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US economy shrinking, but Covid-19 treatment hopes lift markets - business live FTSE 100 in 'bull market' territory as Covid-19 treatment hopes lift shares - business live
(32 minutes later)
America’s GDP shrank at an annualised rate of 4.8% in January-March, and there’s worse to come... Britain’s blue-chip index has jumped back over 6,000 points, after biopharmaceutical company Gilead reported positive results for its remdesivir drug
A dozen European Union member states have called for a relaxation of air-passenger rights rules to help airlines deal with the economic fallout from coronavirus.
France, Poland, the Netherlands and Ireland are among the 12 countries who have proposed amending EU rules, so airlines can reimburse cancelled tickets with vouchers, rather than cash.
Air-France/KLM and Lufthansa are currently negotiating government bailouts, while British Airways has announced plans to make 12,000 employees redundant, as the virus has brought international travel to a near standstill, leaving planes grounded.
The 12 member states argue the requirement of a 2004 EU regulation to reimburse cancelled flights in cash is adding to airlines’ cash-flow problems.
The joint statement calls on the European commission, which oversees EU law, to urgently amend the law, declaring:
The EU’s 27 transport ministers are holding a conference call to discuss an exit from current restrictions. So far the commission has declined to say publicly whether it backs the voucher plan.
European commission vice president Vĕra Jourová told reporters earlier today.
But her colleague in charge of transport, Adina Vălean, has previously said airlines can only offer vouchers if passengers can accept them.
Ministers are also looking at what green strings should be attached to airline bailouts. France’s transport minister Élisabeth Borne has said government aid for Air France would be linked to cutting pollution, including a 50% reduction in CO2 emissions by 2024 for domestic flights and fleet renewal to cut total emissions.
The markets may be flying today, but the long-term cost of the pandemic will be very large.... something that is worrying politicians.
Mel Stride, the Conservative MP who chairs parliament’s influential Treasury Select Committee, has warned today that there needs to be debate about who should bear the heaviest levels of additional taxation to support the economy, once the country emerges from lockdown.
Stride told the BBC’s Radio 4 that:
Stride added that often younger people and the lowest paid have been most impacted by the disruption caused by the coronavirus crisis.
Today’s rally means the FTSE 100 has surged by over 20% since March 23, when it closed at just 4993 points.
That means the blue-chip index is back in Bull Market territory (defined as a fifth above a recent low).
That’s a relief to large and small investors alike (anyone saving for a pension has been hit by this year’s slump). But the FTSE 100 is still down 18% so far this year, so maybe hold back on the bunting....
Back on Wall Street, the Dow is up 2.3% or 549 points higher at 24,651 points.Back on Wall Street, the Dow is up 2.3% or 549 points higher at 24,651 points.
Boeing is the top riser, up 8%, after it revealed plans to cut 10% of its workforce (see earlier post)Boeing is the top riser, up 8%, after it revealed plans to cut 10% of its workforce (see earlier post)
American Express and VISA are also leading the risers, up 5%, on hopes that consumer spending may recover soon if lockdown rules are eased.American Express and VISA are also leading the risers, up 5%, on hopes that consumer spending may recover soon if lockdown rules are eased.
Newsflash: Britain’s FTSE 100 has closed at a new seven-week high, lifted by optimism that the worst of the coronavirus crisis could be behind us soon.Newsflash: Britain’s FTSE 100 has closed at a new seven-week high, lifted by optimism that the worst of the coronavirus crisis could be behind us soon.
The blue-chip index has ended the day up 156 points, or 2.6%, at 6115 points.The blue-chip index has ended the day up 156 points, or 2.6%, at 6115 points.
That’s its highest level since Tuesday 10th March (the day after Crash Monday), and the biggest one-day rise since 17th April.That’s its highest level since Tuesday 10th March (the day after Crash Monday), and the biggest one-day rise since 17th April.
Many recently-unloved stocks had a very strong day, with cruise operator Carnival jumping 16%, energy supplier Centrica gaining 15%, and budget airline easyJet up 12%.Many recently-unloved stocks had a very strong day, with cruise operator Carnival jumping 16%, energy supplier Centrica gaining 15%, and budget airline easyJet up 12%.
European markets also rallied hard, with Germany’s DAX up almost 3%.European markets also rallied hard, with Germany’s DAX up almost 3%.
David Madden of CMC Markets says Gilead’s encouraging news about remdesivir’s effects on Covid-19 patients helped drive the rally.David Madden of CMC Markets says Gilead’s encouraging news about remdesivir’s effects on Covid-19 patients helped drive the rally.
Oil is rallying hard, after the latest inventory figures showed a smaller rise in crude stocks than expected.Oil is rallying hard, after the latest inventory figures showed a smaller rise in crude stocks than expected.
US crude oil inventories rose by 9 million barrels in the week to 24 April, the Energy Information Administration reports. Economists had expected a 10.6m rise.US crude oil inventories rose by 9 million barrels in the week to 24 April, the Energy Information Administration reports. Economists had expected a 10.6m rise.
Gasoline stocks fell by 3.7m barrels, against forecasts of a 2.5m rise.Gasoline stocks fell by 3.7m barrels, against forecasts of a 2.5m rise.
This appears to be calming concerns that producers are running out of places to store energy stocks.This appears to be calming concerns that producers are running out of places to store energy stocks.
In response, a barrel of US crude for June delivery now costs $16.26 per barrel - up $4, or 32%, today.In response, a barrel of US crude for June delivery now costs $16.26 per barrel - up $4, or 32%, today.
Back in the UK, Royal Bank of Scotland is holding its AGM - virtually.Back in the UK, Royal Bank of Scotland is holding its AGM - virtually.
Speaking by video call, CEO Alison Rose flagged up the impact of the coronavirus on the bank, and the economy:Speaking by video call, CEO Alison Rose flagged up the impact of the coronavirus on the bank, and the economy:
Chairman Sir Howard Davies took a similar line, warning that Covid-19 will have a “stark and long-lasting” impact.Chairman Sir Howard Davies took a similar line, warning that Covid-19 will have a “stark and long-lasting” impact.
Virtual AGMs aren’t quite the same as the real thing -- no chance to grab the board for a chat, and no nibbles either! But on the upside, we get a glimpse at their impressive bookshelves:Virtual AGMs aren’t quite the same as the real thing -- no chance to grab the board for a chat, and no nibbles either! But on the upside, we get a glimpse at their impressive bookshelves:
Gilead’s shares are up 4.6% today at $82.30 per share, following its announcement.Gilead’s shares are up 4.6% today at $82.30 per share, following its announcement.
With the Nasdaq index now up 3%, Edward Moya of trading firm OANDA says traders are fixated on the remdesivir results.With the Nasdaq index now up 3%, Edward Moya of trading firm OANDA says traders are fixated on the remdesivir results.
Astonishingly, America’s slump into recession is partly due to a decline in heathcare spending - in the middle of a pandemic.Astonishingly, America’s slump into recession is partly due to a decline in heathcare spending - in the middle of a pandemic.
That’s because many operations and procedures can’t take place, either because hospitals are dealing with Covid-19 patients, or because physical distancing rules mean medics must stay away.That’s because many operations and procedures can’t take place, either because hospitals are dealing with Covid-19 patients, or because physical distancing rules mean medics must stay away.
Economics professor Justin Wolfers shows that half of the drop in GDP can be attributed to healthcare:Economics professor Justin Wolfers shows that half of the drop in GDP can be attributed to healthcare:
Jason Furman, formally economics advisor to Barack Obama, is surprised:Jason Furman, formally economics advisor to Barack Obama, is surprised:
It appears that Gilead > GDP today.It appears that Gilead > GDP today.
Stocks have jumped at the start of trading in New York.Stocks have jumped at the start of trading in New York.
Investors are focusing on the positive trial news about remdesivir’s effects on Covid-19 patients, rather than the dire US GDP figures.Investors are focusing on the positive trial news about remdesivir’s effects on Covid-19 patients, rather than the dire US GDP figures.
The Dow Jones industrial average has gained 401 points, or 1.6%, to 24,503 points, with the S&P 500 up 1.9%.The Dow Jones industrial average has gained 401 points, or 1.6%, to 24,503 points, with the S&P 500 up 1.9%.
Markets are shrugging off the looming US recession, and grasping onto hopes of a medical breakthrough for Covid-19 treatments.
US biopharmaceutical company Gilead has excited investors by announcing positive results from a trial of its antiviral drug remdesivir, to test if it could help severely ill COVID-19 patients.
In a statement, Gilead said remdesivir had shown positive results when given to patients for either a five-day or 10-day course of treatment.
Preliminary results showed that more than half of patients in both groups improved, and had been discharged from hospital by the 14th day after starting the treatment.
Merdad Parsey, chief medical officer at Gilead Sciences, says there were similar results between those on the five and 10-day trial:
Gilead also reports that patients who received remdesivir earlier were more likely to be released from hospital faster:
Investors have been watching Gilead’s progress closely, on hopes that remdesivir could treat the symptoms of the coronavirus - which can caused organs to shut down in severe cases, as well as attacking the lungs.
Markets had fallen back last week after reports that Remdesivir had failed a trial, so this feels like an encouraging development.
Stocks are moving higher in London, with the FTSE 100 up 2% or 124 points at 6082.
Bloomberg economist Michael McDonough has dug into the US GDP report:
Here’s our US business editor Dominic Rushe on today’s US GDP report:
He also points out that the current slump could rival the economic collapse of the Great Depression.
More here:
Robert Alster, Head of Investment Services at wealth manager Close Brothers Asset Management, says the White House will not like today’s GDP figures.
The instant reaction to today’s growth report is that America’s economy is suffering, and it’s about to get a lot worse.
Wall Street financier Steven Rattner fears that the slump will accelerate alarmingly in the current quarter, so that the economy shrinks at an annualised rate of 40%.
Dan Primark, business editor of Axios, agrees that things are going to get worse:
Investment strategist Callie Cox points out that US consumer spending plummeted (as people obeyed orders to stay home, and shops and restaurants closed)
America’s longest economic expanse in history is over!
The contraction in the last quarter ends a record-breaking run of growth which began back in the summer of 2009.
America’s economy shrank so sharply in the last quarter because personal spending fell, exports declined, and companies slashed investment.
The BEA explains:
NEWSFLASH: America’s economy is contracting at the fastest rate since the financial crisis a decade ago, as the coronavirus lockdown hits activity
US GDP shrank at an annualised rate of -4.8% in January-March, new figures from the Bureau of Economic Analysis. That’s worse than the 4.0% annualised contraction expected by economists.
(That means GDP contracted by roughly 1.2% on a quarter-on-quarter basis).
The BEA explains:
More details to follow....
Just in: Boeing has warned its staff that it plans to cut its headcount by 10%.
In an email to staff, CEO Dave Calhoun said the Covid-19 crisis is having a serious impact on demand for its planes. It will use natural wastage, voluntary redundancies, and compulsory layoffs where necessary.
With demand for commercial airline travel down very sharply, airlines are delaying purchases for new jets (a message also spelled out by Airbus this morning).
Boeing also reported its second quarterly loss in a row, losing $641m in January-March due to the coronavirus pandemic and the ongoing 737 Max grounding.
Goldman Sachs isn’t convinced by the stock market rally.
Its analysts have predicted that Wall Street will drop back towards last months lows, before rallying again later in the year.