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S&P 500, Dow Dip as Buffett Dumps Airlines, China Tensions Flare

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US FINANCIAL MARKET

S&P 500, Dow Dip as Buffett Dumps Airlines, China Tensions Flare

  • The S&P 500 and Dow Jones indexes retreated on Monday following a U.S.-China spat about the origins of the coronavirus outbreak, while major carriers slumped after billionaire Warren Buffett’s Berkshire Hathaway dumped its stakes in the sector.
  • Delta Air Lines, American Airlines, Southwest Airlines and United Airlines fell between 6.7% and 8.4%, after Buffett told reporters of the move over the weekend, saying “the world has changed” for the industry.
  • Berkshire itself posted a record loss of nearly $50 billion, sending its shares down and weighing heavily on the financials sector.
  • A release of purchasing managers indexes (PMI) Monday for several Western European countries showed that coronavirus lockdowns sent manufacturing activity to all-time lows in Germany, France, Spain and Italy in April.
  • Nine of the major 11 S&P 500 sectors were trading lower, also pressured by comments from U.S. Secretary of State Mike Pompeo that there was “a significant amount of evidence” the new coronavirus emerged from a Chinese laboratory.
  • An editorial in China’s Global Times said he was “bluffing”.
  • With more than half of the S&P 500 companies having reported earnings so far, analysts now see first-quarter S&P 500 earnings falling 12.7% from a year ago, and an even sharper 37.8% decline for the second quarter.
  • Tyson Foods tumbled 7.5% as the company said it would temporarily close plants as needed and expects meat sales to fall in the second half of this year as shutdowns hammer restaurants and other food outlets.

Florida Begins Reopening After Virus Lockdown

  • Florida joined the U.S. states starting to ease restrictions against the new coronavirus and Italy reopened most of its factories Monday as the global number of confirmed infections crossed 3.5 million with nearly a quarter-million deaths.
  • The first phase of Florida’s reopening plan calls for restaurants and stores in most parts of the state to operate at 25% of their indoor capacity starting Monday. Schools, bars, gyms and salons will remain closed.
  • In Italy, the opening of production lines and construction sites to more than four million workers was a test of whether an economy flattened by one of the world’s worst outbreaks can restart in earnest without touching off a second wave of contagion.
  • Spain, also hit hard by the pandemic, permitted beauty salons and small shops to open by appointment Monday.
  • Greece, Belgium, India, Hong Kong, Malaysia and Thailand also lifted some restrictions Monday, allowing certain businesses and government offices to reopen after weeks of closure.

Buffett’s Berkshire posts nearly $50 billion loss as coronavirus causes pain

  • Warren Buffett’s Berkshire Hathaway is being hit hard by the coronavirus pandemic, posting a record quarterly net loss of nearly $50 billion on Saturday and saying performance is suffering in several major operating businesses.
  • Berkshire’s first-quarter net loss was $49.75 billion, reflecting $54.52 billion of losses on stock and other investments.
  • Net earnings were $21.66 billion a year earlier.
  • Quarterly operating profit, which Buffett considers a better performance measure, rose 6% to $5.87 billion, from $5.56 billion.
  • Operating profit at Berkshire’s businesses fell 3%, with declines at BNSF, utilities and energy units, and manufacturing, service and retailing operations such as Precision Castparts, which Berkshire bought for $32.1 billion in 2016.
  • In the first quarter, many Berkshire stock investments fared worse than the S&P, including American Express, Bank of America, Wells Fargo and the four airlines.
  • With a record $137 billion of cash piled up at his Berkshire Hathaway, Buffett fielded questions over the weekend from shareholders who wanted to know why he hadn’t acted as companies clamored for liquidity amid the pandemic-related shutdowns. This crisis is different, Buffett said.
  • While Berkshire bought back $1.7 billion of its shares in the first quarter, it was a net seller of stocks through April as it shed stakes in four major U.S. airlines.
  • Buffett, Berkshire’s chairman and chief executive officer, gained fame for turning a struggling textile company into a conglomerate now valued at $444 billion.
  • But as Berkshire swelled in size, the billionaire investor struggled to supercharge its growth amid soaring valuations in the recent bull market.

Tyson Expects Coronavirus to Continue Crimping Production

  • Tyson Foods said it expects continued challenges maintaining meat production for its current fiscal year amid the pandemic.
  • The company’s sales rose 4.3% to $10.89 billion, in the second quarter. Analysts had expected revenue of $10.96 billion.
  • Sales volumes for beef and pork products rose 2.7% and 2%, respectively, for the latest quarter.
  • Volumes for chicken slipped 1.5%, the company said.
  • Prices for all of its products were up 1.6% in the quarter, with pork prices rising 6% compared with last year.
  • Net income fell to $364 million, from $426 million a year earlier.

GE plans to cut aviation workforce by as much as 25% in 2020

  • General Electric said on Monday it was planning to cut its global workforce in the aviation unit by as much as 25% this year, including both voluntary and involuntary layoffs, due to business disruptions caused by the COVID-19 pandemic.
  • The job cuts are part of the $3 billion in cost and cash savings announced by the company last month.
  1. Crew Files for Bankruptcy Protection, Reaches Debt-Swap Deal
  • J. Crew Group, the preppy U.S. retailer that recently fell on hard times, Monday filed for bankruptcy protection, as several high-profile companies in the U.S. battle with the economic and financial impact of the coronavirus pandemic.
  • The retailer said it has reached an agreement with its lenders to restructure its debt, under which the lenders have agreed to convert $1.65 billion of J. Crew’s debt into equity.
  • Neiman Marcus is also in the process of completing talks with groups of lenders ahead of a planned bankruptcy filing, and J.C. Penney has been in talks with lenders for bankruptcy financing that could total $1 billion, The Wall Street Journal has reported.

Amazon CEO Jeff Bezos Called to Testify Before Congress

  • Lawmakers on the House Judiciary Committee called on Jeff Bezos to testify on its private-label practices, citing a Wall Street Journal investigation that found employees used data about independent sellers on its platform to develop competing products.
  • Bipartisan concerns about the company stretch across a range of issues, from its market power and its impact on small businesses to the safety of its workers and sales of counterfeit products on its platforms.
  • Amazon has been providing documents to the House panel, but has resisted the idea of Mr. Bezos personally testifying, according to a person familiar with the matter.

Facebook Warned That It May Lose a Key Seal of Approval for Ad Measurement

  • Facebook is at risk of losing a key seal of approval that gives companies confidence they are getting what they pay for when it comes to advertising with the social-media giant.
  • The media industry’s measurement watchdog has warned Facebook that it could be denied accreditation due to deficiencies in how its reports on the effectiveness of advertising on its products, according to a letter reviewed by The Wall Street Journal.
  • The notice from the Media Rating Council says that Facebook has failed to address advertiser concerns arising from a 2019 audit performed by Ernst & Young, most notably concerning how it measures and reports data about video advertisements.

Intel in talks to buy Israel’s Moovit public transit app for $1 billion: media

  • Chipmaker Intel is in advanced talks to acquire Israeli public transit app developer Moovit for $1 billion.
  • Moovit’s free mobile navigation app provides transit information to more than 750 million users in 100 countries.
  • Intel has made significant investments already in Israel, having acquired autonomous vehicle technology provider Mobileye for $15.3 billion in 2017. In December it bought Israeli artificial intelligence firm Habana Labs for $2 billion.

 

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US ECONOMY & POLITICS

U.S. factory orders drop more than expected in March

  • New orders for U.S.-made goods fell more than expected in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports.
  • The Commerce Department said on Monday factory orders dropped 10.3%.
  • Data for February was revised down to show orders dipping 0.1% instead of being unchanged as previously reported.
  • Economists had forecast factory orders tumbling 9.7% in March.

Trump administration pushing to rip global supply chains from China: officials

  • The Trump administration is “turbocharging” an initiative to remove global industrial supply chains from China as it weighs new tariffs to punish Beijing for its handling of the coronavirus outbreak, according to officials familiar with U.S. planning.
  • Now, economic destruction and the massive U.S. coronavirus death toll are driving a government-wide push to move U.S. production and supply chain dependency away from China, even if it goes to other more friendly nations instead, current and former senior U.S. administration officials said.
  • Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes, the current and former officials told Reuters.
  • Trump has said repeatedly that he could put new tariffs on top of the up to 25% tax on $370 billion in Chinese goods currently in place.

Stimulus Spending Emerges as Friction Point in Congress

  • After committing trillions of dollars to support the coronavirus-stricken economy, lawmakers are starting to disagree on how much more to spend—and whether pulling back too soon could stunt a recovery.
  • So far, the response to the crisis has been swift and bipartisan. But the consensus began breaking down late last month.
  • Democrats, who control the House of Representatives, say trillions more will be needed to help states, workers and business contend with a recession that is forecast to be the deepest since the 1930s.
  • Senate Republicans—particularly Majority Leader Mitch McConnell of Kentucky—say they are starting to be concerned about the risk of wasteful spending and the ballooning national debt.

U.S. processes over $500 billion in small business loans to stem coronavirus fallout

  • The United States has made over $500 billion in loans to small businesses hit hard by the coronavirus pandemic, and about $145 billion remains in the congressionally approved fund, the U.S. Small Business Administration said Sunday.
  • The SBA has processed about 2.2 million loans worth more than $175 billion since Congress last month authorized more funding for the Paycheck Protection Program, part of almost $3 trillion in spending to fight the heavy economic toll of the pandemic, which has thrown about 30 million Americans out of work.
  • The second round of funding was launched on Monday, allowing lenders to issue forgivable, government-guaranteed loans to small businesses shuttered by the outbreak.

Small Businesses Were at a Breaking Point. Small Banks Came to the Rescue.

  • Banks with under $10 billion in assets approved about 60% of loans in the first round of the Paycheck Protection Program, the lending effort’s official name, according to the Treasury Department and Small Business Administration.
  • The smallest banks performed even better: Those with $1 billion or less in assets account for just 6% of all U.S. banking assets, but they and other small specialty lenders approved nearly 20% of loan dollars.
  • Large banks made up for lost ground in the $320 billion second round of the program, when the SBA allowed lenders to submit batches of thousands of applications at once, said the Bank Policy Institute, which represents the biggest U.S. banks.

U.S. Treasury’s Mnuchin says Trump eyeing restaurant tax changes, travel boost

  • Treasury Secretary Steven Mnuchin on Monday said bipartisan discussions are underway over whether more U.S. government relief funding is needed amid the nation’s novel coronavirus outbreak, but that President Trump is focused on taxes and travel.
  • In an interview on Fox Business, Mnuchin said the administration was prepared to back additional coronavirus stimulus money for American businesses if needed, but that right now it was carefully monitoring the economy as some states restart activity.
  • Mnuchin said Trump wanted tax changes to make businesses’ entertainment expenses “fully tax deductible like it used to be … to get people to go back to restaurants.”
  • “The president’s also looking about ways to stimulate travel,” he added. “As the economy opens up, I think you’ll see demand coming back,” for domestic travel, he said, although it’s “too hard to tell” if international travel could open up later in 2020.

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EUROPE & WORLD

Exclusive: Internal Chinese report warns Beijing faces Tiananmen-like global backlash over virus

  • An internal Chinese report warns that Beijing faces a rising wave of hostility in the wake of the coronavirus outbreak that could tip relations with the United States into confrontation, people familiar with the paper told Reuters.
  • The report, presented early last month by the Ministry of State Security to top Beijing leaders including President Xi Jinping, concluded that global anti-China sentiment is at its highest since the 1989 Tiananmen Square crackdown, the sources said.
  • The report was drawn up by the China Institutes of Contemporary International Relations (CICIR), a think tank affiliated with the Ministry of State Security, China’s top intelligence body.
  • The report described to Reuters warned that anti-China sentiment sparked by the coronavirus could fuel resistance to China’s Belt and Road infrastructure investment projects, and that Washington could step up financial and military support for regional allies, making the security situation in Asia more volatile.

Pandemic slams global factories, activity sinks to new lows

  • Factory activity was ravaged across the world in April, business surveys showed, and the outlook looked bleak as government lockdowns to contain the new coronavirus pandemic froze global production and slashed demand.
  • On Monday, IHS Markit’s final manufacturing PMI for the euro zone sank to 33.4, its lowest since the survey began in mid-1997 and far beneath the 50-point line dividing growth from contraction.
  • In Europe, the surveys showed that Greek factories experienced the largest decline in activity, followed by Spain and Italy.
  • While northern European countries such as the Netherlands and Germany also reported declines, they were more modest.
  • India’s index collapsed to 27.4 from 51.8 in March, one of the swiftest swings from growth to sharp contraction.
  • Indonesia’s manufacturing sector contracted at almost the same pace, again reflecting extensive lockdowns. In both countries, factories said they had laid off workers at a record pace.
  • The surveys also showed record declines in manufacturing activity in the Philippines, Malaysia and Vietnam, while in Taiwan and South Korea the contractions were the deepest since the last global financial crisis.

Brazil manufacturing PMI tumbles to record low 36.0 in April – IHS Markit

  • Manufacturing activity in Brazil contracted in April at the fastest pace on record, a survey of purchasing managers’ activity showed on Monday, as the intensifying COVID-19 crisis brought the sector to a state of paralysis.
  • The IHS Markit headline Brazil manufacturing purchasing managers index (PMI) came in at 36.0, down from 48.4 in March, its lowest reading since it was launched in early 2006.
  • Brazil’s economy is expected to enter a deep recession this year, with the International Monetary Fund and World Bank penciling in a contraction of 5.0% or more.
  • The IHS Markit survey also showed that business optimism across Brazilian industry fell to its lowest since March 2016, when the country was in the midst of one of its most severe recessions.

North Korean Leader’s Return to Public Eye Affirms Status Quo in Talks

  • North Korean leader Kim Jong Un’s appearance in state media, after a near three-week absence set off rumors about his health, reaffirms a status quo that is unlikely to shake up stalled denuclearization talks with the U.S. or change the regime’s pattern of weapons testing.
  • Mr. Kim’s attendance at an event on Friday, seemingly healthy and in charge, ended speculation of a leadership shake-up that could reorient Pyongyang’s approach to nuclear talks or provocation.

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TODAY in HISTORY

  • Public Enemy Number One, Al Capone, was jailed for tax evasion. (1932)
  • The first Grammy Awards were held. (1959)

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