A Federal Reserve official recommended further government spending to help ensure that the recovery from the pandemic-induced recession was faster — and reached vulnerable populations much more quickly — than those that followed previous deep downturns.
“The hardest lesson from both the Great Depression and the Great Recession is that it took a decade or more for the economy to fully recover and for the benefits of growth to reach all of those displaced by the shock,” the president of the Federal Reserve Bank of San Francisco, Mary C. Daly, said on Monday.
“A decade is too long,” she added. “We can’t wait 10 years for an economic recovery to reach everyone.”
Ms. Daly said that many of the recent job losses were likely to be permanent and that unless policymakers worked to “build the foundations for a sustained and robust recovery,” the job market was at risk of losing workers.
“We have to commit — now — to not letting this happen,” she said, adding that the Fed should leave interest rates low even as the economy recovered.
“We also need fiscal policymakers to commit to sustained investments in our economic future,” she said, noting that Congress has already approved emergency spending packages but specifically recommended further investments in health, education and digital infrastructure.
“Much more will be needed in order to build a strong economic foundation that will allow a full recovery and sustained expansion,” she said.
Stocks are unsteady as fresh coronavirus cases raise second wave concerns.
Stocks on Wall Street slipped on Monday, following global markets lower, as coronavirus outbreaks around the world raised concerns about the potential for a second wave of the pandemic.
The mood in financial markets improved, however, as the day went on. After falling more than 2 percent, the S&P 500 was down only slightly by midday. The technology heavy Nasdaq composite recouped all of its losses from earlier in the day, and oil prices also rebounded.
Sentiment in financial markets has been unsteady in recent days, after markets plunged Thursday as warnings that the economic recovery will be slower than hoped for, and the prospect of a second wave of coronavirus infections, seemed to shift the focus back to risks.
On Thursday, the S&P 500 fell by about 6 percent, its sharpest drop since mid-March.
On Monday, investors were reacting in part to bad news out of China, where some monthly economic indicators were weaker than expected, and where officials are battling a new spate of coronavirus cases in Beijing.
In the United States, Arizona, Florida and Texas have also reported higher infection numbers, and Gov. Andrew M. Cuomo of New York said that the state might have to reinstate lockdown conditions.
Stocks that have been hit hardest by pandemic-related restrictions — airlines, cruise operators and some retailers — were the hardest hit on Monday.
United Airlines raises $5 billion backed by its loyalty program.
United Airlines said Monday it had secured a $5 billion loan backed by its MileagePlus frequent flier program, part of its plans to have up to $17 billion in cash by the end of September.
That amount, about three times the airline’s typical target, would be enough to help United survive a second or third wave of coronavirus shutdowns and sharp drops in ticket revenue. The $17 billion figure includes a $4.5 billion federal loan that United has not yet committed to.
So far, American Airlines is the only large U.S. airline to confirm that it would borrow money from the federal government under a provision of a $2.2 trillion stimulus measure Congress approved this year. American said on Friday that it planned to borrow $4.75 billion under that program, a loan that would be backed by its frequent flier program. Separately, all the large airlines have accepted money from a $25 billion program Congress created to help the industry meet its payroll through September.
Loyalty programs have become a significant part of the airline business. They have helped companies protect themselves against the ups and downs of the economy by creating new income streams. Under the terms of the loan announced on Monday, United will retain control over MileagePlus, which generated more than $5 billion in cash flow last year and about 12 percent of the airline’s revenue.
United also said it expected to average $40 million in daily losses throughout the second quarter of the year. The company said it hoped to reduce that to $30 million in the third quarter. American and Delta Air Lines said last week that they expected to end June with $40 million in daily losses.
Germany buys a stake in the vaccine firm Trump reportedly wanted.
The German government will invest 300 million euros, or $340 million, and take part ownership of a company that is developing a coronavirus vaccine, the economics ministry said Monday, part of an effort to ensure Europe is not dependent on foreign manufacturers when a vaccine is developed.
The company, CureVac, was the subject of reports in April — denied by the company — that President Trump had tried to buy it as part of an attempt to get preferred access to a vaccine. The president did meet in April with CureVac’s chief executive at the time, Daniel Menichella, who later resigned.
“We need this important research and technology in Germany and Europe,” Peter Altmaier, the German economics minister, said in a statement Monday. The government said it would not meddle in CureVac management. But it will take a 23 percent stake in what Mr. Altmaier called a first step toward ensuring independence in vaccine production.
CureVac, based in the university town of Tübingen in southern Germany, has said it would begin clinical trials this summer of a coronavirus vaccine. If the vaccine proves successful, the company is capable of producing hundreds of millions of doses per year with an existing facility, and plans to expand capacity to billions of doses per year.
Dietmar Hopp, one of the founders of the German software company SAP, owns a majority of CureVac. Other investors include the Bill & Melinda Gates Foundation.
Here’s the business news to watch this week.
🗣 Jay Powell, the Fed chairman, discusses the central bank’s latest economic report to committees at the Senate (Tuesday) and House (Wednesday). His downbeat outlook spooked markets last week, and he will most likely hint that lawmakers should be as aggressive as the Fed in propping up the U.S. economy.
🏦 In other central banking news, the Bank of Japan isn’t expected to unveil any new stimulus measures at its policymaking meeting on Tuesday, while the Bank of England will probably announce on Thursday a boost to its bond-buying program.
📈 On Tuesday, data for U.S. retail sales and industrial production are expected to show increases in May, following steep declines in April.
📅 Friday is Juneteenth, the annual holiday celebrating the end of slavery in the U.S. It has gained new resonance during the protests against racial discrimination and police brutality. Several companies, including Nike and Twitter, have made it an official company holiday.
💵 We’re headed into a quiet stretch for company earnings, with this week’s noteworthy reports coming from Oracle on Tuesday and Kroger on Thursday.
BP told shareholders on Monday that the company expected to write off $13 billion to $17.5 billion of the value of its oil and gas holdings when it reports second-quarter earnings on Aug. 4.
The write downs — a reflection that oil and gas fields have fallen in value — come as Bernard Looney, who became chief executive in February, pursues a rapid makeover of the London-based oil giant.
A reorganization led by Mr. Looney is expected to result in a reduction of 10,000 jobs, or nearly 15 percent of the company’s work force. He also wants to change the way BP does business in order to meet a commitment to become carbon neutral by 2050.
The company said that the write downs of up to 12 percent of the previous book value were partly a result of a reduction in its long-term forecasts of the price of oil by about 30 percent, to $55 a barrel. It is also similarly downgrading its long-term price for natural gas.
The company said it assumed that the pandemic would have “an enduring impact” on the global economy and accelerate a shift to lower-carbon energy consumption as countries seek to rebuild their economies.
The write downs will come both from existing oil and gas fields and from those in places like the Gulf of Mexico and Canada where the company has undeveloped holdings that it may decide not to exploit in the current circumstances.
As China tries to rebound, its movie theaters remain closed.
China appeared to have nearly eradicated the coronavirus within its borders last month, but that was not enough to get people in the country spending again — and with a new outbreak in Beijing over the past several days, a full economic recovery could be even further away.
Restaurants, bars and shopping malls were open across China last month except for in a small area near the border with North Korea and Russia, which had a coronavirus outbreak in May. But retail sales nonetheless fell 2.8 percent nationwide in May compared with a year ago.
That result, which was worse than most economists expected, is likely to prompt renewed discussion over a politically difficult question: whether to reopen the country’s cinemas, which are practically the only large category of retail spending that remains completely closed.
The closure of cinemas has been a big blow to shopping malls at a time when buying is increasingly moving online.
Malls in China and around the world rely heavily on cinemas to draw people out of their homes, with the hope that they will stay after the movies to dine or shop. Unlike the malls, car dealerships had a fairly good month in May, with sales up 1.9 percent from an already strong month last year.
But Xi Jinping, the country’s leader, said at the end of March that cinemas were not needed, and no one has dared to challenge his decision publicly since then. “If anyone wants to watch a movie, just watch it online,” Mr. Xi said during a visit on March 31 to Zhejiang Province.
Exports were also weak in May. Beijing said last week that they had fallen 3.3 percent.
Industrial production was up 4.4 percent last month compared with a year ago, also slightly below expectations. Factory output has consistently run well ahead of retail sales this spring, raising worries that unsold inventories may pile up and set off another round of production cutbacks.
With sporting events postponed, gamblers turn to the stock market.
People who might typically bet on sports are playing a sizable role in the market’s recent surge, some Wall Street analysts say — a shift that has helped largely erased its losses for the year.
Millions of small-time investors have opened trading accounts in recent months, a flood of new buyers unlike anything the market had experienced in years, just as lockdown orders halted entire sectors of the economy and sent unemployment soaring.
It is unclear exactly how many of the new arrivals are sports bettors, but many are behaving like aggressive gamblers. There has been a jump in small bets in the stock options market, where wagers on the direction of share prices can produce thrilling scores and gut-wrenching losses. And transactions that make little economic sense — like buying up the nearly valueless shares of bankrupt companies — are off the charts.
Even with modest investments, these newcomers can move the market, because stock prices are set by just a sliver of shareholders.
On most days, the overwhelming majority do nothing, while the buyers and sellers establish the prices. So even a small influx of hyperactive speculators can have a significant effect.
“Investors are increasingly asking us about the participation of individual investors in the shares and options market,” analysts from Goldman Sachs wrote in a note published late last month. “Our data suggests that individual investors are indeed a significant proportion of daily volume.”
The federal government’s multibillion-dollar aid program to help small businesses hurt by the pandemic prompted outrage after billions went to public companies while mom-and-pop businesses were sidelined.
Now, another group of recipients is being scrutinized for taking the money: independent wealth management firms, some of which manage billions of dollars on behalf of affluent Americans. Their fees, which are typically 1 percent, can bring in tens of million annually regardless of market fluctuations.
The initial $349 billion allocated in April for the Paycheck Protection Program went quickly, prompting Congress to approve an additional $310 billion. But some business owners found the guidelines for accepting the money confusing or too restrictive.
Now, a divide is growing between advisory firms that took the money and those that declined because of ethical concerns. The issue is more than a tempest in a teapot. Some firms could lose millions in fees if their clients start pulling their wealth out.
“We didn’t think it was very credible that these firms actually needed the money,” said Gary Ribe, the chief investment officer of Accretive Wealth Partners, which manages $130 million and did not apply a loan from the Paycheck Protection Program. “Getting it out of an abundance of caution — that didn’t seem credible, either.”
Catch up: Here’s what else is happening.
Shares in Hertz fell about 15 percent Monday morning after the car rental agency announced a $500 million stock offering. A judge approved the unusual sale on Friday at Hertz’s request after the company saw an opportunity in its surprisingly buoyant share price.
SAS, the Scandinavian airline, said on Monday that it would need an additional 12.5 billion Swedish krona, or $1.3 billion, to continue operating. The airline said that part of that sum was expected to come from the Swedish authorities, who will submit to Parliament a proposal to invest 5 billion krona. The Swedish and Danish governments last month agreed to back a loan facility valued at 3.3 billion krona for the ailing airline.
Reporting was contributed by Jeanna Smialek, Niraj Chokshi, Jack Ewing, Matt Phillips, Mohammed Hadi, Keith Bradsher, Stanley Reed, Jason Karaian, Carlos Tejada, Brooks Barnes, Nicole Sperling, Paul Sullivan and Kevin Granville.