• Skirmish Near the White House, Cities in Curfew: Protest Update
    Bloomberg

    Skirmish Near the White House, Cities in Curfew: Protest Update

    (Bloomberg) -- Thousands of people marched in protest in cities from New York to Los Angeles as curfews went into effect to help police stem violence and vandalism. Protesters clashed again with law enforcement near the White House, though overall the night appeared calmer in most cities than it had been in nights before.Protests are taking place in cities across the U.S. over the killing of George Floyd, an unarmed black man who died after a white Minneapolis police officer knelt on his neck for more than eight minutes. The incident renewed concerns about police use of force that helped spark the Black Lives Matter movement.Night fell more quietly than it did a day ago. While a standoff on the Manhattan Bridge in New York ended peacefully, tensions remained as dozens were arrested in Houston, while protesters in Los Angeles called for the police chief’s job. Meanwhile in Ferguson, Missouri, epicenter of similar protests in 2014, voters there elected the city’s first-ever black mayor.Key Developments:Chicago to expedite police reforms; NYC extends curfewFloyd family joins tens of thousands protesting in HoustonMinnesota files civil-rights charge against police departmentUnrest Spotlights Depth of Black Americans’ Economic StruggleHow ‘Black Lives Matter’ Became a U.S. Protest Cry: QuickTakeNearly 10,000 Arrested in Floyd-Related Protests (2.25 a.m. NY)At least 9,300 people have been arrested in connection with protests across the U.S. in the days following the death of George Floyd, according to an Associated Press count. Skirmish at Park Near the White House (1:27 a.m. NY)Law enforcement deployed a pepper spray-style chemical and pepper bullets against protesters at Lafayette Square in Washington, D.C., the Washington Post reported. Video showed a TV camera operator being sprayed at a fence erected at the edge of the park just north of the White House.Reporters on the scene said some protesters threw water bottles and shook the fence separating them from the security officials, while others were yelling at them to stop. Some protesters set off a firework, the Post said.A tall chain-link fence had been erected around the park Tuesday, expanding a protective zone around the White House itself. At the same spot one day earlier, federal law enforcement violently dispersed a crowd of peaceful protesters minutes before President Donald Trump walked across the park for a photo op in front of historic St. John’s Episcopal Church.The crowds have since mostly dispersed.Ferguson, Missouri, Elects First Black Mayor (12:46 a.m. NY)The Missouri city at the epicenter of protests in 2014, sparked by the fatal shooting of a black teenager by a white police officer, elected its first-ever black mayor, the St. Louis Post-Dispatch reported.Ella Jones is a city councilwoman in Ferguson, which saw a fresh round of protests in recent days similar to those that followed the death of Michael Brown nearly six years earlier. Now mayor-elect, she will also be the first woman to lead the St. Louis-area suburb.Crowds Exit NYC Bridge as Protest Standoff Eases (11:40 p.m. NY)Police allowed demonstrators to get off the Manhattan Bridge on the Brooklyn side of the East River, as a standoff there diffused largely without incident.Meanwhile, New York Mayor Bill de Blasio visited a protest site in Brooklyn, where he said his city was calmer than it had been a day ago, crediting the decision to impose a curfew.President Donald Trump, however, said the police in New York weren’t being allowed to do their job and will need additional help. De Blasio and New York Governor Andrew Cuomo “MUST PUT DOWN RIOTING NOW,” he said.National Guard Probes Chopper Use in D.C. (11:25 p.m. NY)The D.C National Guard will open an investigation into the use of low-flying military helicopters against protesters in the nation’s capital.The highest echelons of the National Guard had ordered for the helicopter maneuvers, the New York Times reported citing a military official familiar with Monday’s episode. The helicopters were directed with an intent that had been provided by the secretary of the Army and the Army’s chief of staff in an extensive meeting earlier, the official told the Times.Demonstrators, Police in Standoff in New York City (11:12 p.m. NY)Hundreds of demonstrators who had marched through Brooklyn and headed to the Manhattan Bridge were stopped by police who prohibited their entry into Manhattan Tuesday night.Twitter users described a confrontation in which demonstrators challenged the police to let them pass, and the two sides remained at a standoff with police refusing to let them move into Manhattan.New York Representative Alexandria Ocasio-Cortez, a Democrat, in responding to video of the bridge protests, said “this is dangerous,” and she’s “heading there now.”Shooting, Looting Incidents in New York, Police Report (10:54 p.m. NY)The New York City police’s public information office reports a looting incident in downtown Brooklyn at Flatbush Avenue and Pacific Street. The department also said there was a shooting in the Crown Heights section of Brooklyn in which an officer shot “someone with a firearm.” No condition was reported on the gunman; the officer is not injured, according to the public information office. Police later said the shooting incident was unrelated to demonstrations.Pentagon Moves More Troops Into Washington Region (10:20 p.m.)The Pentagon “moved multiple active duty Army units into the National Capitol Region as a prudent planning measure in response to ongoing support to civil authorities operations,” Defense Department spokesperson Jonathan Rath Hoffman said in statement.Approximately 1,600 troops were moved into the Washington area from Fort Bragg and Fort Drumm over the last 24 hours. Active duty forces are “postured on military bases in the National Capitol Region but are not in Washington, D.C.”Voting Continues in D.C. Despite Curfew (9:51 p.m.)Washington D.C. is managing a conflict between its curfew, which started at 7 p.m., and voting locations that weren’t due to start closing until 8 p.m. In many of those, lines stretched for over an hour, meaning scores of people were waiting to vote as curfew hit.Voters in line by 8 p.m. are exempt from the curfew, Mayor Muriel Bowser said, though in at least one precinct voters reported a police officer telling them they needed to go home. A city official said police were told Sunday that voters were an exception to the curfew and one officer appears to have misunderstood the rules.Brooklyn Protesters Attempt to Cross Into Manhattan (8:46 p.m. NY)As the sun set and the city-imposed curfew took effect, thousands of demonstrators headed from Brooklyn’s Barclays Center toward Manhattan. Police wearing helmets and wielding batons stood watch as protesters marched down Flatbush Ave, while workers continued to board up store windows.Protesters chanted, “Black Lives Matter” as they walked. Dozens of police and parked squad cars blocked the entrance to both the Manhattan and Brooklyn bridges. Traffic snarled behind the crowd.Allen Mintz, 35, an attorney, said the protesters were aware the rally could end in violence, as similar gatherings have in recent days. “Yes, this is dangerous, but you know what else is dangerous? Injustice.”L.A. Protesters Gather in Front of Mayor’s House (8:45 p.m. NY)Crowds gathered in Los Angeles, including in front of Mayor Eric Garcetti’s house, ahead of a 6 p.m. curfew, according to local news channels. The city was on edge all day, with retailers from giant chains like Starbucks and Rite Aid to local mom and pop shopkeepers picking up the pieces of the previous night’s looting and vandalism. Particularly hard hit were Hollywood and the San Fernando Valley, neighborhoods that had been skipped earlier. Garcetti said in a radio interview Tuesday that it was a peaceful day, and that he intended to make moves including eliminating chokeholds for police.Police chief Michael Moore listened to public comments calling for his resignation during a virtual meeting of the police commission. The calls followed comments he made Monday equating looters in the city with the police officers who killed George Floyd.Chicago Mayor Announces Expedited Police Reforms (8:40 p.m. NY)Chicago Mayor Lori Lightfoot said Tuesday evening that she will expedite some planned reforms for the city’s police department like changes to training, officer wellness and recruitment over the next 90 days. The department is already under a consent decree.Lightfoot, the city’s first black female mayor, called out the officers involved in the death of George Floyd in Minneapolis last month.“I have watched all of the video coverage of George Floyd’s encounter with the four, shameful Minneapolis police officers who took his life,” she said. “I say all four, and not just the one who had his knee on his neck. All four were complicit. None followed their training, none intervened, and all felt entitled to abuse the privilege and honor of their badge to rob George Floyd of his humanity, his future and his life.”Houston Crowds Linger After Event Organized by Floyd Family (7:30 p.m. NY)Thousands gathered in downtown Houston Tuesday afternoon for a protest organized by two of the city’s rappers and George Floyd’s family. The organized portion of the demonstration was largely peaceful.A couple hours after the official end of the event, tensions escalated between police officers and lingering protesters. At one point, pepper spray or mace was used, and a handful of demonstrators and a police officer were seen rubbing their eyes. Houston police announced via loudspeaker they no longer considered the protest a peaceful assembly around 6:30 p.m. local time.New York Curfew Takes Effect (8:15 p.m. NY)New York’s curfew took force at 8 p.m., a day after scores of stores in the Midtown shopping district were smashed and looted. Under the curfew order, no traffic will be allowed south of 96th Street in Manhattan except for essential workers only. Hire vehicles like those of Uber and Lyft are suspended until 12:30 a.m. while taxis were told to take essential workers only.The curfew will run until 5 a.m. The largest U.S. city’s evening curfew will take effect nightly through June 7.Minnesota Files Civil Rights Charge in Floyd Death (4:56 p.m. NY)The state of Minnesota filed a human-rights complaint Tuesday against the Minneapolis Police Department in Floyd’s death. Governor Tim Walz and the Minnesota Department of Human Rights announced the filing at a news conference Tuesday afternoon, the Associated Press reported.The officer who kept his knee on Floyd’s neck for more than eight minutes, Derek Chauvin, has been fired and charged with third-degree murder and second-degree manslaughter. Three other officers involved were fired but have not been charged.Walz said the investigation into the police department’s policies, procedures and practices over the past 10 years will determine if the force has engaged in systemic discrimination toward people of color, and work out how to stop it.The Minneapolis Board of Education took action of its own Tuesday evening, voting in favor of a resolution to cut ties with the Minneapolis Police Department, the HuffPost reported. The resolution was introduced last Friday, four days after the deadly encounter between Chauvin and Floyd.Curfews, Protests Spread, Even to Hamptons (6:51 pm NY)Several hundred people gathered in Bridgehampton to protest the death of Floyd. Bridgehampton is a small but luxurious beach town on the East End of Long Island where privileged New York City dwellers escaped to when the pandemic began.Protesters gathered in the small downtown area, marching past a historic community house and ice cream parlor while chanting “hands up, don’t shoot” and “black lives matter.” Most protesters wore face coverings. The fashion designer Donna Karen attended the protest. “Who would not come here?” she told a News Day reporter. “This [police brutality] is unacceptable.”In Chicago, curfews expanded to a number of suburbs, including Oak Park and Downers Grove.In New York City, Manhattan traffic south of 96th Street wil be shut down Tuesday at 8 p.m., when the citywide curfew goes into effect, the New York Police Department said.Apple, Spotify and YouTube Join BlackOutTuesday (5:45 p.m. NY)Apple Inc., Spotify Technology Inc. and YouTube joined BlackoutTuesday, an initiative tied to the music industry’s TheShowMustBePaused movement, which supports protests across the U.S. against police brutality and racism toward African Americans.The iPhone maker paused the browse feature on its Apple Music service, presenting users with a message about standing in solidarity “with the Black voices that define music, creativity, and culture.” Spotify created a “Black Lives Matter” playlist while the music division of Google’s YouTube canceled all meetings on Tuesday. Executives for YouTube’s business and music teams also invited staff to take the day off.Warner Music Group’s Atlantic Records announced plans to contribute to “Black Lives Matter and other organizations that are doing crucial work to combat racial injustice.Colorado Governor Says No to National Guard (5:30 p.m. NY)“Denver is not Little Rock in 1957, and Donald Trump is not President Eisenhower,” Colorado Governor Jared Polis and Denver Mayor Michael Hancock, both Democrats, said in a joint statement in response to Trump’s threat to unleash federal troops across the U.S. “This is a time for healing, for bringing people together, and the best way to protect civil rights is to move away from escalating violence.”Denver has been under a curfew since the weekend with Colorado National Guard troops assisting city police to contain rioting and stop looting.Barr Moves to Forefront, Vows Greater Resources (5 p.m. NY)As President Donald Trump weighs whether to deploy active-duty military troops to confront protesters across the U.S., he’s getting advice from someone who’s been there before: Attorney General William Barr.Barr was attorney general in 1992 when the Insurrection Act authorizing such an extraordinary deployment was last invoked by President George H.W. Bush to quell riots in Los Angeles over the police arrest and beating of a black man, Rodney King. Now, Barr is playing a central and visible role in orchestrating Trump’s hard-line federal response to the demonstrations.In an unusual public appearance Monday, Barr stood in a park across from the White House as police prepared to rush a group of peaceful protesters and push them back. The move followed a decision earlier in the day to extend the protective perimeter around the White House -- a decision one senior Justice Department official said Barr was heavily involved in making in order to avoid the mayhem of previous nights in the nation’s capital.What the Law Says About Deploying Troops on U.S. Soil: QuickTakeNYC Businesses Crushed by Covid Face Riot Rubble (3:39 p.m. NY)New York City’s reopening is days away. After months of lockdown, businesses were prepared for a marathon slog back to normal. Now, after days of rioting, many are crawling just to reach the start line.Peaceful crowds have gathered in each of the five boroughs for the last five days to protest police killings of black people. Looters followed. They have broken windows and taken goods from small bodegas to icons of America’s commercial capital and everything in between.On Tuesday, after a fresh spasm of violence, the streets were carpeted with shattered glass. Stores throughout Midtown and downtown, the once-thriving centers of commerce and pleasure, were sacked. Shop owners and managers wearily prepared to welcome customers who might keep their stores alive and feed their families amid a plague that has killed more than 21,000 New Yorkers and thrown millions into the unemployment lines.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Swiss Economy Slumps the Most in Decades
    Bloomberg

    Swiss Economy Slumps the Most in Decades

    (Bloomberg) -- Switzerland’s economy slumped the most in at least four decades as a result of the coronavirus pandemic, with private consumption and investment plummeting.First-quarter gross domestic product plunged 2.6%, data from the State Secretariat for Economic Affairs showed. That’s worse than the 2.1% hit forecast by economists in a Bloomberg survey and the biggest three-month contraction since the start of the time series in 1980.Like neighboring France, Italy and Germany, Switzerland responded to the pandemic by winding down much of public life. The hotel and restaurant sector experienced a 23.4% drop in output, according to the data on Wednesday.Although the Swiss economy fared slightly worse than Germany’s in the first quarter, the contractions in France and Italy were far more severe.Swiss government subsidies have kept a lid on unemployment and helped companies avoid a cash crunch, but the SECO still expects the economy to shrink 6.7% this year before staging a slow recovery in 2021.Machine industry group Swissmem said that 80% of its member companies were forced to apply for short-time work, and that the full impact of the pandemic wouldn’t be felt by the sector until the second or third quarter of this year.To prevent the rallying haven franc from hurting the economy still further, the Swiss National Bank has stepped up the pace of its currency interventions. Its deposit rate is already at a record low of -0.75%.(Updates detail on hospitality sector in 3rd paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Brent Oil Rises Past $40 With OPEC+ Cut Extension Looking Likely
    Bloomberg

    Brent Oil Rises Past $40 With OPEC+ Cut Extension Looking Likely

    (Bloomberg) -- Brent oil rose above $40 a barrel for the first time in almost three months on signs that OPEC+ producers are close to agreeing on a short extension of their historic deal to cut output.Futures in London climbed around 2% after closing at their highest level since March 6, the day the OPEC+ alliance broke down. Russia and several other nations in the group favor extending the production cuts that are set to ease from July by one month, according to people familiar with the situation. That’s within the range of Saudi Arabia’s call for a one to three-month elongation.In more evidence the oil market is rebalancing, the American Petroleum Institute reported that stockpiles at the storage hub at Cushing, Oklahoma fell by 2.2 million barrels last week. That would mark the fourth straight weekly decline if confirmed by U.S. government data due later on Wednesday.While the global benchmark crude has now doubled from its low in mid-April, the path back to pre-virus levels of oil demand still looks uncertain. The civil strife rocking the U.S. increases the risk of a second wave of infections there, while international travel could be impacted for years to come. The rally may also be blunted by the return of American shale production.“The market is much closer to re-balancing, with demand trends showing this and countries already opening up,” said Suvro Sarkar, vice president of group research at DBS Bank Ltd. However, the impact of the upcoming OPEC+ meeting has been largely priced in, so there’s limited upside from here, he said.Brent for August delivery rose 1.6% to $40.21 a barrel on the ICE Futures Europe exchange as of 7:23 a.m. in London after closing up 3.3% on Tuesday. Contangoes for the grade’s three- and six-month timespreads narrowed further, indicating concerns over a supply glut have eased.West Texas Intermediate for July climbed 2.7% to $37.79 a barrel on the New York Mercantile Exchange following a 3.9% increase in the previous session. The American benchmark has doubled since the end of April.Forecasts RaisedAs recently as last week, Moscow’s stance was that it didn’t want to extend the OPEC+ cuts and favored sticking to the original agreement. It’s not unusual for Russia and Saudi Arabia to hold different positions before OPEC+ talks. On most occasions the two producers have eventually found a compromise.DBS said Brent will average $42 to $47 a barrel this year, $5 higher than its previous estimate. The easing of lockdown restrictions in some parts of the world ahead of infection rates peaking means the demand recovery could be faster than previously anticipated, the Singaporean bank said in a note. Morgan Stanley and Fitch Solutions have also raised their forecasts in the past week.The API reported overall U.S. crude stockpiles fell 483,000 barrels last week, according to people familiar with the data. Meanwhile, crude exports from OPEC’s Middle East exporters dropped by the most on record last month as the output-cut agreement kicked in and Russia came close to its reduction target.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Rare Cyclone Prompts Mumbai to Move Virus Patients to Safe Areas

    (Bloomberg) -- Mumbai, which is facing the brunt of a virus pandemic, shifted patients to safer places from vulnerable hospitals as India’s financial capital prepares for a severe cyclone that is likely to disrupt business on Wednesday.Winds with speeds as high as 120 kilometers (75 miles) per hour will batter the city, home to the country’s central bank and the benchmark stock exchange, according to the India Meteorological Department. The second cyclone in the country in a fortnight, called Nisarga, is the biggest storm to make a landfall near Mumbai in more than a decade.The city of more than 18 million people was due to partially reopen from Wednesday, but that has now been deferred until Friday, when shops and markets will be permitted to resume operations. A temporary Covid-19 hospital, built in about two weeks on MMRDA grounds, can withstand winds of as much as 100 kilometers per hour, the authority said in a Twitter post, adding that some 150 patients have been shifted to other premises.The cyclone comes at a time when India is slowly springing back to life after nearly two months of complete shutdown as the world’s most-populous nation took stringent measures to check the spread of Covid-19. The outbreak in Mumbai has snowballed, with the city now accounting for more than a fifth of India’s over 5,800 deaths and about 207,000 infections.Existing Covid-19 hospitals, isolation wards and quarantine centers need to be secured, said Anshu Sharma, co-founder of Sustainable Environment and Ecological Development Society. The secondary and tertiary impacts of the cyclone, such as contamination of drinking water, damage to toilets and water borne diseases need to be avoided, Sharma said.The wind speed will be intense enough to damage communication, electricity poles, trees, and plantations, according to the weather office. The Mumbai Metropolitan Region Development Authority has lowered heavy equipment at some construction sites.The storm is likely to cross north Maharashtra coasts near Alibag Wednesday afternoon and bring extremely heavy rains in the region. It follows Amphan, the worst cyclone over the Bay of Bengal since 1999, last month displaced millions and killed more than 100 people across India and Bangladesh. More than a decade ago, Phyan had hit India’s western coast near the commercial capital.Extreme weather conditions are adding to the country’s misery as the pandemic has resulted in loss of livelihood and pushed millions into poverty because of the strict stay-at-home rules. As a result, the economy is heading for its first full-year GDP drop in more than four decades.Rare CycloneMumbai is prone to heavy rains and floods, but cyclonic storms are rare in the mega city. Last year, the heaviest downpour since 2005 inundated the city, delaying trains and planes and spurring the city administration to declare a holiday.Steps are being taken to help those living in low-lying areas and slums around Mithi river that flows through the city, according to Mumbai’s municipal corporation. Construction activities have been stopped and heavy equipment moved. Residents have been advised to stay indoors and if forced to travel in an emergency, should keep tools that can help break car doors in case they are trapped by flooding, it said.About 40 teams from the National Disaster Response Force have been deployed in Maharashtra and Gujarat, while three others are ready in reserve, the agency said in a Twitter post.IndiGo, Asia’s biggest budget airline by market value, said Tuesday flights to or from Mumbai, Pune, Shirdi and Surat are likely to be impacted due to the cyclone, while Vodafone Idea Ltd. said it was taking all necessary precautions and, if needed, will work with other operators to open intra-circle roaming facilities.However, the storm is unlikely to cause a major power outage in Mumbai as alternate transmission networks can be deployed to replace those damaged, according to Tata Power Co. Ltd. Most of the company’s distribution network is underground and should be left unharmed by the cyclone, Sanjay Banga, president for transmission and distribution at the company said by phone late on Tuesday.A Reserve Bank of India spokesman in Mumbai has said that all arrangements were in place for the smooth operation of settlement of trades and transactions.(Updates to add comment, detail throughout)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Stock Rally Extends; Dollar Lowest Since March: Markets Wrap
    Bloomberg

    Stock Rally Extends; Dollar Lowest Since March: Markets Wrap

    (Bloomberg) -- The global rally in stocks showed no signs of abating Wednesday as investors continued to bet on a quick economic recovery from the coronavirus pandemic. The dollar hit the lowest level since late March.European equity futures climbed along with U.S. contracts and Asia Pacific shares rose. South Korean shares led gains after the country detailed a third round of fiscal stimulus. Indonesia’s rupiah was the outperformer in currencies, after record orders at a local bond auction. Treasuries dipped. The S&P 500 on Tuesday closed at its highest since early March. Brent crude extended its rebound above $40 as investors eyed a potential extension of record production curbs by OPEC+.Global stocks are trading at a three-month high as businesses continue to reopen around the world and manufacturing gauges show economies stabilizing following coronavirus shutdowns. That’s despite a slew of risks still on the horizon, including tense U.S.-China relations that may jeopardize a hard-won trade deal.Traders are also looking past civil and political unrest in the U.S. Chicago will enter the next phase of its reopening plan as scheduled on Wednesday, protests notwithstanding.“If I look at the markets, I see a V-shaped recovery,” Mark Mobius, co-founder at Mobius Capital Partners, said on Bloomberg TV. “That’s what the markets are telling us.”Elsewhere, the Australian dollar pared gains after data showed the economy retreated on a quarterly basis in the first three months of the year.Here are some key events coming up:In Europe, the ECB is expected to top up its rescue program with an additional 500 billion euros of asset purchases at a meeting on Thursday. Anything less than an expansion would be a big shock, Bloomberg Economics said.The U.S. labor market report on Friday will probably show American unemployment soared to 19.6% in May, the highest since the 1930s.These are the main moves in markets:StocksFutures on the S&P 500 Index rose 0.4% as of 7:01 a.m. in London. The gauge rose 0.8% on Tuesday.Japan’s Topix index advanced 0.7%.Hong Kong’s Hang Seng rose 1.3%.Shanghai Composite index added 0.4%.South Korea’s Kospi index climbed 3%.Australia’s S&P/ASX 200 Index added 1.8%.Euro Stoxx 50 futures rose 1.4%.CurrenciesThe yen was at 108.59 per dollar, up 0.1%.The offshore yuan dipped 0.2% to 7.1189 per dollar.The euro bought $1.1205, up 0.3%.BondsThe yield on 10-year Treasuries climbed about two basis points to 0.70%.Australia’s 10-year yield rose about five basis points to 0.96%.CommoditiesWest Texas Intermediate crude increased 2.2% to $38.07 a barrel. Brent was at $40.43 a barrel, up 2.2%.Gold slipped 0.2% to $1,724.91 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Lufthansa Plans Far-Reaching Restructuring to Repay Bailout
    Bloomberg

    Lufthansa Plans Far-Reaching Restructuring to Repay Bailout

    (Bloomberg) -- Deutsche Lufthansa AG signaled the start of a company-wide revamp spanning job cuts to asset disposals to help repay its 9 billion-euro ($10 billion) bailout from the German government.Europe’s biggest airline will slash employee expenses and look at spinning off non-core units in an effort to reduce costs and bolster cash flow as the coronavirus crisis depresses revenue, it said in a statement Wednesday. The group had a 2.1 billion-euro net loss in the first quarter.“In view of the very slow recovery in demand, we must now take far-reaching restructuring measures to counteract this,” Chief Executive Officer Carsten Spohr said in the release.Lufthansa’s pledge to slash costs is likely to lead to a struggle with Germany’s powerful labor unions, which in the years prior to the pandemic thwarted efforts to trim expenses with pilot and cabin-crew strikes. The situation may be complicated by the state’s 20% holding in the airline as part of the pending rescue, which will involve government representatives in its affairs.The company set out more precise cuts for its foreign airline units, where labor protection laws are less stringent than in Germany. Austrian Airlines will see staff costs pared by 20%, with Brussels Airlines suffering a 25% reduction in the workforce and a 30% cut to its fleet.While Lufthansa has said its liquidity position is becoming “urgent,” the statement gave no details on cash levels. The deal will dilute the holdings of current investors, though they’re expected to back it in a June 25 vote rather than risk insolvency.Airlines worldwide are reeling as the Covid-19 pandemic brings decades of travel growth to a shuddering halt, with industry executives suggesting it may take several years for demand to return to previous levels, especially in the long-haul markets targeted by premium carriers such as Lufthansa.At the same time the German carrier, previously regarded as among the most stable and successful, is negotiating bailout that’s the biggest for the industry so far. Its predicament highlighs both the impact of the virus and Germany’s willingness to come to the aid of its leading businesses.Lufthansa posted a first-quarter loss of 1.22 billion euros, widening from 336 million euros a year earlier. The imposition of travel lockdowns from mid-February led to an 18% drop in sales, with fuel-hedging losses also hurting the numbers.The picture will be far worse in the current quarter, during which almost all of the carrier’s 760 planes have been grounded.Spohr said it’s impossible to provide full-year guidance, beyond saying the result will be significantly worse.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • A $100 Billion Robotics Supplier Is Japan’s Second Biggest Firm
    Bloomberg

    A $100 Billion Robotics Supplier Is Japan’s Second Biggest Firm

    (Bloomberg) -- It’s the rise of the robots: Japan’s second-largest company is now a maker of industrial automation systems, highlighting the rising importance of a less visible sector to a nation long associated with consumer-facing brands.Keyence Corp., a maker of machine vision systems and sensors for factories, has jumped 19% this year to become Japan’s second-largest company by market value. At a valuation of over 11 trillion yen ($100 billion), it has overtaken telecommunications giants SoftBank Group Corp., and NTT Docomo Inc., which have jostled for the honor to sit behind Toyota Motor Corp. over most of the past decade.Keyence is famed for its dizzying profitability with an operating profit margin of more than 50%, among the country’s highest. That’s enabled by its “fabless” output model, according to analysts, with production of its array of pressure sensors, barcode readers and laser scanners outsourced to avoid high capital costs.Its industry-leading sales system creates bespoke solutions for clients, and its frequently listed as the highest-paying company in Japan. The surge in its shares has also benefited founder Takemitsu Takizaki, who has overtaken SoftBank’s Masayoshi Son by a good margin to become Japan’s second-richest man.“It’s got everything — high growth, high dividends and a high operating margin,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “It’s the type of long-term stock you want to leave to your kids or your grandkids.”Keyence has more than tripled in market value since early 2016. “We feel the sense of expectation from our shareholders,” said Keyence director Keiichi Kimura when asked to comment on the milestone. “We’ll do our best to live up to those expectations.”The rise has also underscored how important the country’s parts and robot makers have become to the stock market, shown in the weighting of companies that make up the the country’s benchmark Topix index. Japan stocks were once dominated by banks and automakers — but years of zero rates which now dip into negative have hurt the profitability of the former, while the importance of the latter was declining even before the coronavirus sent the industry into reverse gear.The weighting of the Topix’s Electrical Appliance sector, also home to the likes of Sony Corp., Murata Manufacturing Co., and Fanuc Corp., has increased to almost 15%, the highest in about a decade, as the importance of the Banks and Transportation Equipment sectors have declined. The Information and Communication sector, headed by the five listed companies that dominate Japan’s mobile carriers, is the second-most heavily weighted segment.The growing presence of IT shares has also been a feature in the U.S. stock market, with the sector making up the highest proportion of the S&P 500 Index since the dot-com bubble burst. The coronavirus pandemic has amplified a trend for investors to prefer companies that eliminate humans from the process — a trend Keyence benefits from both with its fabless production model, and by enabling companies to automate their own production.“It’s a business model that grows the more factory automation throughout the world progresses,” said Mitsubishi UFJ Morgan Stanley Securities’ Fujito.Founder Takizaki holds about 23% of Keyence’s shares, Bloomberg-compiled data show. For the Topix, which takes the free float of the shares into account in its weightings, those holdings mean Keyence is less heavily weighted than Sony, whose market value trails by comparison. Toyota the biggest company on the index, and even forecasting an 80% drop in profit this year, the automaker remains Japan’s largest business with a market value double that of Keyence.“We like Keyence as it outsources production instead of owning factories, allowing it to focus on R&D,” HSBC analysts including Helen Fang wrote in a May 26 report that initiated coverage of the company with a buy rating. “It also uses a direct-sales model that keeps it close to clients. This strategy means it can better capture market share in a widening array of industries and can focus on high-value client solutions.”While the coronavirus pandemic will depress profits this year, Nomura sees a recovery “to record-high profit levels” the following year and sees a record profit the next, analyst Masayasu Noguchi wrote in a report May 28 raising its target price on the stock.“It’s unclear how long the coronavirus pandemic will continue,” Keyence’s Kimura said. “The global uncertainty is likely to continue and in the midst of that we’ll continue to do what we can.”Factory Automation in Asia May Be First to Recover From PandemicThe notoriously tight-lipped Osaka-based company does not provide earnings guidance in its sparse quarterly disclosure. It’s an outlier in a country where companies are being encouraged to boost their transparency and communication with the market.“They are an efficiency-above-any-other kind of company, so doing extra that doesn’t result in revenue addition is probably less of a priority,” said Bloomberg Intelligence analyst Takeshi Kitaura. “They think generally those following the company are happy when they manage solid earnings and growth.”Yoshiharu Izumi, an analyst at SBI Securities Co., says that Keyence holds talks with shareholders and that reassures investors, and doesn’t view the paucity of disclosure as a problem. “Keyence has overtaken Sony, which is extremely proactive in responding to shareholders,” he said. “When Keyence starts putting energy into disclosure, that might be the time to sell.”(Updates with quotes from Keyence from sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Pandemic Shows a Low-Carbon Future in Dire Need of Batteries
    Bloomberg

    Pandemic Shows a Low-Carbon Future in Dire Need of Batteries

    (Bloomberg) -- Coronavirus has exposed a lack of investment in the big batteries crucial to unlocking solar and wind power.A drop in energy demand caused by the pandemic has left European grids overloaded with green electricity, raising the threat of blackouts and underlining the need for energy storage in a low-carbon energy system.Europe is striving to rid its power grids of carbon emissions by the middle of the century. But what should be an incentive to increase the use of batteries isn’t happening nearly fast enough with installations dropping last year, according to BloombergNEF.“Batteries are extremely critical,” Fatih Birol, executive director of the International Energy Agency, said in an interview. “They are ready for the big time” and should be included in post-virus economic recovery packages, he said.One reason for the drop in battery installations comes down to how power markets are set up, according to Marco van Daele, chief executive officer of Susi Partners AG, a clean energy infrastructure fund. The newness of storage technology and the lack of long-term income streams has put investors off.“An obstacle for much wider investment in the space is the lack of contracted and visible revenue,” he said. Even as the costs of building batteries come down, “the remuneration of that capacity needs to become more visible in order to attract the large-scale investment needed.”For decades, power markets have been designed around demand and ensuring there is enough supply to fulfill peak consumption. Slowly the focus is changing to how to control an oversupply when it’s sunny or windy. And with renewables having priority feeding into the grid, they have more influence over how the system is managed.Read more about how renewables are impacting the grid in BritainThe slide in demand caused by the virus lockdowns has been “like pressing a fast-forward button in power markets to where you have large amounts of generation but not the investment in flexibility,” said Peter Osbaldstone, research director on European power and renewables at Wood Mackenzie Group Ltd.For its part, the EU has proposed a 750 billion-euro ($824 billion) recovery plan to accelerate the transition to clean transport, increase energy savings and boost the production of renewable power.Read more about the Green Deal hereThe European Battery Alliance wants to use the opportunity to accelerate projects that would create 1 million jobs in the sector that could be worth 210 billion euros within the next 2-1/2 years, according to European Commission Vice President Maros Sefcovic.European carbon emissions are on track for a 17% reduction this year, thanks to a higher proportion of renewables used to meet demand.For battery owners, swings in prices when renewables hit the grid could be a major opportunity. Batteries can charge up when solar and wind generation is plentiful and market rates are low, and then sell power to the grid when prices are higher. With enough capacity on the system, buying and selling from battery operators could ultimately help ease the price swings.The U.K., Ireland, Italy, France and Germany have high potential for growth in the short-term, according to Marek Kubik, market director for U.K. and Ireland at Fluence Energy LLC.Factors such as retiring thermal generation, fast-growing variable renewable generation and a move to electrify sectors like transport and heat all point to a need for flexibility that can be easily supplied by battery-based energy storage, he said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Natural Gas May Be the Next Commodity to Trade Below Zero
    Bloomberg

    Natural Gas May Be the Next Commodity to Trade Below Zero

    (Bloomberg) -- The specter of negative prices is hanging over energy markets more than a month after oil’s unforgettable crash below zero.While crude has staged a rapid recovery after a deal by the biggest producers to curb a surplus, the $600 billion global gas market remains extraordinarily oversupplied. Traders and analysts say the worst may be yet to come as demand falls and storage nears capacity, creating the ideal conditions for negative prices in some parts of the world.It shows just how far the global energy industry is from recovering from a pandemic-fueled slide in demand and signals more pain for producers from the shale fields of Texas to Australia’s Curtis Island. Unlike the oil market, there’s been no sign of a coordinated response to address the glut, meaning the fallout could be deeper and longer.“We are in uncharted territory with low demand levels and high storage stocks,” said Guy Smith, head of gas trading at Swedish utility Vattenfall AB. “In the shorter term there is real risk that conditions may be set to allow negative prices in Europe, but only in the very short term.”The fuel, used to generate power and heat and as a feedstock for chemicals and fertilizers, was already slated to have a terrible year after a mild winter exacerbated a glut. But things turned from bad to worse as the pandemic hammered demand, forcing major buyers to reject deliveries. Meanwhile, top sellers haven’t yet throttled back enough output as stockpiles near capacity.Like oil’s brief plunge in April below minus-$40 a barrel, the key factor is the lack of storage to absorb excess supply. Traders and analysts point to Europe as the first market likely to hit that crisis point, which could have ripple effects for buyers and sellers from the U.S. to Asia.While the oil market has a broad, if fragile, alliance of producers to manage production and rescue prices, led by Saudi Arabia and Russia, the gas market lacks a coordinated approach, allowing the current oversupply to drift unchecked.With a deep bench of buyers across utilities and trading houses and flexible infrastructure that can both import and export cargoes, Europe has in recent years become known as the “sink” for global gas -- balancing booming output from the U.S. with the increasingly energy-hungry economies of Asia, led by China.That roll may soon be challenged as inventories across Europe are at a seasonal record of 73% capacity, compared with the 5-year average of 45%, according to data compiled by Gas Infrastructure Europe.“European gas storage inventory is the biggest risk for global gas markets,” said Edmund Siau, a Singapore-based analyst at energy consultant FGE, who expects the region’s storage to hit capacity in August. “Gas prices will see increasing downward pressure and volatility as the market gradually loses one of the tools to balance itself.”One European market in particular has come in focus as the most likely to go negative. While the world’s four major indexes have converged near historic lows, the U.K.’s National Balancing Point is the weakest, with the next-day contract recently dropping to the equivalent of about $0.99 per million British thermal units.“If we see below-zero gas prices in Europe, we will see it in the U.K.,” said Hadrien Collineau, senior gas analyst at Wood Mackenzie Ltd. “The market is constrained by its physical capacity, and once storage sites are filled, prices can go below zero. The U.K. doesn’t have much place for more gas, while we still have space in continental Europe.”The U.K.’s storage capacity declined drastically after Centrica Plc’s Rough facility closed in 2017.European prices would be more likely to flip negative in the prompt contracts -- such as within-day or day-ahead rather than contracts further out -- when storage injection rates are low and demand is weak due to mild, windy weather, according to Nick Boyes, an LNG and gas analyst at Swiss utility and trader Axpo Group.“I think the highest possibility of this happening is in August or early September when we have a greatest coincidence of both lowest demand and highest storage inventories,” he said.Natural gas is no stranger to negative prices. The U.K.’s NBP plunged below zero in 2006 after a pipeline opened for commercial imports from Norway. That plunge was more of an operational issue from the pipeline than a market trend, and it wasn’t in the middle of a bearish market, such as the one today, according to James Huckstepp, manager of EMEA gas analytics at S&P Global Platts.In the U.S., associated gas, a byproduct of shale drilling, has periodically gone negative due mainly to increased production coming up against limited transport capacity at places such as the Waha Hub in West Texas.While some estimates have Europe’s storage facilities hitting capacity as soon as next month, analysts at Morgan Stanley and Platts see it getting close but just missing it. Still, sub-zero prices are a possibility even if hitting “tank tops” is avoided.“It may require a short period of negative prices to make suppliers understand the gravity of this situation -- and this is before storages are completely full,” said Jonathan Stern, senior research fellow at the Oxford Institute of Energy Studies.While traders and analysts surveyed by Bloomberg last month noted that there’s a possibility sub-zero gas could emerge in Europe, most said the chances are slim as suppliers would likely quickly respond before it gets to that point.Indeed, there are some signs that supply is easing.Buyers of U.S. liquefied natural gas have canceled dozens of cargoes scheduled for the summer. Meanwhile, shipments from nations including Malaysia, Brunei and Norway dropped last month, when global LNG export growth halted years of expansion.But overall, according to FGE’s Siau, there hasn’t been a large enough output curb to balance the market and stop a further price slide. Flows from top exporter Russia through its Yamal-Europe pipeline, for instance, fluctuated at the end of May but have increased again this month.Qatar’s energy minister said last month that there would be something “drastically wrong” with the market if the country stopped selling LNG because of low prices. Meanwhile, LNG consumption this summer is forecast to drop 2.7%, the first seasonal demand contraction since 2012, Robert Sims, a research director at Woodmac, said in a note.“I expect lower for longer -- but we might get stuck into this bad equilibrium, too low to make real money as a supplier but not low enough to unlock a huge tranche of demand,” Nikos Tsafos, senior fellow at the Center for Strategic and International Studies, said by email. “What’s the floor? Frankly we have no idea. We haven’t seen prices like these ever before.”(Updates with Qatar’s comment in second to last paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Billions Going to China’s Quants Takes Fight to Global Funds

    (Bloomberg) -- As China was welcoming in the world’s largest hedge funds four years ago, a Hangzhou-based quantitative fund was burning through motherboards and buying the wrong types of servers as it figured out machine learning.Those “silly mistakes” quickly made way for Zhejiang High-Flyer Asset Management’s integration of machine learning into the strategies it uses to invest its 20 billion yuan ($2.8 billion) in assets, said Chief Executive Simon Lu. It now boasts its own super computer, a 60-strong team of engineers and data scientists and a confidence that belies its five years in the business.Of the foreign competition that would once have been hard to fend off, it’s now a question of “who’s the best shooter when everyone has the same caliber gun,” Lu said. “The ability to understand the local market cannot be replicated or acquired that fast.”High-Flyer is among Chinese quant funds closing the technological gap with veterans like D.E. Shaw & Co. and Two Sigma Investments LP as the U.S. firms make inroads on their home turf. Ranked as 2019’s No. 1 stock hedge fund by data provider Shanghai Suntime Information Technology Co., High-Flyer drew more assets last year than the combined collections of the dozens of foreign funds jostling for a piece of the market.It isn’t alone. Second-ranked Shanghai Minghong Investment Management Co. has more than quadrupled the money it manages since 2018 to nearly 40 billion yuan, making it China’s biggest quant hedge fund. Inno Asset Management, ranked No. 3 by Suntime and founded by Xu Shunan, tripled assets since 2018. Quant hedge funds’ assets globally fell 12% this year through April 20, according to Eurekahedge Pte.China’s quants are benefiting from being “latecomers,” borrowing technologies and algorithm models from abroad, according to UBS Asset Management Hedge Fund Solutions. While they may lack years of trading experience and often have less robust research and investment systems, they compensate with on-the-ground knowledge that foreign peers need time to gain, said Xia Kun, who’s responsible for fund of hedge fund management for UBS’s China private fund management business.Competition is set to be intense in what Xia says is a “perfect market” for systematic trading. “The China market is huge and deep,” he said. “It’s very liquid, but at the same time still quite inefficient.”Minghong and High-Flyer have distinguished themselves from the close to 9,000 hedge funds vying for investor attention in China. Those ranks have been swelled since 2016 by global stalwarts including Millburn Ridgefield Corp., Winton Group Ltd. and Man Group Plc, all craving a share of the 2.6 trillion yuan private securities funds market as clients in developed countries shift toward low-fee investments.Even in this crowded field, quant trading is at a nascent stage, said Qiu Huiming, who worked for Millennium Management LLC and HAP Capital Advisors LLC in the U.S. before returning to start Minghong in 2014. Funds like his manage only 250 billion yuan, he estimates, while the market can absorb more than a trillion yuan in high-frequency plays and five times that in strategies that rely on fundamentals and hold long-term positions.Jade RabbitOne early mover was High-Flyer, set up in 2015 by three engineers from Zhejiang University who began trading as students during the global financial crisis. The advantages of machine learning quickly caught the attention of co-founder Xu Jin, who was a visual navigation expert with China’s Jade Rabbit lunar rover program during his doctoral studies. The firm experimented with a multi-factor, price-volume based model in 2016, began testing it in trading the following year, then more broadly adopted machine learning-based strategies.Returns have climbed 20% as a result, Lu said. Most of the group’s assets are split between the China Equity Fund CSI 500 Series, which was up 60% last year, and the China Absolute Return Series, which has generated an average 17% since inception more than three years ago. A focused machine learning strategy, with less than 100 million yuan, surged 99% in 2019 and is up 23% this year.Minghong says it doubled assets in 2018 alone after moving to a medium-to-high frequency statistical arbitrage strategy that boosted excess returns by as much as 20 percentage points annually. It didn’t disclose absolute return figures. Rival Inno saw its best fund return 128% last year.China’s top-tier quants should still be able to capture excess returns of more than 20% above benchmarks in the next few years given the level of market inefficiencies, according Shanghai-based Inno’s Xu. His fund more than doubled so-called alpha after upgrading its model with machine learning, he added.By comparison, BlackRock Inc.’s first China quant strategy gained 37.8% in 2019 and 12.2% as of April 30 since inception in May 2018, according to people familiar with the matter. BlackRock declined to comment. Quant funds globally averaged a return of 6.6% last year and lost 2.9% in the first quarter, Eurkahedge data show.Time to Adapt“Just because some foreign players’ products have lower returns doesn’t mean our research is superior,” said Minghong’s Qiu, noting that returns are not exactly comparable across different trading strategies. “But from the clients’ perspective, the advantages of our products are real.”And in China, stunning returns draw funds more so than elsewhere.Read more: Hedge Funds Chasing 400% Return Show Risk in China’s Wild MarketThe 26 foreign asset managers in China have cornered about 0.3% of the market, or 9 billion yuan, Shenzhen PaiPaiWang Investment & Management Co. data show. Two Sigma manages around 452 million yuan, while BlackRock has less than 1 billion yuan. D.E. Shaw manages about 1 billion yuan.Overseas firms need time to adapt, said Yan Hong, director of the China Hedge Fund Research Center at the Shanghai Advanced Institute of Finance. A short track record locally, restrictions on using their own offshore money to seed onshore products, and the time needed to build a local team is limiting them, he said. “It’s unrealistic to expect the foreign players to emerge quickly and overtake top local players in the near term.”The dominance of retail investors and daily trading limits are among factors that make it hard for offshore strategies, said High-Flyer’s Lu. The real competition, he said, is keeping returns stable as a growing asset base strains the trading capacity of strategies.Fund managers agree that local talent is paramount but challenging to attract. For the past 24 months, High-Flyer has been trying to recruit deep-learning scientists by offering salaries of as much as 2 million yuan. That sort of pay would rank among the top 20% best offers in the market, according to Beijing HeraldPartners Consulting Co. But filling the positions has been slow given the competition from tech giants like Tencent Holdings Ltd. and Alibaba Group Holding Ltd.The answer for some international funds is joint ventures rather than the usual track of setting up as a wholly foreign owned private fund managers.New York-based Millburn Ridgefield’s Chinese partner has been critical in building a local team, according to co-CEO Barry Goodman. Shanghai-based Quadrant Asset Management helped it find high-quality vendors to source “good, clean data” and understand the intricacies of execution, Goodman said.Although the nearly 50-year-old hedge fund has been using machine learning since 2013, “we felt like it was really important to approach the China market with a great deal of humility,” he said.(Updates with Two Sigma assets under management in 17th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • World’s Hottest Bond Market Fired by Defiance to Go Sub-Zero
    Bloomberg

    World’s Hottest Bond Market Fired by Defiance to Go Sub-Zero

    (Bloomberg) -- One central bank’s refusal to contemplate negative interest rates is helping set it apart from developed peers and stoke interest in its world-beating bond market.The Reserve Bank of Australia’s reluctance to contemplate life below zero is helping draw the likes of PGIM Inc. and JPMorgan Asset Management to the nation’s $482 billion sovereign bond market. Australia’s 10-year bond yield discount to Treasuries flipped to a premium in March as the Federal Reserve slashed borrowing costs, spurring bets U.S. rates would turn negative next year.Australian bonds are “competitively well supported and they represent a good storehouse of value that requires less of a leap of faith than most developed markets” to invest in right now, said Robert Tipp, head of global bonds and chief investment strategist at PGIM Fixed Income, which oversees $868 billion. Investors should consider going “long Australia on a core basis.”A gauge of Australian bonds is the best-performing among Group-of-10 peer equivalents, showing a 9% total return for the second quarter to June 1, according to Bloomberg Barclays indexes. The nation’s 10-year yield was trading at 0.97% on Wednesday versus 0.70% for equivalent Treasuries.Anchoring demand for Australian bonds is the RBA’s pledge to maintain benchmark three-year yields at the 0.25% cash rate. That’s in stark contrast to regional neighbors New Zealand, where the central bank is openly discussing the possibility of negative rates and Japan where they have been below zero since 2016.“QE measures and the RBA’s posturing on negative rates are helping to keep yields positive and that could be attractive for some,” said Raymond Lee, a money manager at Kapstream Capital who is long three-year Aussie bonds as a hedge for riskier credit bets. “Australia has a yield advantage compared to places like New Zealand which is open to the idea of negative rates, or even the U.S. where the Fed is keeping yields low.”Yield AppealThe RBA’s yield control may be particularly attractive to investors cornered by $11.7 trillion of negative-yielding debt, according to John Vail, chief global strategist of Nikko Asset Management Co. in Tokyo.“In a way, yield-curve control represents almost unlimited firepower,” said Vail. “It can be a lot less disruptive to the banking systems and even to the exchange rate compared to other tools such as negative rates -- some people will be drawn to that.”Australian bonds stand out particularly against New Zealand where swap markets started pricing the chance of negative rates in 2021.“Australia’s long-end offers some value,” said Kaspar Hense, portfolio manager at BlueBay Asset Management in London. “There’s not much room for investors to move especially in small, AAA-rated countries while looking for yield.”Foreign investors own over 50% of Australian sovereign debt, and there are signs demand is rebounding after a record sell-off in the first quarter during the worst of the virus-induced market panic.Japanese investors snapped up a net 107.9 billion yen ($1 billion) of long-term Aussie debt in March to mark their biggest purchase since June 2019. In May, Australia sold A$19 billion of bonds, a second record-breaking deal in two months as the government seeks to fund a A$130 billion stimulus package.Trade RiskTo be sure, not everyone is convinced Australian securities present the best bang for their buck.The country’s economic fortunes remain closely tied to China and brewing tensions between the two nations may see Aussie assets come under pressure, according to Brandywine Global Investment Management. As Australia leads calls for a probe into the origin of the coronavirus, volatility could rise and spur fresh sell-offs, said Jack McIntyre, portfolio manager in Philadelphia.“I do worry that Australia is poking the China bear,” he said. “They are at the front-line of U.S.-China tensions as well.”It’s a coin toss on how Aussie assets will perform if the tensions reach boiling point, according to Kapstream’s Lee.“China is Australia’s biggest trading partner and if it affects fundamentals here, that would have an impact on rates,” Sydney-based Lee said. “Ultimately though I think a lot will depend on what’s happening between the U.S. and China -- risk-off sessions could lead to bids in Treasuries and benefit Australia.”(Adds bond yields in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Record Wave of Local Debt in China Leaves Foreigners Wary
    Bloomberg

    Record Wave of Local Debt in China Leaves Foreigners Wary

    (Bloomberg) -- China’s success in luring foreigners into its domestic debt market, the world’s second largest, faces a new test in coming months as officials try to drum up interest in a record wave of bonds from local authorities.International funds now hold 8.6% of China’s central government bonds, several times more than the share just several years ago, and not terribly far from the 13% overseas stake in Japanese sovereigns. Inflows continued through the coronavirus crisis, and the U.S. trade war.Officials are hoping that interest might extend to local government notes, where foreign ownership is merely 0.01%. Issuance will climb to 4.73 trillion yuan ($666 billion) this year to help bolster economic growth that is expected to be the worst since the 1970s.“As China’s local government bond market is expanding quickly, regulators need to attract more diversified investors, including foreigners,” said Zhou Guannan, an analyst with Huachuang Securities Co. in Beijing. She said that would help “alleviate pressure on banks” -- which are usually dominant buyers, but are now burdened by mounting bad loans and requests to keep credit flowing to businesses.Problem is, that legacy of bank purchases has left the local government bond market even less readily tradable than for central government bonds. That’s because the banks typically buy and hold -- making it more costly to exit a position should a foreign investor need.Plus, yields on these bonds generally don’t offer a premium over debt from so-called policy-banks -- lenders owned by the central government that often carry out Beijing’s policy objectives. Given such disadvantages, overseas investors have a negligible share of the 21 trillion yuan of local government debt outstanding as of the end of 2019, more than a fifth of the entire domestic market.Despite their huge overall size, the average value of a single local bond is as small as just about 6% of a central government note. That’s because there are nearly 5,800 outstanding -- more than 20 times that of sovereign bonds.“Liquidity is diluted among the numerous local government bonds and so trading is inefficient,” said Felix Sun, head of fixed-income at UBS Securities Co. in Shanghai.Trading in the local bonds was just 5.3 trillion yuan in the first five months of the year, slightly more than a quarter of that in sovereign notes, where the total supply outstanding is 30% less.“We don’t buy local government bonds,” said Edmund Goh, Asia fixed-income investment director at Aberdeen Standard Investments in Shanghai. “The spread between local government bond and central government bond is too narrow, and the liquidity is bad.”Chinese regulators are aware of the problems, and are determined to build on the record of success getting fund managers abroad to see the attraction of diversifying into China’s debt.Efforts will be made to “improve the liquidity of local government bonds in the secondary market,” Xu Jinghua, an official with the Ministry of Finance’s treasury department, said at a briefing Friday, though she stopped short of spelling out specifics.Authorities will “steadily push forward the opening up” of the local debt market as they aim to “ensure smooth issuance” of government bonds this year, Xu said.At the end of the day, it could all come down to price.“I may consider buying some LGBs if they can provide spreads of 30 basis points over policy bank notes,” Goh said.(Adds details, quote on liquidity in seventh and eighth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • The Canadian Press

    UN urges help for countries near `debt distress' from virus

    TANZANIA, Tanzania — The president of the U.N. Economic and Social Council called for urgent action Tuesday to help the growing number of countries already facing or at risk of “debt distress” because of the economic impact of the coronavirus pandemic.Norway’s U.N. ambassador, Mona Juul, head of the 54-nation U.N. body, told a meeting on financing and recovery for the crisis that the decision by the world’s 20 major economic powers to freeze debt service payments for the world’s poorest countries through the end of the year isn’t enough.She said the Group of 20’s freeze will free about $11 billion until the end of the year, but it’s estimated that eligible countries have an additional $20 billion in multilateral and commercial debt combined coming due in 2020.Juul said that means even if the moratorium is extended to 2021, “many countries will have to make difficult choices between servicing their debt, fighting the pandemic and investing in recovery.”Eric LeCompte, executive director of Jubilee USA Network, an alliance of more than 75 U.S. organizations and 700 faith communities working for debt relief, was sharply critical of the resistance of private creditors, commercial lenders and banks to participate in debt relief calls — despite calls by the G-20, International Monetary Fund, World Bank and United States.“Because of the enormity of this crisis and the long-term challenges the markets could face, the fact that some private and commercial creditor blocks are not participating ... baffles the mind,” he told the virtual meeting.LeCompte said the U.N. Security Council must act “given that this crisis could devastate all of us, poor countries and the markets.”He called on the Security Council to follow its “precedent in 2003 when it protected the assets of Iraq from creditor payments and now immediately make the same decision for the 73 countries that need this protection most to compel private creditors to join the G-20.”“This decision would protect the assets of these countries and mandate that debt relief from official bilateral creditors is not used to pay private creditor debt,” LeCompte said.He also said that instead of calling or inviting private creditors to participate, officials should say they “expect” their participation “in order to help compel it.”LeCompte welcomed last week’s strong announcements from World Bank Group President David Malpass and said the IMF, G-20 and U.N. agencies should strengthen previous statements to say they “expect” private creditor participation in debt relief.Malpass told last Thursday’s largest gathering of world leaders since the coronavirus pandemic began that he was among the first to call for a debt moratorium, and he welcomed the support of G-20 countries for a suspension of debt service payments by all bilateral creditors and “comparable treatment by commercial creditors.”“I have been vocal in stating that all official bilateral creditors should participate, that commercial creditors should also participate on comparable terms and not exploit the debt relief of others,” Malpass said, “and that much more is needed, including longer term debt service relief and, in many cases, permanent and significant debt reduction.”Edith M. Lederer, The Associated Press

  • Worst May Be Over for Biggest Arab Economies as Businesses Adapt
    Bloomberg

    Worst May Be Over for Biggest Arab Economies as Businesses Adapt

    (Bloomberg) -- Business conditions in the Arab world’s three largest economies deteriorated at a slower pace in May as governments began to lift some lockdown restrictions while companies adjusted by slimming down staff and cutting salaries.Following a pandemic-driven plunge, non-oil private sector activity improved in Saudi, Arabia, Egypt and the United Arab Emirates, according to Purchasing Managers’ Index surveys compiled by IHS Markit. The gauge in each country still remained below the threshold of 50 that separates growth from contraction.Saudi Arabia’s PMI rose to 48.1 in May from 44.4 a month earlier, thanks to slower declines in output, new work and employment, according to IHS MarkitThe Egypt PMI rose to 40.7 from a record low 29.7 in April, bringing its stretch of declining conditions to the 10th consecutive month; employment and salary cuts resulted in the first drop in cost pressures in the series’ historyIHS Markit’s gauge for the UAE reached 46.7 in May from a record low of 44.1 in April; sentiment slipped to joint-lowest on recordThe challenge now is to build on the economic momentum as the relaxing of coronavirus lockdowns allows some businesses to reopen while consumer spending remains weak and low oil prices force many countries in the region to implement austerity measures.The recovery ahead may be uneven. Even as factories from the U.S. to Sweden saw an uptick in May, a gauge of China’s manufacturing activity slipped, underlining the risk that its rebound from the pandemic shutdowns risks faltering.Gulf OutlookThe start of an economic turnaround in the Gulf may not save the region from what the Institute of International Finance expects to be its worst recession on record this year. While Saudi Arabia moved this week to pump extra liquidity into banks, fiscal constraints after the crash in crude prices will likely hold back stimulus.Despite last month’s improvement in the private-sector economies of Saudi Arabia, Egypt and the UAE, companies continued to adjust, often at a cost to workers.Layoffs spread in Egypt, with the rate of job losses quickening to the fastest since January 2017. Employment in the Arab world’s most populous nation has now fallen in each of the last seven months. The UAE had a fifth consecutive monthly fall in job numbers, albeit the drop in May was the softest since February.Meanwhile, Saudi businesses saw the fastest decrease in staff salaries since the survey began in 2009, according to IHS Markit. To cope with growing cost pressures, UAE firms similarly cut pay at the quickest pace in the survey’s history.Sentiment among businesses for the year ahead was mixed. IHS Markit said it remained “very subdued” in Saudi Arabia and worsened in the UAE, where expectations reached the joint-lowest since the series began in April 2012.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Asia Today: S Korea reopening schools despite spike in cases
    The Canadian Press

    Asia Today: S Korea reopening schools despite spike in cases

    SEOUL, Korea, Republic Of — South Korea on Wednesday reported 49 new cases of COVID-19, continuing a weekslong resurgence of the virus as the government defended its decision to reopen schools despite health risks.The figures announced by the Korea Centers for Disease Control and Prevention on brought national totals to 11,590 cases and 273 deaths. All but one of the new cases were reported from the densely populated Seoul metropolitan area, where hundreds of infections have been linked to entertainment venues, church gatherings and a massive e-commerce warehouse.Mayors and governors in the greater capital area have shut thousands of nightclubs, hostess bars, karaoke rooms, churches and wedding halls to slow the spread of the virus.Some entertainment venues in Seoul, Incheon and Daejeon began collecting the personal details of their customers through smartphone QR codes this week so they could be located easily when needed, a requirement that will be expanded nationwide on June 10.Despite the spike in transmissions, the government has been pushing ahead with a phased reopening of schools, which began with high-school seniors on May 20.Class openings were planned Wednesday for nearly 1.8 million children -- high-school freshmen, middle-school juniors and third- and fourth-grade elementary kids.The Education Ministry couldn’t immediately confirm how many schools had to delay their openings because of virus concerns. But it said that 519 schools so far have been forced to go back to remote learning.Keeping schools closed would have been a difficult political decision in a country where teenagers are thrown into hyper-competitive school environments because graduating from elite universities is seen as crucial to career prospects. But some critics say that would have been the right decision for public health interests and that officials are risking the safety of children and their families.Prime Minister Chung Sye-kyun said that the country kept schools open even during the 1950-53 Korean War.“I believe that we cannot fail the dreams and future of our children because of the current difficulties,” Chung said during a virus meeting.In other developments in the Asia-Pacific region:— SOUTH KOREA OKs DRUG: South Korea’s Food and Drug Safety Ministry has allowed the use of Gilead Sciences’ antiviral drug remdesivir in treatment of COVID-19 patients. The ministry’s fast-track import approval Wednesday came after health authorities concluded that the drug could possibly help patients recover faster. Officials plan to soon hold discussions with Gilead to arrange the drug shipments.— CHINA REPORTS FOUR CASES: China on Wednesday reported four new confirmed coronavirus cases, one from abroad and three added retroactively after nucleic acid tests returned positive results. However, the country’s overall count fell by one to 83,021 after five other cases were eliminated retroactively. No new deaths were reported, leaving the total at 4,634 since the virus was first detected in the central Chinese city of Wuhan late last year. Just 73 remain in treatment and another 360 people are in isolation and being monitored for either testing positive but showing no symptoms or for being suspected of having caught the virus.___Follow AP news coverage of the coronavirus pandemic at http://apnews.com/VirusOutbreak and https://apnews.com/UnderstandingtheOutbreakThe Associated Press

  • Someone Just Made a Big Bullish Options Bet on a Singapore ETF
    Bloomberg

    Someone Just Made a Big Bullish Options Bet on a Singapore ETF

    (Bloomberg) -- An exchange-traded fund tracking Singapore companies drew record call-option volume.A total of 5,044 iShares MSCI Singapore ETF calls traded on Tuesday, compared with a 20-day average of 222, according to data compiled by Bloomberg. The November $21 calls were the most active, and Susquehanna Financial Group LLLP noted one trade where someone bought 3,800 of those options in odd lots, mostly paying 45 cents each. The U.S.-listed ETF itself rose 2.1% to close at $19.12.“This is a big trade” in “rarely traded EWS,” Susquehanna derivatives strategist Chris Murphy wrote in a note, referring to the ticker symbol. Murphy, who is based in Pennsylvania, added that “analysts have targeted Singapore as a potential destination for banks that want to move out of Hong Kong.” Lenders comprise 36% of the ETF, and real estate investment trusts 17%.The action in EWS is the latest sign of increased bullishness on Singapore. Local investors on a bargain hunt have been flocking to the biggest exchange-traded fund tracking the nation’s shares. The $723 million SPDR Straits Times Index ETF has gathered almost S$330 million ($236 million) since January, more than any previous year through May. As the Straits Times Index plunged to a decade low in March, investors poured S$212 million into the fund, the most in a month since 2002. The city-state’s benchmark equity gauge is up nearly 19% from a March 23 low, though still down 17% year-to-date.Singapore has been discussed as a potential beneficiary of China’s increasing moves on Hong Kong, with asset managers looking at opening offices in the city-state, Hong Kong parents eyeing Singapore schools and more. While the coronavirus may have affected these trends, China’s decision to impose new security legislation on the former British colony increases uncertainty about Hong Kong’s future and may boost the attractiveness of other hubs in Asia.Read more: In Hong Kong, Xi Jinping Takes a Page From Vladimir Putin’s PlaybookOn the iShares MSCI Singapore ETF, November $21 call volume itself was 4,569 on Tuesday, compared with open interest of 659, according to data compiled by Bloomberg. That indicates most of the contracts were new positions.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • American Farmers Awaiting Bumper Corn Crop Need Ethanol Demand
    Bloomberg

    American Farmers Awaiting Bumper Corn Crop Need Ethanol Demand

    (Bloomberg) -- American corn farmers are feeling better about their prospects with billions more in government aid and optimal growing conditions. There’s only one downer -- demand.Much of the U.S. biofuel industry is still limping along even as the economy ramps up from coronavirus-related lockdowns. While some plants have switched to making hand sanitizer, that doesn’t come close to ethanol demand, which typically accounts for one-third of the corn crop.Meanwhile, mild temperatures and frequent rain showers are boosting prospects for what already was predicted to be a record-large American corn harvest. The U.S. corn crop was rated 74% good or excellent as of Sunday, the best conditions since 2018. In the top corn-growing state of Iowa, ratings were the strongest in 26 years for this period, U.S. Department of Agriculture data showed.On the flip side, lockdowns are still keeping some cars off the roads, reducing demand for fuel. In April, use of corn to make fuel plunged 40%, USDA data showed this week. A pivot by some plants to producing more industrial alcohol for hand sanitizer, wasn’t nearly enough to compensate for the loss in fuel output.The lack of ethanol demand has kept corn under pressure, with prices the lowest for this time of year since 2006.Eighty-one percent of American farmers were either very concerned or somewhat concerned about the future viability of the U.S. ethanol industry, according to the Purdue University/CME Ag Economy Barometer released Tuesday.The overall agriculture-economy barometer increased slightly, but that was likely tied to a $19-billion aid package unveiled in mid-May to help mitigate the impact of the Covid-19.“The improvement in the Index of Current Conditions was probably motivated in part by increasing awareness of details regarding payments farmers are likely to receive under CFAP for losses incurred during the first two quarters of 2020,” Purdue University professor Jim Mintert said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • New Bank of Canada Chief Takes Reins Under Mountain of Debt
    Bloomberg

    New Bank of Canada Chief Takes Reins Under Mountain of Debt

    (Bloomberg) -- It would be hard for Tiff Macklem to imagine a worse economic backdrop to begin his seven-year term as Bank of Canada governor.One quarter of the nation’s labor force is out of work after the coronavirus pandemic and an oil-price crash triggered the deepest recession in the postwar era. Tens of thousands of Canadian businesses will almost certainly close in the next several months, bringing lasting damage to an economy that was struggling even before the crisis, and is seen lagging the recovery in the U.S.For Macklem, a career technocrat and most recently dean of the University of Toronto’s business school, that will mean testing the limits of debt accumulation in a country that -- with total government, corporate and household liabilities topping 300% of gross domestic product -- is already one of the most-highly leveraged in the world.To counter the slowdown, the new governor, who replaces Stephen Poloz on Wednesday, will keep financial conditions as loose as they’ve ever been in the central bank’s nine-decade history. Economists expect the central bank to leave the benchmark interest rate near zero for the foreseeable future, starting with a decision at 10 a.m. in Ottawa, and to keep the economy awash in cash.The Bank of Canada has expanded its balance sheet to about 20% of Canada’s GDP, up from about 5% pre-crisis, with the purchase of C$344 billion ($254 billion) of government bonds and other assets. It’s a situation fraught with risk, but many see Macklem as uniquely qualified to deal with it.“He’s got great common sense, he’s whip smart, he can frame ideas very clearly and has rock-solid judgment,” said Jean-Francois Perrault, chief economist at Bank of Nova Scotia, who worked with Macklem at the Bank of Canada and during his stint at the finance department in the financial crisis.Macklem comes into the job with solid credentials as an economist, central banker, government official and business insider. He was a key architect of the global response to the financial crisis just over a decade ago, when he served as a top aide to then Finance Minister Jim Flaherty. Mark Carney, Bank of Canada governor during the crisis, recruited Macklem in 2010 as his second-in-command, a post he occupied until 2014 when he left to run the Rotman School of Management.The new governor will need to draw on that breadth of experience to get to grips with the most pressing challenge: steering the economy out of its downturn while making sure the central bank doesn’t cede control of monetary policy as it finances the federal government’s massive emergency spending program. “The most important thing is to at best maintain the central bank’s independence as far as that can be accomplished, and also not to be in the game of picking winners and losers,” David Rosenberg at Rosenberg Research & Associates Inc. said Tuesday on BNN Bloomberg.An accomplished economist, Macklem worked his way up at the Bank of Canada through the 1990s before becoming chief of the research department in 2000. Former colleagues describe him as someone who shuns dogma and takes a pragmatic approach to policy, but who doesn’t stray far from conventional thinking.For example, he advocated for a strong global fiscal response to the 2008-09 crisis, before quickly pivoting to support reining in deficits in the aftermath of that recession. He’s a staunch defender of the Bank of Canada’s 2% inflation target, but has shown a willingness to be flexible should the situation require it.At some point, he’ll need to decide when renewed inflationary pressure or concern about elevated debt make it too difficult to justify cheap money. That may be made more difficult as the federal government becomes increasingly reliant on the lender of last resort to finance its deficits.Canadian general government budgets will end 2020 at near 12% of GDP, from near balance before the crisis, according to the International Monetary Fund. No other major advanced economy tracked by the IMF will record a larger one-year fiscal swing.This is where Macklem’s economics background may come in especially handy, as his “inner technocrat” helps him guide the Bank of Canada through the political minefield of government debt financing.“He is of course a very analytical and evidence based guy and that’s just apparent in everything he did as dean and he’s going to bring that same outlook to the bank,” University of Toronto President Meric Gertler. “He’s going to be a fantastic steward of the Canadian economy.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Billionaire Hintze’s CQS Hedge Fund Rocked by Pandemic Losses
    Bloomberg

    Billionaire Hintze’s CQS Hedge Fund Rocked by Pandemic Losses

    (Bloomberg) -- The outsiders that Michael Hintze brought in to his secretive hedge fund firm didn’t last long. Nor did their growth plans.The billionaire’s firm, known as CQS, a bastion of money-making whose flagship fund has returned more than three times the average of hedge fund peers since it opened in 2005, is now headed in reverse.The Hintze-managed fund plunged as much as 45% in March and April -- its worst-ever loss -- missing the rebound that followed the initial shock from the coronavirus pandemic even as peers recovered to post gains in April. More than $3 billion of assets were erased, leaving the firm with $16 billion. And that doesn’t include potential withdrawals from the fund’s clients, who are required to give six months’ notice.“It’s going to be very difficult for them to attract new assets,” said Don Steinbrugge, head of Agecroft Partners, a Richmond, Virginia-based consultant that helps hedge funds gather assets. “If I was an existing investor, I would be concerned about significant redemptions from the fund over time, which could potentially cause the quality of the fund to erode.”The situation reflects a stunning setback for the hedge fund legend and philanthropist who survived – and thrived – in previous crises. In January 2019, Hintze’s longtime friend, former London Stock Exchange Group Plc head Xavier Rolet, arrived at CQS headquarters overlooking Trafalgar Square as chief executive officer. “There’s only so much I can do to grow this,” Hintze said at the time, handing the task to his former Goldman Sachs Group Inc. colleague.But Rolet was gone a year later with no explanation, followed by executives he’d hired and ventures in Greater China he’d announced. Hintze had a change of heart amid worries about the costs of expansion, according to people familiar with the matter. He’s now returning to the firm’s focus on credit markets.Both Rolet and a spokesman for CQS declined to comment.Fund ImplosionRolet was an uncomfortable fit at the tightly knit firm from the beginning, insiders say. The CQS investment professionals resented their conference rooms being turned into a suite of offices for the new arrivals, according to two people familiar with the situation. By the time he left, the converted space had been turned back into conference rooms and Rolet was working from a desk on the trading floor.In the wake of the personnel tumult, the trading strategy went awry.CQS Directional Opportunities strategy, which Hintze himself manages, had losses of about 17% in April and 33% in March. Hedge funds lost an average 4.6% in those two months, according to data compiled by Hedge Fund Research Inc. The fund can write default insurance or sell derivatives without holding a position in the underlying security, according to an investor update. While such trades could generate outsized returns, they could smash a strategy.As Europe and the U.S. locked down, his key strategies -- distressed, asset-backed, equities and volatility -- lost money, according to the fund’s letter to investors.When the risk of insuring credits, such as oil and gas producer Chesapeake Energy Corp. and airline Deutsche Lufthansa AG, spiked in the market turmoil, CQS was forced to sell other assets to meet lenders’ collateral demands against the swaps, people said. One of the companies whose debt CQS insured, Whiting Petroleum Corp., filed for bankruptcy in April.The firm sold a portfolio of European collateralized loan obligations in April for about a fifth of their face value to raise cash, say people with knowledge of the matter. CQS unloaded stakes in the lowest-rated tranches of European CLOs to a small group of banks.“The global market sell-off has been severe and indiscriminate,” Hintze wrote to clients in April, explaining the decline. “We look forward to continuing with our opportunistic approach while remaining cognizant of the near-term challenges relating to the unknown effects of Covid-19 on the global economy.”Strategy at RiskHintze’s April letter ended with CQS revealing broader personnel changes. Executives brought in by Rolet were exiting, including Deputy Chief Executive Officer Serge Harry, and Ahmad Deek, head of data science and chief risk officer.Another Rolet project, building out CQS’s equity long-short offering, was also derailed. The trio he’d hired for it -- Paul Graham, Roger Guy and Andrew Billett -- is spinning out on its own, with the firm agreeing to take a stake.It’s not the first time turnover has spurred concern over talent retention. More than 10 people, including Simon Finch, former chief investment officer for credit, and Simon Finn, who led a unit buying distressed debt in Europe, were among those who left in 2016 and 2017.That’s about when Hintze started to share phantom equity -- giving benefits of owning a company’s stock without the actual ownership -- in which staff would get 10% of the firm’s economic interest, according to an investor update seen by Bloomberg. By the second half of 2019, the program had more than a dozen participants. Before Rolet left, he was involved in further developing the plan.Even with the market turmoil, CQS has raised about $1.9 billion this year, according to a person with knowledge of the matter. Most of the recent growth, though, has come in low-fee long-only funds. After the losses this year, CQS’s hedge fund assets have declined to about 35% of the firm’s total.Contrarian InvestorThrough Hintze’s investing career, which began at Salomon Brothers in 1982, a contrarian approach has worked. In 2014, for example, Hintze told clients that oil was set to decline from its $110 a barrel level to as low as $40. During 2015, CQS sold energy bets and profited when oil eventually collapsed to $26.20 in February 2016. Hintze’s main fund returned 30.4% that year.Even after the recent losses, his fund is still ahead of rivals and has avoided the industry slump that has driven more than 11,000 funds out of business since 2008.In two interviews last year, Hintze, a donor to the Natural History Museum in London, the Victoria & Albert Museum, the Vatican, and charities led by Prince Charles, termed his business as significant but relatively small. His team could do much more. And that’s where Rolet came in.Rolet set out to expand distribution and trading infrastructure, aiming to build out in New York and expand in Asia. The firm entered a strategic partnership with Beijing-based Zhongzhi Enterprise Group and Hong Kong-based DeepBlue Global Investment. Those deals have been scrapped and most of the new hires were out too. The two companies declined to comment.Meantime, as Hintze’s traders worked from their homes amid the lockdown, Rolet joined Shore Capital as non-executive chairman of capital markets business in May.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • ECB Seen With Only One Choice Tomorrow to Avoid Market Backlash
    Bloomberg

    ECB Seen With Only One Choice Tomorrow to Avoid Market Backlash

    (Bloomberg) -- European Central Bank policy makers face the peculiar situation this week of being widely expected to announce more monetary stimulus well before they run out of the ammunition still to hand.The ECB has so far spent less than a third of the 750 billion-euro ($840 billion) pandemic emergency purchase program that it started in March. At the current pace, it could wait until its July or September meeting before judging whether the program is big enough to soak up the debt issued by governments to fight the recession.Similarly, the market stress that pushed the ECB into action has faded, partly because of the central bank’s bond buying, and partly because the European Union has moved closer to a common fiscal response through a 750 billion-euro recovery fund.Yet anything less than a widely anticipated increase to the bond program could trigger a market shock reminiscent of the one in March when President Christine Lagarde inadvertently suggested that she might not act to calm peripheral bond markets.“No increase in the pandemic emergency purchase program is basically a big jerk for the periphery,” said Pooja Kumra, senior European rates strategist at Toronto-Dominion Bank.An overwhelming majority in a Bloomberg survey conducted last week expect the Governing Council to top up the asset purchasing program by 500 billion euros.The prospect that some central bankers might prefer to delay was raised in an article this week by newswire Market News International, which competes with Bloomberg News, saying “many members” of the Governing Council would oppose an increase.Krishna Guha, head of central bank strategy at Evercore ISI, said the article, based on unidentified sources, was “disturbing” and couldn’t be dismissed because “it would not be the first time that the ECB and Europe in general has stolen defeat from the jaws of victory.”Holger Schmieding, chief economist at Berenberg, reckons an increase in pandemic purchases will be announced but put only a 60% probability on that happening.What Bloomberg’s Economists Say“The European Central Bank seems almost certain to increase the size of its Pandemic Emergency Purchase Programme at the next meeting on June 4. The present pace of buying, government financing needs and brewing trouble in Italy suggest it needs to be increased to over 1 trillion euros.”-David Powell. Read his ECB PREVIEWThe ECB itself has built expectations for action. Policy makers have repeatedly said they’re ready to boost the program if needed, Executive Board member Isabel Schnabel said the decision would be tied to the economic data, and Bank of France Governor Francois Villeroy de Galhau said “we will very probably need to go even further.”Lagarde has already said the euro-area recession this year will likely be somewhere between the central bank’s medium and worst-case scenarios, signaling a contraction of around 10%. That’ll be backed up by new projections in her press conference on Thursday.Moreover, the EU’s recovery fund, heralded as an historic breakthrough, still has to be agreed by all 27 member states and could yet be watered down. Even when it does come into effect, the funds won’t start being issued until next year.“It would be rather stupid of them when they have forecasts and see where the downside risks are to suddenly decide to delay,” said Marchel Alexandrovich, an economist at Jefferies. “That would really be an own-goal after spending so much time and money on trying to support the economy and markets.”Policy makers will be reminded that Europe is far from being back to normal by the fact that the meeting, and Lagarde’s press conference, will be virtual. Countries are easing their lockdowns while keeping many restrictions in place and repeatedly warning of a resurgence in the coronavirus if people don’t heed them.“There is obviously a case to be made for them to wait,” said Piet Christiansen, an economist at Danske Bank. “You could argue let’s wait to see how economies open up before we commit to more. But it’s no time for heroes and waiting this out -- there are major risks and I don’t think the ECB can actually afford to delay.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Austerity Experiment in Oil-Rich Gulf May Falter Post-Crisis
    Bloomberg

    Austerity Experiment in Oil-Rich Gulf May Falter Post-Crisis

    (Bloomberg) -- The coronavirus pandemic is hitting Gulf Arab economies hard and emboldening the region’s dynastic rulers to push through unpopular fiscal measures that will impact their citizens. The question now is how long their resolve will last.Saudi Arabia, the Arab world’s largest economy, announced a surprise tripling of value-added-taxes and trimmed allowances for government workers. Oman cut salaries of new state employees. Even in the United Arab Emirates, a financial and commercial hub with the Gulf’s most diversified economy, there are calls for overhauling a “rentier-state” model dependent on energy resources, state jobs and a foreign-majority private workforce.Yet for all the talk of accelerating overdue changes, there were also moves to protect state jobs and shield nationals from cuts in the private sector, casting doubt on whether the downturn will trigger deeper reforms that outlive the crisis.Oman has already called for foreigners to be replaced with nationals in government jobs, the UAE is preventing banks from firing citizens and Saudi Arabia’s finance minister alluded to state support for the kingdom’s workforce.The decisions taken will affect Saudis like Mohammed, who gets his salary from the state, along with almost two-thirds of his compatriots. Even as his pay was cut by 1,000 riyals ($266) a month when a cost-of-living allowance was canceled, the 29-year-old doctor says recent measures were necessary.“If it’s temporary, one or two years, I can adapt,” he said, asking to withhold his full name. “My concern is that more taxes will be permanent — and that will be an issue.”Fiscal thrift may be in place for longer this time given the fiscal outlook, though, and with less money to spend on citizens, governments across the region will likely face increased public scrutiny on how their oil wealth is being used.Fiscal WoesAlmost all of the countries in the region are expected to run large budget shortfalls of 15%-25% of economic output, leading to a build-up of debt, a dwindling of reserves, and tough choices about how to spend. Saudi Arabia is forecast to contract by 2.9% this year, the most since 1999, according to Bloomberg Economics, and the risks are tilted toward an even deeper downturn.“The global economic recession has become a trigger for real reconsideration of the fundamentals of the economic models in the Gulf,” said Ayham Kamel, head of Middle East and North Africa at Eurasia Group. “In Saudi, Crown Prince Mohammad bin Salman wants change, but it’s far from easy to kill off the rentier-state model.”Saudi Arabia had been aggressively looking for ways to reduce its dependence on oil and trim its wage bill long before the epidemic; both are goals of the so-called Vision 2030 championed by the crown prince. The kingdom’s de-facto ruler has pushed through some big changes since late 2015. Simultaneously, he’s cracked down on dissent, limiting criticism of the new policies and the rapid pace of social transformation. The crisis could be an opportunity to intensify those changes, particularly when nationalism is running high.Others around the region are following suit.“We will have a lot of questions about what constitutes a Gulf rentier-state model,” UAE Minister of State Anwar Gargash said on a panel last month. “I think this is going to accelerate the necessity for us to find something a little bit more sustainable.”In Kuwait, ruler Sheikh Sabah Al-Ahmed Al-Sabah renewed a call for an economy less reliant on oil and urged rationalizing spending. His son, who sits on the planning & development council, lamented a lack of progress and said the impact of the pandemic might make such changes unavoidable.Saudi Arabia’s decisions are worth emulating, said Eid Alshihri, a 42-year-old business consultant and a member of the Kuwaiti Entrepreneurs Society. But reforms are caught up in a domestic political struggle with Kuwaiti lawmakers blocking them for fear of losing seats and instead pointing to the sovereign wealth fund to weather the crisis.Government steps to help businesses were too little too, late, and the result will be the opposite of diversification, he said. “Many will shut down and apply for government jobs.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Asian shares rise as Wall Street gains for 3rd straight day
    The Canadian Press

    Asian shares rise as Wall Street gains for 3rd straight day

    TOKYO — Asian shares rose Wednesday after Wall Street extended its gains for the third straight day, driven by optimism over economies reopening from shutdowns to stem the coronavirus pandemic.Japan's benchmark Nikkei 225 gained 1.1% to 22,581.19 in morning trading. Australia's S&P/ASX 200 rose 0.8% to 5,882.60. South Korea's Kospi surged 2.6% to 2,141.28.Australia's S&P/ASX 200 gained 1% to 5,894.00. Hong Kong's Hang Seng was up 1.1% at 24,258.49, while the Shanghai Composite added 0.4% to 2,931.90.“The theme of reopening optimism has its stronghold on markets going into the midweek, one to likewise inspire Asia markets gains despite the series of ongoing concerns,” said Jingyi Pan, market strategist for IG in Singapore.Among such concerns are the future of the two major economies of the world, China and the U.S and whether widespread protests in the U.S. will set off another rise in COVID-19 cases.On Wall Street, the S&P 500 closed 0.8% higher, at 3,080.82, after wavering throughout the morning. Technology, industrial and health care sector stocks accounted for a big slice of the gains. Energy stocks far outpaced the rest of the market as the price of crude rose ahead of a meeting of major oil producers. Bond yields climbed, another sign of ebbing pessimism among investors.So far, Wall Street’s momentum has not been derailed by the wave of daily unrest across the U.S. that began last week in Minneapolis as a protest over police brutality. Cities across the country have been rocked by violence and destruction for seven days in a row, drawing threats from the White House to send troops in to put down the unrest.“The market action seems to have a lot more to do with people’s confidence about the economic reopening,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management. “It’s happening irrespective to what we’re seeing socially across the country right now.”The Dow Jones Industrial Average rose 1.1% to 25,742.65. The Nasdaq composite, which is heavily weighted with technology companies, added 0.6%, to 9,608.37 after dipping as much as 0.8%.Smaller company stocks had some of the biggest gains. The Russell 2000 index picked up 0.9%, to 1,418.21.NASA astronauts launched into space by SpaceX on Saturday rang the opening bell from the International Space Station early Tuesday to kick off trading on the Nasdaq.Stocks have now recouped most of their losses after the initial economic fallout from the coronavirus knocked the market into a staggering 34% skid in February and March. The S&P 500 is now down 9% from its all-time high in February.Investors are hoping that the worst of the recession has already passed, or will soon, as governments around the country and around the world slowly lift the restrictions that left broad swaths of the U.S. economy at a standstill beginning in March.While more countries and sectors are reopening, economic activity is expected to remain subdued as social distancing rules complicate plans to get back to business. Meanwhile, investors continue to keep an eye out for any signs that the reopening of the economy is leading to a resurgence in COVID-19 cases.In Japan, Tokyo reported 34 newly confirmed cases on Tuesday, leading city officials to declare a largely symbolic “alert” for more social distancing. The Rainbow Bridge in Tokyo was lit red to remind residents. Before Tuesday, daily new infections had dropped below 20 recently.Bond yields were mostly higher. The yield on the 10-year Treasury rose to 0.71% from 0.68% late Tuesday.Benchmark U.S. crude added 76 cents to $37.57 a barrel. It rose $1.37 to $36.81 a barrel on Tuesday. Brent crude oil for August delivery gained 54 cents to $40.11 a barrel.The balance of this week will provide new data on the labour market, which has racked up huge increases in Americans who’ve lost their job as the coronavirus shutdowns left millions out of work.Payroll processor ADP issues its May survey of hiring by private U.S. companies on Wednesday. The weekly tally of applications for unemployment aid comes on Thursday. And on Friday, the government reports its May labour market data. Analysts surveyed by FactSet expect the report will show the economy lost 9 million jobs last month and that the national unemployment rate jumped to nearly 20%.Investors will also have their eye on a couple of companies set to go public this week. Music company Warner Music Group is set to hold its IPO on Wednesday, while business information services company ZoomInfo Technologies is scheduled to go public on Thursday.The U.S. dollar slipped to 108.62 Japanese yen from 108.67 yen late Tuesday. The euro climbed to $1.1200 from $1.1171.___AP Business Writer Alex Veiga contributed.Yuri Kageyama, The Associated Press

  • Negative Rate Benefits Seen Limited for Singapore’s Stock Market
    Bloomberg

    Negative Rate Benefits Seen Limited for Singapore’s Stock Market

    (Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.While a decline in interest rates is generally seen as good for stocks, the benefits of Singapore’s slide toward negative territory are far from certain.The city-state’s overnight borrowing rate slid to within two basis points of zero last month while the one-month swap-offer rate turned negative for the first time in almost nine years. The relative appeal of the nation’s $370 billion stock market boosted by the sub-zero rates is overshadowed by the negative implications for the economy and financial system.Singapore’s gross domestic product is expected to shrink 4%-7% this year, its worst contraction since independence in 1965, as the pandemic pummels the trade-reliant economy. The plunge in money-market rates came as the Monetary Authority of Singapore promised to provide sufficient financial liquidity, while the government has deployed stimulus of S$92.9 billion ($66 billion) so far.“Falling rates and sovereign yields mean that stocks would appear more attractive versus bonds,” said Eli Lee, head of investment strategy at Bank of Singapore Ltd., cautioning that context is key. But “as we have learned from Japan and Europe, ultra-low rates typically result from policy efforts to combat deflationary pressures and economic headwinds.”While sub-zero rates have been a reality for years in Europe and Japan, the U.S. Federal Reserve has consistently opposed them, citing uncertain efficacy and potential damage to the financial system. Some Singapore investors are similarly concerned that steps taken elsewhere may not work for the tiny island nation.“Negative interest rates would be very detrimental in Singapore given the country’s stock market has high exposure to financials,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. in Sydney.Naeimi believes that in Japan and Europe, negative rates have crimped bank margins, broken a key channel for the transmission of monetary policy and caused bearish phases in the stock market.The dive below zero also has some silver lining. Singapore stock gauges contain many property stocks, especially real estate investment trusts, which “generally perform well in a low interest rate environment,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte.Singapore is starting to reopen its economy from a pandemic lockdown, even as it races to contain the outbreak among thousands of foreign workers. Containment will be the key issue for share prices, said Paul Sandhu, head of multi-asset quant solutions and client advisory for Asia Pacific at BNP Paribas Asset Management.The Straits Times Index is down about 18% this year and is trading near a record-low valuation of less than 0.9 times book value. Meanwhile, the $700 million SPDR Straits Times Index ETF is seeing record inflows as stimulus and cheap valuation embolden investors.(Updates stock market performance in last paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Australia’s Economy Contracts, Ending Three-Decade Expansion
    Bloomberg

    Australia’s Economy Contracts, Ending Three-Decade Expansion

    (Bloomberg) -- Australia’s economy contracted in the first three months of the year, setting up an end to a nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, brought down by a collapse in household spending, statistics bureau data showed in Sydney Wednesday. Economists had forecast a 0.4% drop. From a year earlier, the economy expanded 1.4%, matching estimates.The Australian dollar edged a little lower after the release, and traded at 69.32 U.S. cents at 1:06 p.m. in Sydney.The result sets up an end to Australia’s record run of avoiding two consecutive quarters of shrinking GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.Treasurer Josh Frydenberg, speaking after the release, accepted this fate when asked directly whether the economy is now in recession.“The answer to that is yes,” he told reporters. “That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be.”Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowered the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.With the containment of the health crisis allowing activity to resume, the critical question is how quickly businesses can get back on their feet, workers regain employment and households resume spending.“Growth should resume in the September quarter, but the impact of COVID-19 will surely cast a long and lingering shadow over the global economy and Australia’s recovery,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Continued support from fiscal and monetary policy will be necessary throughout 2020 and beyond.”Today’s report showed:Household spending tumbled 1.1%, shaving 0.6 percentage point off GDP, driven by a 2.4% drop in services expenditure. Restrictions particularity impacted spending on travel, hotels, cafes and restaurantsGovernment spending jumped 1.8%, adding 0.3 percentage point. Payments to provide support during the pandemic are expected to rise in the current quarterThe savings ratio advanced to 5.5% from a downwardly revised 3.5% in the fourth quarterDwelling construction fell 1.7%, reflecting continued weakness in approvalsNon-mining business investment fell 1.7%, while mining investment rose 3.6% as miners invest in new technologies and automationRising commodity prices are boosting miners’ profitability, with the terms of trade 2.9% higher in the first three months of 2020, pushing the current account surplus to a record A$8.4 billion ($5.8 billion). Yet, miners will be keeping a watchful eye on the nation’s currency, which has surged almost 20% in the past two-and-a-half months.What Bloomberg’s Economists Say“Typically backward looking national accounts releases contain an array of hidden trends that are often overlooked. Mining investment has climbed to a 7-year high, Australia’s terms of trade have risen and exploration intentions are elevated. This bodes well for the recovery.”James McIntyre, economistThe economic outlook is improving as the restrictions are lifted, but will continue to be constrained by closed borders that are hitting tourism and education exports. The government is discussing a fresh round of fiscal stimulus to try to put residential construction back on its feet.(Updates with Treasurer and economist comments)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    EU Looks to Johnson to Stop No-Deal Brexit With Talks at Impasse

    (Bloomberg) -- The European Union will try to convince Boris Johnson to forge a compromise later this month in an attempt to stop the U.K. from breaking away from the bloc without a trade deal.With the negotiations deadlocked, and the latest talks set to end Friday without a breakthrough, the EU is pinning its hopes on a dramatic intervention by the British prime minister when he speaks to European Commission President Ursula von der Leyen and EU Council President Charles Michel later this month, according to people familiar with the matter in Brussels.Johnson will be told where the EU could potentially make concessions -- as long as the U.K. takes a similarly conciliatory approach, the people said. That could allow the two sides to reach an accord in the second half, they said.But there is no guarantee that the prime minister will agree. On Tuesday, Johnson’s spokesman, James Slack, dismissed suggestions of a compromise as “wishful thinking by the EU.” The U.K. government has threatened to walk away from the negotiations in June if they haven’t made adequate progress.If the two sides fail to reach an agreement by year-end, Britain will default to trading with the bloc on terms set by the World Trade Organization, leaving businesses and consumers grappling with the return of tariffs and quotas.Compromise EffortsThe EU is demanding that, in return for any deal, the U.K. agrees to apply some of the bloc’s rules after Brexit to maintain a level competitive playing field. It also wants the European Court of Justice to continue to have jurisdiction in the U.K. and for European fishing vessels to maintain their access to British waters.So far, though, British officials have ruled out accepting those demands. Johnson has made it clear that he believes Britain’s vote to leave the bloc means that the country should be fully independent, one U.K. official said.Behind the rhetoric, though, diplomats say the two sides have started to map out where a deal could be done as they work out which positions are genuine red lines and which leave room for maneuver.European diplomats say the bloc could water down its demands on fishing and, to a more limited extent, on the level playing field.In return, they expect the U.K. to make a similar leap -- but so far, one hasn’t been forthcoming. While the U.K. has offered to stick to current EU standards to prevent unfair competition by way of a so-called non-regression clause, the EU doesn’t believe that promise goes far enough.Much of this week’s discussions will be focused on fisheries. The EU’s public position is to demand the status quo, where European fishing boats have access to British waters under a quota system based on historic catch areas. The U.K. wants to replace that with annual negotiations that reflect more accurately where fish are found today.‘Manifestly Unbalanced’At the end of the last round of talks, the U.K.’s chief negotiator, David Frost, called the European approach “manifestly unbalanced.” His EU counterpart, Michel Barnier, acknowledged that both sides had taken “maximalist” starting positions that they could move away from.Even if the two sides inch closer toward agreement on fishing, though, they will still have to reconcile their divisions on the role of the EU courts. One U.K. official warned that Britain will never agree to align with EU laws or accept the continued jurisdiction of the European courts -- and accused the EU of ignoring the political realities of Brexit.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.