Fed's Kaplan says U.S. economy has bottomed, ties rebound to testing

(Reuters) – The U.S. economy has likely bottomed, Dallas Federal Reserve Bank President Robert Kaplan said on Thursday, but a healthy rebound depends on a massive increase in testing so that people feel comfortable resuming traveling, dining out and other pre-crisis activities.

“We need to dramatically increase testing and contact tracing…so that we can grow the economy faster and work down this unemployment rate,” Kaplan told Reuters in a phone interview.

Doing so nationally, he said, would cost a fraction of the nearly $3 trillion the U.S. Congress has already committed to the economic rescue in loans to big businesses, grants to smaller ones, and extra unemployment insurance to the tens of millions who have lost their jobs so far.

“Why not spent the tens of billions of dollars …to make sure …we get the most benefit from the trillions we have spent,” Kaplan said, adding that health experts say the U.S. needs about 3 million to 5 million tests a day, compared with 350,000 today. Small businesses are facing more obstacles on testing than bigger firms, he said.

Assuming ramped up testing, extensions of fiscal support for workers, and new rescue money for cities and states reeling from a drop in tax revenue, the U.S. economy could grow at about a 17% annual pace in both the third and fourth quarters, he said.

Those gains would still leave the U.S. economy about 4.5% smaller by year’s end than it was at the beginning, he said, and unemployment would likely still be at 10% or 11%, down from an expected peak of more than 20%.

Continued growth in 2021 should drive it to below 7% by the end of next year, he said, though without the investment in testing that could enable broad reengagement, there is “more downside.”

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Novo Banco seeks to offload Spanish retail network: sources

LISBON/LONDON (Reuters) – Portuguese lender Novo Banco is looking to sell its loss-making retail network in Spain as it faces pressure to prop up its balance sheet and prevent further losses, two sources told Reuters.

Novo Banco has reached out to a pool of banks and is expected to select advisers in the coming weeks as it wants to carve out its Spanish business and launch an auction process later this year, the sources said.

The bank ranks as Portugal’s third largest and is majority-owned by U.S. private equity firm Lone Star with a 75% stake.

While selling international retail assets remains a tall order for most banks, Novo Banco’s owners have decided to press ahead with the plan after the bank faced political scrutiny in early May for receiving 850 million euros ($932.79 million) of public funds, the first source said.

The cash injection, under the so-called contingency capital mechanism, was triggered by regulatory requirements over Novo Banco’s solvency ratio. But it raised pressure over the bank’s handling of its troubled Spanish unit.

Novo Banco and Lone Star declined to comment.

If successful, the sale would see Novo Banco focusing primarily on its home turf.

The Lisbon-based bank – which emerged from the ruins of Banco Espirito Santo as part of a state rescue in 2014 – has already sold its international assets in France, Asia and Cape Verde.

However, the novel coronavirus may complicate its exit from Spain where its local network reported a loss of more than 100 million euros in 2019, the second source said.

Novo Banco’s Spanish business has about 2 billion euros in assets and is seen as a possible target for local banks, the first source said.

But the difficult economic backdrop means most banks have become risk-averse and similar deals – including HSBC’s sale of its French branches – have faced significant delay.

“This is a tough sale as most banks have little appetite to take on more risk,” the second source said.

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Wall Street rises with economic hopes; bank stocks jump

(Reuters) – U.S. stocks rose on Wednesday, with the S&P 500 closing above 3,000 for the first time since March 5, as the further easing of lockdowns lifted optimism for an economic recovery.

Bank stocks powered the day’s advance, with the S&P 500 financial index .SPSY leading gains among major sectors. The index rose nearly 10% over the past two sessions for its biggest two-day increase since April 8-9.

JPMorgan Chase & Co (JPM.N) was the leading point gainer in the financial index, rising 5.8% as the stock surged for a second day in a row. The bank’s chief executive, Jamie Dimon, said Tuesday he expects JPMorgan will boost its credit reserves again in the second quarter, but said there are signs the economy is regaining its footing.

After-the-bell on Wednesday, the head of JPMorgan’s corporate and investment banking division said second-quarter revenues are on track to be more than 50% higher than the same period last year.

Continued easing of lockdowns, optimism about an eventual COVID-19 vaccine and massive U.S. stimulus have been driving the market’s recent gains. On Wednesday, Walt Disney Co (DIS.N) announced plans to begin reopening its Walt Disney World resort in Florida, the world’s largest theme park, in phases beginning July 11, and MGM Resorts (MGM.N) said it would reopen its four Las Vegas casinos on June 4.

“It’s all about liquidity and the hopes that the economy will eventually do well,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The rally will continue, but I don’t think it will continue without pullbacks,” he said, noting that weak second-quarter earnings could give investors a “reality check.”

Tech-related shares underperformed the broader market on Wednesday after leading the recent rally.

The Dow Jones Industrial Average .DJI rose 553.16 points, or 2.21%, to 25,548.27, the S&P 500 .SPX gained 44.36 points, or 1.48%, to 3,036.13, and the Nasdaq Composite .IXIC added 72.14 points, or 0.77%, to 9,412.36.

Amid the recent gains, U.S. tensions with China have cast a cloud on markets.

President Donald Trump said Tuesday that Washington would announce its response to China’s planned national security legislation on Hong Kong before the end of the week. Secretary of State Mike Pompeo said Wednesday that Hong Kong no longer warrants special treatment under U.S. law as it did when it was under British rule, potentially a big blow to its status as a major financial hub.

Tech-related shares are among the most sensitive to Chinese growth, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis.

“If the market is going to go higher from here, you’re going to have to have broader participation, but you are going to need those large-cap tech companies to be along for the ride because they make up such a large portion of the benchmark,” Samana said.

Also on Wednesday, the Federal Reserve’s Beige Book report showed that U.S. businesses continued to be hammered by the effects of the novel coronavirus epidemic into the middle of May.

Advancing issues outnumbered declining ones on the NYSE by a 3.81-to-1 ratio; on Nasdaq, a 2.21-to-1 ratio favored advancers.

The S&P 500 posted seven new 52-week highs and no new lows; the Nasdaq Composite recorded 41 new highs and 10 new lows.

Volume on U.S. exchanges was 12.86 billion shares, compared to the 11.33 billion average for the full session over the last 20 trading days.

(This story has been refiled to delete extraneous words in 3rd paragraph)

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American Airlines CEO quells U.S. bankruptcy talk, says demand improving

(Reuters) – American Airlines Group Inc (AAL.O) is not considering a Chapter 11 bankruptcy filing, Chief Executive Doug Parker said on Wednesday and dismissed speculation that a major U.S. carrier could disappear due to the coronavirus pandemic.

“Bankruptcy is failure. We’re not going to do that,” Parker told a conference, adding: “I don’t think you’ll see any airline go by the wayside as a result of this crisis.”

Shares in American rose 5.5% in late trading.

The U.S. airline industry is expected to be 10% to 20% smaller in the summer of 2021, Parker said, and its recovery would depend on how passenger demand and revenues evolve.

Earlier this month, Boeing Co (BA.N) Chief Executive Dave Calhoun told NBC he thought that a major U.S. carrier could go out of business in the fall, when government payroll aid for airlines will expire.

U.S. airlines, suffering an unprecedented downturn in air travel because of the pandemic, have warned they may need to eliminate jobs after Oct. 1 but Parker said the company aimed to avoid furloughs.

Nearly 40,000 of its more than 100,000 employees have opted for an early retirement, reduced work schedule or temporary leaves, he said.

American’s revenues are down by about 90% due to the outbreak, but demand is improving and net receipts have been in positive territory for the past 2-1/2 weeks after a period when airlines were receiving more cancellations than new bookings.

“More and more people are feeling more comfortable today, but we need to get to a point where all Americans are as comfortable flying as they should be,” he said.

American’s planes were about 56% full over the long U.S. Memorial Day weekend, albeit in drastically reduced capacity, he said. American is flying about 20% of its normal schedule.

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U.S. businesses slammed by pandemic but see some green shoots, Fed says

(Reuters) – U.S. businesses continued to be hammered by the effects of the novel coronavirus epidemic in the United States into the middle of May, a Federal Reserve report showed on Wednesday, and few expected a swift recovery despite some signs of hope.

The sharp plunge in economic activity recounted in the U.S. central bank’s latest temperature check of business activity across its 12 districts shed light on the depth of the economic pain generated by the virus, which has led to an unprecedented downturn and a U.S. death toll approaching 100,000.

The Fed’s survey, known as the “Beige Book,” was completed mostly in April, when non-essential businesses were shut down in much of the country, through May 18, when some states had started to loosen restrictions.

“Economic activity declined in all districts – falling sharply in most,” the Fed said in its report. “Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.”

The Fed has acted aggressively to bolster the economy to try to mitigate the effects of the widespread business closures and a surge in job losses. The central bank cut its key overnight interest rate to near zero in March, launched a round of open-ended asset purchases and announced a slate of emergency lending tools to support businesses and households.

Congress has also passed nearly $3 trillion in economic relief to funnel funds to individuals and businesses hurt by the pandemic. But uncertainty remains about how scarred businesses will be, despite an easing in lockdown restrictions.

More than 38 million Americans have filed for unemployment benefits over the past two months, and the U.S. unemployment rate soared to 14.7% in April.

The collection of anecdotes from the Fed’s districts showed many firms felt the worst of the crisis was behind them, and the hard-hit New York district said there were scattered reports of a nascent pickup in economic activity in early May.

But the report also made clear most businesses were still grappling with the fallout, even with an easing of restrictions.

“Contacts cited challenges in bringing employees back to work, including workers’ health concerns, limited access to childcare, and generous unemployment insurance benefits,” the Fed said.

Some of those jobs in the most affected industries such as leisure, travel and hospitality are unlikely to swiftly return and other businesses are navigating how to accommodate social distancing requirements, which could mean fewer customers. Consumer confidence also remains low.

“Contacts are uncertain how fearful consumers will be while the COVID-19 threat remains and how freely consumers will spend after the threat lifts,” the Fed’s contacts in the Philadelphia district noted, referring to the respiratory disease caused by the novel coronavirus.

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Exxon shareholders soundly reject splitting CEO/chairman roles

(Reuters) – Exxon Mobil Corp shareholders soundly rejected climate-related proposals and splitting the chairman and chief executive’s roles at the oil major’s shareholder meeting on Wednesday.

Climate activists had swung behind efforts to split the roles of chief executive and chairman after prior defeats on climate reports. This year’s vote on an independent chair collected 32.7% of the vote, down from nearly 41% last year.

Exxon’s director slate was approved by an average of 93.6%, the company said in preliminary results.

Influential proxy advisor Institutional Shareholder Services this year recommended a vote against the independent chairman resolution.

Matrix Asset Advisors, which holds around 135,000 shares of Exxon, said it voted in line with ISS because it has no major issue with Exxon management, said President David Katz. “Nothing has risen to the level where we have to step in and make our voice heard,” Katz said.

Exxon had taken steps to bolster its defenses against the measure by granting its lead director increased authority to pre-review board agendas and to meet with top shareholders. The proposal last year received nearly 41% of the vote, up from 38.7% in 2018.

Unlike European rivals, Exxon faces little government pressure to curb greenhouse emissions or strike deals with climate activists. Under CEO Darren Woods, it blocked six climate resolutions from this year’s ballot, encouraging activists to seek the split.

Other shareholder proposals that failed included calls for the company to increase its reporting of lobbying, political contributions and petrochemical risks, and to make it easier for shareholders to call special meetings.

Top Exxon holders’ Vanguard Group, BlackRock Inc and State Street Corp declined to comment on their votes. The three combined own about 20% of Exxon shares.

BlackRock this year signed on to the Climate Action 100+ investor group seeking carbon emissions curbs.

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Exclusive: U.S. troop strength in Afghanistan down to close to 8,600 ahead of schedule – sources

WASHINGTON/MUMBAI (Reuters) – U.S. troop strength in Afghanistan is down to nearly 8,600, well ahead of a schedule agreed with Taliban militants in late February, in part because of concerns about the spread of the coronavirus, U.S. and NATO officials said.

A key provision of the Feb. 29 agreement between the Taliban and the United States, to which the Afghan government was not a party, involved a U.S. commitment to reduce its military footprint in Afghanistan from about 13,000 to 8,600 by mid-July and, conditions permitting, to zero by May 2021.

Two senior sources in Kabul said the 8,600 target was likely to be achieved by early June.

Two U.S. officials, speaking on the condition of anonymity, said that the United States was close to 8,600 troops and could reach that number in coming days.

“Due to COVID-19 concerns, we are moving towards that planned drawdown faster than anticipated,” one of the officials said.

The other U.S. official said the United States had focused on quickly removing non-essential personnel and those considered to be at high risk from the virus.

All four sources asked not to be identified due to the sensitivity of the matter.

Last month CNN reported that the United States had less than 10,000 troops in Afghanistan, putting the Trump administration ahead of schedule.

U.S. forces are in Afghanistan to conduct counter-insurgency operations. A few thousand U.S. soldiers work with troops from 37 NATO partner countries to train, advise and assist Afghan forces.

NATO’s mission in the country totalled 16,551 troops in February, according official data available on its website.

On Tuesday, U.S. President Donald Trump there were “7,000-some-odd” U.S. soldiers in Afghanistan but officials clarified that number was slightly over 8,600 troops.

Trump renewed his desire for a full military withdrawal from Afghanistan but added that he had not set a target date, amid speculation he might make ending America’s longest war part of his re-election campaign.

NATO DILEMMA

The Taliban, who ruled Afghanistan with an iron fist from 1996 before being ousted by U.S.-led troops in 2001, have sought to topple the Western-backed government in Kabul and reimpose Islamic rule. They dismiss the Kabul government as a puppet of the United States.

The faster-than-expected withdrawal has put NATO in a dilemma as to whether it should consider swiftly sending back some non-U.S. troops from Afghanistan as well, two NATO sources said.

“The drawdown by the U.S. was expected to be done in 135 days but it’s clear that they have almost completed the process in just about 90 days,” said a senior Western official in Kabul on condition of anonymity.

The official said that some other NATO soldiers would be withdrawn before schedule.

The Taliban have recently increased attacks in a number of provinces, despite the Afghan government releasing prisoners as per the U.S.-Taliban agreement signed in Doha.

In a statement, the Pentagon said it expected to be at 8,600 troops within 135 days of signing the agreement, but declined to say how many troops were currently in Afghanistan.

“We are not providing updates on current troop levels primarily due to operational security concerns associated with the drawdown,” Pentagon spokesman Lieutenant Colonel Thomas Campbell said.

Officials are now looking at the pace of the drawdown beyond 8,600.

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Asian stocks pull back as Hong Kong uncertainty weighs

NEW YORK (Reuters) – Asian shares shed some of their recent gains on Wednesday as investor concerns about rising tensions between the United States and China tempered optimism about a re-opening of the world economy.

U.S. President Donald Trump said late on Tuesday he is preparing to take action against China this week over its effort to impose national security laws on Hong Kong, but gave no further details.

Worsening relations between the world’s two biggest economies will further hobble global growth, already in the doldrums due to the coronavirus pandemic worldwide.

E-Mini futures for the S&P 500 edged down 0.05%, just short of the 3,000 chart level. The index had cleared 3,000 points in Wall Street overnight before pulling back, as some traders returned to the New York Stock Exchange floor for the first time in two months.

The Nikkei share average slipped 0.1%, unwinding some of the gains made on Tuesday when it climbed to their highest in nearly 12 weeks. Australia’s ASX 200 lost 0.9% in early trade and South Korea’s KOSPI fell 0.2%.

Graphic: Asian stock markets – here

“The S&P500 looked to be set to close above 3,000 until the late headline that the United States was considering a range of sanctions on Chinese officials and businesses should China go ahead with its legislation regarding Hong Kong,” analysts at the National Australia Bank said in a note.

“The extent of those possible sanctions is uncertain,” the analysts said.

China’s plans to impose national security laws in Hong Kong have triggered the first big street unrest in the Asian financial hub for the first time since last year. Overnight, hundreds of riot police took up posts around Hong Kong’s legislature in anticipation of protests on Wednesday.

Indeed, some analysts warned that even the recent jump in share prices showed signs of caution.

“Stock buying in the last 24 hours has a strong defensive bent,” Michael McCarthy, chief market strategist at CMC said in a note. “Beaten down consumer and financial stocks are leading markets higher, at the expense of the previously popular tech and healthcare sectors.”

Moderating demand for risk helped the safe-haven U.S. dollar index to edge up 0.03% to 99.042, reversing from losses overnight.

U.S. Treasury yields retreated from levels struck overnight, with two-year yields hovering at 0.170%, up from a record low of 0.105% struck on May 8, but still under 0.20%.

Gold prices rebounded from losses as some investors played it safe, with spot gold unchanged at $1,711.45 per ounce.

The retreat from risk led oil prices to give up earlier gains. U.S. West Texas Intermediate crude futures were down 0.3%.

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Italy's RCS says it may win damages in dispute with Blackstone after ruling

MILAN (Reuters) – Milan’s Arbitral Tribunal has judged that the contracts over the sale of Italy’s RCS (RCSM.MI) headquarters to Blackstone Group Inc (BX.N) in 2013 were valid but found that the purchaser’s behaviour may entitle the Italian publisher to compensatory damages, RCS said on Tuesday.

The case centres on the ownership of RCS’s historic headquarters in central Milan, which Blackstone bought from RCS for 120 million euros ($131.71 million).

RCS, owner of newspaper Corriere della Sera, launched arbitration proceedings in Milan in 2018 to nullify the sale, saying Blackstone took control of the headquarters at too low a price, while RCS faced financial difficulties. It asked that the transaction be annulled.

Blackstone in turn has accused RCS of falsely claiming that it still owns the property and of improperly blocking it from selling it to Germany’s Allianz SE (ALVG.DE).

The U.S. investment firm filed two lawsuits in New York, one against RCS and the other directly against RCS’s chairman and controlling shareholder, Urbano Cairo. They were put on hold last year pending the outcome of the arbitration in Italy.

The Arbitral Tribunal ordered two expert witnesses to report separately on the condition of RCS in 2013 and on the market value of the property, the Italian company said on Tuesday.

This is a partial and nondefinitive decision and the arbitration proceeding continues, RCS added in its statement.

A Blackstone representative said the company was “pleased that in this ruling, the arbitrators have dismissed the overwhelming majority of RCS’ claims, and have confirmed the validity of the contract in which RCS sold the building in 2013.”

The sale followed a year-long, fully transparent auction process, it was approved by RCS’s board and auditors, and was supported by a leading Italian bank, Blackstone said, adding it will continue to seek “compensation for the meaningful and growing damages caused by RCS.”

($1 = 0.9111 euro)

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Pence's press secretary back to work after recovering from COVID-19

WASHINGTON (Reuters) – U.S. Vice President Mike Pence’s press secretary Katie Miller said on Tuesday she was back at work after recovering from COVID-19, a case that helped encourage White House officials to start wearing masks and take stricter safety precautions around President Donald Trump.

Miller, who is married to Trump’s hawkish immigration adviser and speech writer Stephen Miller, said she had returned after receiving three negative tests for the disease caused by the novel coronavirus.

“Thank you to all my amazing doctors and everyone who reached out with support. I couldn’t have done it without my amazing husband who took great care of his pregnant wife,” she said in a post on Twitter.

Miller contracted the virus in early May, raising alarm about the spread of the virus among Trump’s and Pence’s inner circle shortly after the president’s valet had also tested positive.

The two cases prompted the White House to direct staff to wear masks and take additional precautions.

Previously, despite admonitions to Americans to wear masks and follow social distancing guidelines, many administration officials were not doing so themselves at least at the White House, where testing has been taking place regularly.

“We’re very happy to see her recovered,” White House spokeswoman Kayleigh McEnany told reporters about the vice president’s press secretary.

McEnany said Stephen Miller was also back at work after having self-quarantined. She said she did not know whether the military valet had returned and said she had no updates on whether anyone else on the staff had tested positive.

Trump, 73, is in an age group considered especially vulnerable to the virus. He has declined to wear a mask in public and has stepped up his travel schedule in recent weeks as he seeks to get the country’s economy reignited from its pandemic-related shutdown.

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