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Asian markets tread cautiously ahead of U.S. stimulus, jobs

SINGAPORE (Reuters) – Asian stock markets made a cautious start on Thursday following two days of rallies, as investors await the passage and details of a $2 trillion stimulus package in the United States to combat the economic fallout from the coronavirus.

Senate leaders hope to vote on the plan later on Wednesday in Washington, but it still faces criticism. The bill includes a $500 billion fund to help hard-hit industries and a comparable amount for payments up to $3,000 to millions of U.S. families.

It cannot come soon enough, with potentially enormous weekly U.S. initial jobless claims to appear in data due at 1230 GMT.

Australia’s S&P/ASX 200 index rose 1.5% in early trade – its third positive start in as many sessions, but also its most muted. Japan’s Nikkei fell 2.2%.

Hong Kong futures were 1% higher and China A50 futures were up 0.2%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%.

“There has been so much stimulus thrown at this,” said Jun Bei Liu, portfolio manager at Tribeca Investment Partners in Sydney.

“But the positivity related to it is really just sentiment,” she said, adding that investors were largely flying blind with so many companies withdrawing earnings guidance. Jobless figures may offer a “reality check,” she said.

In perhaps an early sign of the fragile mood, the risk-sensitive Australian dollar dropped 1% and the safe-haven Japanese yen rose in morning trade. [FRX/]

U.S. stock futures rose 1%, following the first back-to-back session rises on Wall Street in over a month.

The Dow Jones Industrial Average rose 2.4% and the S&P 500 1.2%, while the Nasdaq Composite dropped half a percent following a Nikkei report that Apple was weighing a delay in the launch of its 5G iPhone.

JOBLESS CLAIMS TO TEST BOUNCE

The money at stake in the stimulus bill amounts to nearly half of the $4.7 trillion the U.S. government spends annually.

But it also comes against a backdrop of bad news as the coronavirus spreads and as jobless claims are set to soar, with both expected to test the nascent bounce in markets this week.

California Governor Gavin Newsom told reporters on Wednesday that a million Californians had already applied for jobless benefits this month – a number that knocked stocks from session highs and has analysts bracing for worse to come.

RBC Capital Markets economists had expected a national figure over 1 million in Thursday’s data, but say “it is now poised to be many multiples of that,” as reduced hours across the country drive deep layoffs.

“Something in the 5-10 million range for initial jobless claims is quite likely,” they wrote in a note.

That compares to a 695,000 peak in 1982. Forecasts in a Reuters poll range from a minimum of 250,000 initial claims, all the way up to 4 million.

Trepidation seemed to put a halt on the U.S. dollar’s recent softness in currency markets, with the dollar ahead 1% against the Antipodean currencies and up 0.6% against the pound.

It slipped 0.3% to 110.85 yen.

U.S. crude slipped 1.5% to $24.11 per barrel and gold steadied at $1,608.14 per ounce.

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U.S. set to grant automakers a lifeline — but no bailout

WASHINGTON/DETROIT (Reuters) – The $2 trillion economic rescue package before the U.S. Senate on Wednesday would send the federal government to the auto industry’s rescue for the second time in a dozen years.

Automakers are fearful of being tagged as seeking a new government bailout so soon after the 2009 government-funded auto restructurings. Detroit has not sought industry-specific assistance, instead making the case that the entire economy needs urgent access to liquidity.

Republican Senator Pat Toomey said Wednesday the deal, which he called “the biggest government intervention in the economy in the history of the world,” sets aside $454 billion to make loans or loan guarantees for companies across all sectors, as well as states.

It was more likely the money will be used to leverage even more funds in loans from the Federal Reserve, said Toomey, who told reporters on a conference call that the Treasury would then be able to make loans, purchase loans or purchase corporate debt, which could be a major boost for automakers.

Industry officials, especially at General Motors Co (GM.N), were eager to avoid the appearance of a federal bailout. Sales suffered and the No. 1 U.S. automaker was nicknamed “Government Motors” after its $50 billion bailout in 2009.

The United Auto Workers union and the Detroit Three automakers recently discussed sending a letter to Capitol Hill explaining why the industry needed a source of liquidity, but GM ultimately declined to sign the letter and it was not sent, people familiar with the matter said.

The final package contained no benefits targeted specifically at automakers. By contrast, U.S. airlines are set to receive $25 billion for payroll costs in cash grants that do not need to be paid back.

On Wednesday, S&P downgraded Ford Motor Co (F.N) to “junk” status, while the automaker confirmed it had drawn down its $15.4 billion credit facilities. S&P said Ford was at risk of another downgrade.

Moody’s warned it was considering cutting GM to junk as it faces sharply lower demand. “A severe disruption in automotive demand due to the coronavirus, combined with the possibility of a follow-on economic recession, will place considerable pressure on GM’s cash flow and credit metrics,” Moody’s said.

Automakers do not rule out seeking additional help if sales or production remain frozen.

But auto and parts makers stand to benefit from other provisions, including a 50% employee retention tax credit and suspension of the employer share of payroll taxes for two years. GM and its employees paid more than $3.15 billion in state, local and payroll taxes in the United States in 2018.

GM, Ford and Fiat Chrysler Automobiles NV (FCA) (FCHA.MI) (FCAU.N) have halted North American vehicle production until at least March 30, and people briefed on the matter said they plan to extend that into April.

Automakers will get some tax benefits, but the government loans are the biggest help, sources said. Aid will also be available to auto dealers and thousands of smaller suppliers. Funds for U.S. consumers also could stimulate new car sales again once stay-at-home orders lift.

The Detroit auto companies are in far better financial health than they were ahead of the 2008-2009 crisis. Balance sheets at all three companies are healthier, and GM and Ford moved this month to build cash reserves further by drawing down a combined total of more than $30 billion from credit lines.

The global auto industry is bracing for worldwide sales to plummet more than 12% from 2019, worse than the two-year peak-to-trough decline of 8% during the global recession in 2008-2009, research firm IHS Markit predicted on Wednesday.

The Senate package could help badly stressed, smaller suppliers the automakers rely on for parts.

“I’m working with four middle-market suppliers – $150 million in revenue to about $400 million in revenue – and most of these companies are not all that well capitalized,” Steve Wybo, auto group practice leader for restructuring consultancy Conway MacKenzie, told Reuters.

RoMan Manufacturing Inc, based in Grand Rapids, Michigan, is a family-owned manufacturer of transformers and glass molding equipment for automakers and other industries. Co-owner Bob Roth said its balance sheet is “rock solid,” but he is clamping down on spending as he sees other manufacturers pleading for relief from bank loans.

Normally, he said, “we pay all bills on 10th and 25th. Now we’re moving to one payment cycle a month.” He told members of the families that own the company “we won’t pay a quarterly dividend for a while.”

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S&P 500 rallies for second day as investors await economic aid package

NEW YORK (Reuters) – The S&P 500 rallied for a second straight session on Wednesday as the U.S. Senate appeared to near a vote on a $2 trillion package to support businesses and households devastated by the coronavirus pandemic.

The Dow Jones Industrial Average .DJI rose 482.38 points, or 2.33%, to 21,187.29, the S&P 500 .SPX gained 27.66 points, or 1.13%, to 2,474.99 and the Nasdaq Composite .IXIC dropped 33.56 points, or 0.45%, to 7,384.30.

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U.S. set to grant automakers a lifeline — but no bailout

WASHINGTON/DETROIT (Reuters) – The $2 trillion economic rescue package before the U.S. Senate on Wednesday would send the federal government to the auto industry’s rescue for the second time in a dozen years.

Automakers are fearful of being tagged as seeking a new government bailout so soon after the 2009 government-funded auto restructurings. Detroit has not sought industry-specific assistance and instead made the case the entire economy needs urgent access to liquidity.

Republican Senator Pat Toomey said Wednesday the deal sets aside $454 billion to make loans or loan guarantees for companies across all sectors, as well as states.

He said it was more likely the money will be used to leverage even more funds in loans from the Federal Reserve. Toomey told reporters on a conference the Treasury will then be able to make loans, purchase loans or purchase corporate debt, which could be a major boost for automakers. Toomey called the bill “the biggest government intervention in the economy in the history of the world.”

Industry officials, especially at General Motors Co(GM.N), were eager to avoid the appearance of a federal bailout. Sales suffered and the No. 1 U.S. automaker was nicknamed “Government Motors” after its $50 billion bailout in 2009, when congress also approved a $3 billion “Cash for Clunkers” program to spur demand.

The United Auto Workers union and the Detroit Three automakers recently discussed sending a letter to Capitol Hill explaining why the industry needed a source of liquidity, but GM ultimately declined to sign the letter and it was not sent, people familiar with the matter said.

The final package contained no benefits targeted specifically at automakers. By contrast, U.S. airlines are set to receive $25 billion for payroll costs in cash grants that do not need to be paid back.

John Bozzella, who heads an automotive trade group that represents U.S. and foreign automakers, said last week that “at this point we are focused not on specific industry measures but focused on broader economic measures.”

Still automakers do not rule out seeking additional help if auto sales or production remain frozen.

But auto and parts makers stand to benefit from other provisions, including a 50% employee retention tax credit, and suspension of the employer share of payroll taxes for two years.

GM and its employees paid more than $3.15 billion in state, local and payroll taxes in the United States in 2018.

Credit rating agencies have identified the automotive sector as an industry most in need of assistance. A group representing major U.S. and foreign automakers sent a letter to U.S. lawmakers with other industry groups calling for loans and loan guarantees to companies of all sizes.

GM, Ford Motor Co (F.N) and Fiat Chrysler Automobiles NV (FCA) (FCHA.MI) (FCAU.N) have halted North American vehicle production until at least March 30, and people briefed on the matter said they plan to extend that into April.

Automakers will get some tax benefits, but the government loans are the biggest help, sources said. Aid will also be available to auto dealers and thousands of smaller suppliers. Funds for U.S. consumers also could stimulate new car sales again once stay-at-home orders lift.

The Detroit auto companies are in far better financial health than they were ahead of the 2008-2009 crisis. Balance sheets at all three companies are healthier, and

GM and Ford moved this month to build cash reserves further by drawing down a combined total of more than $30 billion from credit lines.

The global auto industry is bracing for worldwide sales to plummet more than 12% from 2019, worse than the two-year peak-to-trough decline of 8% during the global recession in 2008-2009, research firm IHS Markit predicted on Wednesday.

The Senate package could help badly stressed, smaller suppliers the automakers rely on for parts.

“I’m working with four middle-market suppliers – $150 million in revenue to about $400 million in revenue – and most of these companies are not all that well capitalized,” Steve Wybo, auto group practice leader for restructuring consultancy Conway MacKenzie, told Reuters.

RoMan Manufacturing Inc is a family owned manufacturer of transformers and glass molding equipment for automakers and other industries based in Grand Rapid, Michigan. Co-owner Bob Roth said its balance sheet is “rock solid,” but he is clamping down on spending as he sees other manufacturers pleading for relief from bank loans.

Normally, he said, “we pay all bills on 10th and 25th, now we’re moving to one payment cycle a month.” He told members of the families that own the company “we won’t pay a quarterly dividend for a while.”

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Senate bill set to give aviation sector up to $33 billion bailout: sources

WASHINGTON/CHICAGO (Reuters) – A compromise $2 trillion economic rescue package that will be voted on by the U.S. Senate on Wednesday is set to give passenger airlines about $25 billion in grants, and up to another $8 billion for cargo carriers and airport contractors like caterers, three people briefed on the negotiations said.

Reuters reported Chao worked the phones late into the night talking to air carriers about what they needed to ensure they could maintain payrolls, a person briefed on call on Tuesday that lawmakers were nearing agreement on a deal for cash grants for payroll and other airline employee costs, after airlines made a last-minute effort to convince lawmakers they needed the cash to prevent the layoff of tens of thousands of workers.

The aid package is expected to include a further $29 billion in loans for airlines, and the government could receive equity, warrants or other compensation as part of the rescue package. U.S. airports are set to receive $10 billion in grants under the agreement.

The final text is still being drafted but will include restrictions on stock buybacks, dividends and executive compensation.

Senate Republicans on Sunday rejected any grants for airlines and instead proposed $58 billion in loans for airlines. Major airlines sounded the alarm and emphasized in recent days that without grants, they had short-term plans to quickly furlough tens of thousands of workers as travel demand collapses amid the coronavirus pandemic.

On Sunday, the carriers promised not to lay off workers through Aug. 31 if they won grants.

Sara Nelson, president of the Association of Flight Attendants said on Twitter it was a “HUGE fight but we WON on this – We got the deal structured around maintaining payroll, no (involuntary) furloughs.”

Airlines and airline unions won crucial support from U.S. Transportation Secretary Elaine Chao, who spoke to lawmakers and others in the administration about the crisis.

In a memo Chao had drafted that was seen by Reuters, she noted that airlines employ 750,000 U.S. workers. She was worried about a dramatic decline in the U.S. aviation sector that could reduce competition, and the potential loss of hundreds of thousands of jobs, people briefed on the matter said.

“Without grant assistance, U.S. airlines have warned that they may be forced to furlough employees or declare bankruptcy,” Chao’s memo warned. “Without grants, airlines may be forced to choose bankruptcy over federal loans, if loan conditions are too inflexible.”

Chao worked the phones late into the night talking to air carriers about what they needed to ensure they could maintain payrolls, said a person briefed on call.

The government will also provide significant funding to Amtrak and U.S. transit systems that have both seen ridership fall dramatically as states order tens of millions of Americans to stay home and avoid non-essential travel.

Boeing Co (BA.N) could also receive government loans or loan guarantees under the bill, but it was not clear if they would tap $17 billion in loan funding set aside for national security-related loans that were part of the Republican bill released on Sunday. Boeing had sought at least $60 billion in government loan guarantees for itself and the entire aerospace manufacturing sector.

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Treat with caution: rocketing stocks aren't cause for comfort

NEW YORK (Reuters) – Those pining for a bottom to the gut-wrenching stock market selloff may be disappointed to learn that mega one-day rallies like the historic one witnessed on Tuesday are typically not the start of a durable recovery.

U.S. stocks, that recently entered a bear market – a fall of 20% or more from recent highs – rebounded strongly on Tuesday after U.S. lawmakers said they were close to a deal for an economic rescue package in response to the coronavirus outbreak, injecting optimism to a market grappling with its biggest selloff since the financial crisis.

The Dow Jones Industrial Average .DJI soared 11.37%, its largest one-day percentage gain since 1933, while the S&P 500 .SPX jumped 9.38% to 2,447.33, its biggest one-day percentage rise since 2008.

All the same, data suggest investors should treat the rally in stocks with caution.

Of the twenty past instances when the S&P rallied 8% or more on a single day, thirteen of them took place when stocks were in the embrace of a bear market.

(GRAPHIC: Bear market euphoria – here)

“These 8% rallies are not necessarily signs of health,” said Christopher Murphy, co-head of derivatives at Susquehanna Financial Group.

In a note on Tuesday, Murphy wrote, “It is important to remember that some of the largest one‐day rallies in SPX’s history took place during bear markets, implying that one day pops are not uncommon in a down market.”

Nor are such sharp rallies a herald of better days.

In 2008, for instance, the two biggest gains during the market crash that fall, both in October 2008, were actually followed by five more months of double-digit declines, data showed.

“You can’t take this bounce and say that (the market) will turn around next week or the week after,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

A lot will depend on whether monetary and fiscal response can stave off a prolonged downturn, Krosby said.

Going by history, those looking to time the end of the bear market should be more encouraged by days when investors take modest bites at risky assets rather than great big mouthfuls.

In 2009, the bull market was born with a 6.4% up day for the S&P 500. In 2002/2003 the recovery began with 3% up days.

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Qantas shares soar on financing deal as rivals cut more capacity

SYDNEY (Reuters) – Qantas Airways Ltd (QAN.AX) on Wednesday secured A$1.05 billion ($627.8 million) against its aircraft fleet to help it ride out the coronavirus crisis, sending shares up 30%, as airlines in the Asia-Pacific region sliced away capacity and jobs.

The Qantas financing of seven Boeing Co (BA.N) 787-9s for up to 10 years at a 2.75% interest rate showed there is still low-cost funding available to airlines with strong fundamentals, even as the global industry calls for more government aid to help replace an estimated $250 billion of lost revenue in 2020.

“Over the past few years we’ve significantly strengthened our balance sheet and we’re now able to draw on that strength under what are exceptional circumstances,” Qantas Chief Executive Alan Joyce said in a statement.

Qantas has cut all international flights and put two-thirds of its 30,000 staff on leave but so far has maintained its investment-grade credit rating.

It is continuing with a costly program to upgrade the interior of its grounded Airbus SE (AIR.PA) A380 super-jumbos, in an expression of confidence demand will eventually return to normal.

Other airlines in the region are also looking at ways to raise cash beyond government aid.

Korean Air Lines Co Ltd (003490.KS) said on Wednesday it would seek to raise funds by selling non-core assets, as it announced a pay cut of up to 50% for all of its executives.

Hong Kong’s Cathay Pacific Airways Ltd (0293.HK) this month sold six 777-300ERs to BOC Aviation Ltd (2588.HK) for $703.8 million and will lease them back.

Singapore Airlines Ltd (SIAL.SI) said on Monday it was in talks with several financial institutions over future funding needs after having drawn on credit lines.

NOT BUSINESS AS USUAL

Cash-strapped Virgin Australia Holdings (VAH.AX) said on Wednesday it would stop 90% of its domestic flying in addition to a freeze on international flights and put 80% of its 10,000 employees on leave.

Virgin is also looking to close its New Zealand cabin crew and pilot bases and its pilot base for low-cost arm Tigerair Australia in Melbourne, in a sign it would not return to business as usual when demand returns.

“We plan to return Tigerair Australia and Virgin Australia to the skies as soon as it is viable to do so. However, I am mindful that how we operate today may look different when we get to the other side of this crisis,” Virgin Chief Executive Paul Scurrah said in a statement.

Air New Zealand Ltd (AIR.NZ), which plans to cut up to 30% of its staff, has also warned it could re-emerge as a smaller airline once the coronavirus situation subsides.

Other Asian carriers have deepened capacity cuts, with Thai Airways International PCL (THAI.BK) on Tuesday cancelling nearly all of its international flights as demand for travel slumps amid the coronavirus outbreak.

Japan Airlines Co Ltd (9201.T) said on Tuesday it would cut flights on international routes from the country by about 64% between March 29 and April 30.

Boeing Co’s (BA.N) chief financial officer said that on Tuesday the U.S. aerospace industry urgently needs credit to cope with the coronavirus pandemic but that “markets essentially are closed” to new debt.

U.S. lawmakers are nearing agreement on a $61 billion rescue package for the aviation sector that would include $25 billion in payroll grants for passenger airlines weathering a sharp falloff in travel demand amid rising coronavirus outbreaks, three people briefed on the matter said.

Data firm Cirium on Tuesday estimated the number of aircraft placed in storage since January had climbed to 3,500 – up 1,000 from a day earlier – as more airlines ground planes.

Taxiways, maintenance hangars and even runways at major airports are being transformed into giant parking lots.

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USDA, USTR cite progress on farm provisions of U.S.-China trade deal

WASHINGTON (Reuters) – The United States and China have made progress in implementing the agriculture-related provisions of a Phase 1 trade deal that took effect on Feb. 14, the U.S. Department of Agriculture (USDA) and U.S. Trade Representative said on Tuesday.

In a joint statement, they listed a number of steps taken that should help boost U.S. exports of beef, poultry and other farm products to China, and said U.S. food and agricultural products exports were benefiting from Chinese tariff relief.

“These steps show that China is moving in the right direction to implement the Phase 1 agreement,” said Agriculture Secretary Sonny Perdue. “We will continue to work with China to ensure full implementation of its commitments and look forward to seeing further improvement and progress as we continue our ongoing bilateral discussions.”

As part of the deal signed on Jan. 15, Beijing agreed to nearly double its U.S. farm product purchases and lower several agricultural trade barriers that Washington said limited access to the lucrative Chinese market.

China since promised it would not impose a nationwide ban on imports of U.S. poultry if the United States finds cases of avian flu, instead suspending imports only from the states where cases are found.

Beijing banned imports of U.S. poultry and eggs in January 2015 because of a U.S. outbreak of highly virulent avian flu, closing a market that was worth $500 million in 2013. The ban was lifted in November 2019.

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China has also recently increased buying of U.S. farm goods, including the country’s first hard red winter wheat purchase since 2017 and its largest U.S. corn purchase since 2013.

But imports of key products such as soybeans, the most valuable U.S. farm export, remain well below pre-trade war levels.

China’s season-to-date purchases of soy harvested last fall totaled about 12.1 million tonnes as of mid-March, according to USDA data. At the same point of 2017, China had purchased nearly 35 million tonnes of the oilseed.

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Nike's revenue beats as North America, Europe offset China sales drop

(Reuters) – Nike Inc (NKE.N) beat Wall Street estimates for quarterly revenue on Tuesday, powered by demand in North America and Europe that blunted the first drop in China sales in nearly six years due to the coronavirus-fueled shutdowns.

The company’s shares, a member of the blue-chip Dow Jones Industrial Average .DJI, rose about 7% after the closing bell.

Nike said sales in Greater China, its fastest-growing region, fell 4% in the third quarter ended Feb. 29 as it was forced to shut about 75% of company-owned and partner stores following the coronavirus outbreak.

Since first detected in China last year, the virus has spread rapidly across the globe and infected nearly 400,000 and killed over 17,000, forcing governments to impose lockdowns and restrict travel to contain the outbreak.

In North America, revenue rose 4% and in Europe it surged 11%.

However, Nike and other retailers have shut stores in the United States and Europe to curb the spread of the virus.

Total revenue rose 5.1% to $10.10 billion in the third quarter, beating analysts’ average estimates of $9.80 billion, according to Refinitiv IBES data.

Overall digital sales grew 36%, while it climbed more than 30% in Grater China, where Nike launched its app late last year.

Net income fell to $847 million, or 53 cents per share, from $1.10 billion, or 68 cents per share, a year earlier, due to the hit from the health crisis and a non-cash charge related to a shift to distributor model in South America.

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Coronavirus: New hand sanitiser plant ‘to be operating within 10 days’

Chemicals firm Ineos says is to open a new plant on Teesside within 10 days capable of producing one million bottles of hand sanitiser per month.

It made the announcement as the government appeals for firms to produce goods, such as ventilators, that are vital for the NHS as it battles the coronavirus crisis.

Ineos, which already produces rubber gloves, PVC saline drips, syringes, ventilators and medical tubing, said the cleaning product it would produce just outside Middlesbrough would be given to the health service free of charge.

It intends to make standard and pocket bottles for use on wards and by health professionals.

Sir Jim Ratcliffe, the billionaire founder and chairman of Ineos who also holds the accolade of being Britain’s richest man, said: “Ineos is a company with enormous resources and manufacturing skills.

“If we can find other ways to help in the coronavirus battle, we are absolutely committed to playing our part.”

There is a shortage of hand sanitisers currently given huge demand worldwide.

Dyson, best known for its bag-less vacuum cleaners, is among other companies to have answered the plea for more ventilators as resources are stretched.

The firm, founded by Sir James Dyson, has its research base in the UK.

A Dyson spokesman said: “Dyson has responded to the government’s request for support with its Covid-19 response by focusing resources into the design and manufacture of a ventilator for the NHS.

“This is a highly complex project being undertaken in an extremely challenging timeframe.

“We have deployed expertise in air movement, motors, power systems, manufacturing and supply chain and are working with medical technology and development company TTP, The Technology Partnership, based in Cambridge.”

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