly. Mortgage applications are rising. And more people are applying to open new businesses. These are among some early signs the U.S. economy is, ever so slowly, creeping back to life.” Link to WSJ article.

    Restaurant seating

     
  • White House economic adviser Kevin Hassett said Sunday that he already sees signs a rebound is occurring, pointing to businesses reopening and credit-card data showing consumers are starting to increase spending. But he said May’s unemployment rate, which measures joblessness in the middle of the month, could “end up with a number north of 20%.” April’s rate, 14.7%, was the highest on record back to 1948. “I think we’re very, very close to an inflection point in terms of business activity, and probably about a month away in terms of employment,” he said on CNN’s State of the Union.

    Hassett predicted the unemployment rate would begin to fall in June, but would remain above 10% this fall, when Americans head to the polls for the presidential elections. Voters, he said, will be focused on a rapidly improving economy, not a historically high rate of joblessness.

    Federal Reserve Bank of Boston President Eric Rosengren said he expects the unemployment rate to remain in double digits through the end of this year. Speaking on CBS’s Face the Nation, he added it will take much longer for the economy to recover to pre-pandemic levels. The unemployment rate was 3.5% in February, a 50-year low. “Getting back down to the low levels of unemployment we saw at the end of February probably takes either a vaccine or other medical innovations that make it much less risky to go out,” he said, noting that businesses that have been most affected, such as retail stores, hotels and airlines, need in-person customers. “It’s not just that you have to open up the businesses; consumers have to be comfortable going back.”

     
  • Italy threatens to reimpose restrictions. After thousands of Italians celebrated the end of lockdown by going for a drink, politicians threatened to reinstate curbs on movement and announced plans to recruit 60,000 unemployed volunteers to help oversee social distancing.
     
  • European business travelers head back to China. Around 400 executives plan to board two charter flights from Frankfurt this week, marking a milestone in the normalization of business activity in major Chinese cities.
     
  • Boris Johnson, Britain’s prime minister, announced a further easing of the country’s lockdown restrictions. Open-air markets will resume business from June 1 and non-essential shops two weeks later.
     
  • Japan’s state of emergency is at an end. The prime minister, Abe Shinzo, announced that restrictions would be lifted in Tokyo and the four other prefectures where they were still in place. The emergency was imposed seven weeks ago in response to the coronavirus. Japan has come through it in good shape, but Abe’s approval ratings have dropped.

    Japan different approach

Coronavirus update:

  • Summary: Global Covid-19 cases stand at 5,515,109 with 346,612 deaths, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count has reached 1,662,768 with deaths approaching 100,000 at 98,223.

    New York Times perspective on U.S. death toll: “The toll is greater than the combined death count from every war that the U.S. has fought in the past 60 years: Vietnam, Iraq, Iraq again, Afghanistan and elsewhere.” On Sunday, the NYT devoted its entire front page and a few inside pages to the names of virus victims. The NYT printed only 1,000 names, a tiny fraction of the total death toll. To list all of the Americans who had died from the virus would have required every page of the Sunday paper — and the paper would have needed to be more than twice as thick as usual.

     
  • New York reported fewer than 100 deaths on Saturday for the first time since late March, Gov. Andrew M. Cuomo announced Saturday. The governor reported 84 deaths during his daily briefing in Albany, the lowest reported daily death toll since March 24. While Cuomo called the number of new casualties “a tragedy, no doubt,” he said that it also felt like a milestone as the state slowly returns to normalcy. “In my head, I was always looking to get under 100,” he said. “For me, it’s just a sign that we are making real progress.”

    New York Covid

     
  • Washington Post: Covid-19’s new surge across rural America. As deaths near 100,000, the pandemic that first struck cities now strains counties with acres of farmland, cramped meatpacking plants, isolated prisons and few hospital beds. Link to WaPo article.
     
  • American biotech company Novavax said Monday it started the first human study of its experimental coronavirus vaccine. The company said it expects initial results on safety and immune responses in July.
     
  • White House announces new coronavirus travel restrictions on Brazil, which has the world’s second-highest infection total. Brazil overtook Russia and the number of cases is rising sharply toward 350,000. The White House announced Sunday that President Trump would suspend entry of non-U.S. citizens who have been in Brazil in the past 14 days in an effort to stop the spread of the coronavirus. The order takes effect May 28 at 11:59 pm ET.

    Brazil added 16,508 infections Saturday and said the death toll rose by 965. On Monday — for the second successive day — Brazil had the highest daily death toll of any nation, with over 800 new deaths reported. Brazil has 347,398 cases, trailing only the U.S. The death toll reached 22,013, up 4.6% from 21,048 in the previous 24 hours. Brazil now ranks sixth in the world for fatalities. A recent poll found that 58% of Brazilians rated Brazilian President Jair Bolsonaro's response as “bad” or “terrible.” Only 21% called it “good” or “excellent.”

    Meanwhile, a pending federal corruption investigation has surfaced. Brazilian newspaper O Globo reported on Monday that prosecutors in the office of the attorney general have gathered enough evidence to charge Bolsonaro with a crime. The lawyers say that a video from a cabinet meeting on April 22 — released to the public last Friday — shows the president committing the crime of “administrative advocacy,” or using his public position to advance a private agenda: In this case, it was Bolsonaro allegedly pressuring then-Justice Minister Sergio Moro to fire the chief of the federal police in order to shield his sons from investigation. The punishment for such a crime is relatively light: Up to one year in prison and a fine.

     
  • Other travel restrictions. Department of Homeland Security acting Secretary Chad Wolf told Fox News the travel restrictions in place, especially with China and Europe, need to stay in place as the U.S. economy reopens.
     
  • China’s foreign minister defended his country’s handling of the coronavirus, called for more cooperation with the U.S. to address the pandemic and backed the World Health Organization, which the U.S. has accused of lavishing favor on Beijing. Foreign Minister Wang Yi said that the U.S. and China must work together, despite their many differences, on managing the global impact of the coronavirus, and limiting the global economic fallout. Wang defended the United Nations agency against criticism from the Trump administration and said the U.S. shouldn’t seek to undermine it by withholding funding. “The WHO does not serve any particular country and it should not defer to any country that provides more funding than others,” Wang said. “Attempts to attack or blackmail the WHO...will be rejected by the global community.”
     
  • The World Health Organization said it would temporarily halt trials to determine whether hydroxychloroquine is useful in treating Covid-19. The anti-malarial drug, which President Donald Trump said he was taking, has been touted as a possible cure for the disease.

USDA makes big upward revisions in grocery store food price forecast. Covid-19 impacts have prompted USDA to make a major upward shift in the forecast for grocery store prices in the wake of the sharpest month-to-month increase in food at home prices in 30 years.

 

     The April rate of inflation for food at home (grocery store) prices increased 2.7% from March and were up 4.1% from April 2019. “Food-at-home prices had a month-to-month rate of inflation higher than any month since 1990, while food-away-from-home prices were nearly flat,” USDA’s Economic Research Service (ERS) said. “For the past several years, inflation for food-at-home prices had been slower than for food-away-from-home prices; however, the effects of the COVID-19 pandemic have ended that trend.”

 

     USDA now sees food at home prices rising 2.0% to 3.0% in 2020, up from their prior outlook for prices to increase 0.5% to 1.5%. That marked one of the biggest month-to-month shifts in USDA’s forecast for food prices in years.

 

     In 2020, food-at-home prices are now expected to increase between 2.0% and 3.0%. Food-away-from-home prices are still expected to increase in a range between 1.5 and 2.5 percent in 2020.

 

     Overall food prices are now forecast to rise 2.0% to 3.0%, up from the prior outlook for prices to increase between 1.5% and 2.5%.

 

     Covid-19 impacts are evident throughout the outlook, with prices for meats, poultry and fish rising 3.9% from March and up 6.2% versus April 2019. “The closures of many meat-processing facilities has put upward pressure on retail meat prices despite abundant farm-level meat supplies,” USDA explained. The 2020 meats-poultry-and-fish forecast has been revised up and is expected to change in a range between 2.0% and 3.0%, up from 0.5% to 1.5% in March.

 

     Eggs remain a volatile component in the food price equation, up 15.0% from March and up 17.3% from April 2019. “Despite high wholesale egg prices and strong demand in recent weeks, the table-egg layer flock is not expected to expand, which will keep upward pressure on prices,” USDA said. Egg prices in 2020 are now seen rising 8.0% to 9.0%, up from the month-ago forecast of 6.0% to 7.0%.

 

     The latest USDA report now take the forecasts for all food prices just above the 20-year average of 2.3% and well above the 20-year average for grocery store prices of 2.0%. Expectations are that forecasts from USDA could well continue to rise as more data comes in.

 


OTHER ITEMS OF NOTE


 

  • Department of Commerce is seeking comment on possible changes to the process for seeking exclusions to the Section 232 tariffs on steel and aluminum imports. The process has faced legal challenges and industry criticism.
     
  • Kim Jong Un back in the spotlight. North Korean leader Kim Jong UN made his first televised public appearance in three weeks when he chaired a meeting on the country’s nuclear capabilities on Sunday. The meeting discussed “increasing the nuclear war deterrence of the country and putting the strategic armed forces on a high alert operation,” adopting “crucial measures for considerably increasing the firepower strike ability of the artillery pieces,” according to state news agency KCNA.
     
  • Trump threatens to move GOP convention. President Trump called on North Carolina Democratic Gov. Roy Cooper to guarantee the Republican National Convention, scheduled to take place at an arena in Charlotte, can proceed without coronavirus-related restrictions this August. Trump accused the state’s Democratic governor of being in a “shutdown mood” that could prevent a fully attended event.
     
  • Rural loan help. Senate Commerce, Science, and Transportation Chairman Roger Wicker (R-Miss.) introduced a bill Friday that would provide technical help to rural communities applying for Department of Transportation loan or grant programs. The Department of Transportation already has an initiative underway, rolled out in October, to assist rural communities with these applications across different modes of transportation. Wicker’s bill would give the agency the ability to hire and pay expert firms to help applicants, a committee spokesperson said in an email.
     
  • Colorado joins water rule/WOTUS replacement suit. Colorado became the most recent state hoping to block the Trump administration’s new definition of “Waters of the United States,” after filing a complaint in district court Friday alleging the rule violates federal law. The federal government’s proposed Navigable Waters Protection rule would narrow which types of wetlands and waterways qualify for federal oversight under the Clean Water Act, replacing past interpretations by earlier administrations.
     
  • VW loses landmark Dieselgate case. Germany's highest civil court has ruled that Volkswagen (must pay compensation to motorists who purchased vehicles with manipulated diesel engines. The ruling, which will allow owners to return their vehicles for partial reimbursement of the purchase price, sets a benchmark for about 60,000 lawsuits that are still pending with lower German courts. VW has already paid out more than €30B in damages, fines and buyback schemes worldwide since its Dieselgate scandal first broke in 2015.

 

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