French oil major Total takes $8.1bn asset writedown
David Keohane in Paris
France’s Total slashed the value of its oil and gas assets by $8.1bn as a pandemic-driven drop in energy price forecasts forced the oil major’s hand.
Due to the falling prices of oil and gas, Total said on Tuesday that it would take an “exceptional asset impairment charge” of $2.6bn, mainly on Canadian oil sands and liquefied natural gas assets in Australia.
With oil prices falling and renewable energy expected to keep climbing, the group also upped its estimate of so-called ‘stranded assets’ in its portfolio — those assets with reserves beyond 20 years and high production costs, whose overall reserves may therefore not be produced by 2050. That led to another impairment of $5.5bn, also in Canadian oil sands.
The write downs, which will impact the gearing ratio of the group by 1.3 per cent, will be taken into account in Total’s second quarter results, to be released on Thursday morning.
Total is not the first oil major to warn of write downs. Energy groups are faced with the reality that the impact of the pandemic on oil and gas prices, as well as an accelerating shift to renewables, could endure, potentially rendering billions of dollars worth of assets economically unviable.
Royal Dutch Shell already warned at the end of June it would slash up to $22bn from the value of its assets, while before that BP announced that it could take a $17.5bn hit.
Brent crude, the international oil benchmark, dropped below $20 a barrel in late March to an 18-year low before recovering as producers reduced supply and demand picked up, bringing the prices up above $40 again.
Total now expects the price of Brent to be $35 a barrel in 2020, $40 in 2021, $50 in 2022 and $60 in 2023. However, the group said on Tuesday that it still thinks that a lack of investment since 2015 and the impact of the pandemic “will result by 2025 in insufficient worldwide production capacities and a rebound in prices.”
Kodak shares skyrocket again after pivot to drug ingredients
Kodak has seen its market capitalisation multiply by 14 in two days after the former giant of the camera business refocused its lens on making ingredients used in generic drugs.
Shares in the Rochester, New York-based company were on track to close at their highest level since Kodak emerged from bankruptcy in 2013. Kodak, which tripled on Tuesday, was recently up another 389 per cent to $38.83 in volatile trading, having climbed as high as $59.98. Kodak ended Monday’s session at $2.62.
The stock hit multiple circuit breakers, which briefly halt trading.
The wild two-day rally followed news that Kodak would land a $765m loan from the US government to support the company’s pivot to producing both “starting materials” and active pharmaceutical ingredients.
The Trump administration has sought to expand domestic manufacturing across medical supply chains to reduce dependence on foreign markets, particularly China. Kodak’s facilities are expected to build capacity to produce up to 25 per cent of the active pharmaceutical ingredients used in generic pills.
US crude inventories fall as refineries pump for fuel
Derek Brower in London
US crude oil stocks fell sharply last week as imports plunged, refineries pumped more fuel, and petrol demand surged.
Total petrol demand rose by 260,000 barrels a day last week, said the Energy Information Administration, equivalent to a 3 per cent rise from the week before. Petrol demand was still about 750,000 b/d, or 8 per cent, beneath its level in the same week last year.
Distillate demand, often taken as a proxy for economic sentiment because of its use in industry and agriculture, rose by 400,000 b/d, or 12 per cent, compared with a week earlier.
Market consensus had been for a crude stock build of 360,000 b/d, according to Refinitiv data, so the larger-than-expected drop in inventories helped prop up prices that have been under pressure due to the rise in coronavirus cases in the US, the world’s biggest oil market.
West Texas Intermediate, the US benchmark, was trading roughly flat at $41.30 in the hour after the EIA reported.
Imports from Opec countries plunged, said the administration, reflecting the cuts to supply put in place several months ago as Russia and Saudi Arabia ended their price war.
Saudi crude shipments to the US dropped to just 303,000 b/d, more than 1m b/d below their level at the beginning of the month. Iraqi exports to the US were nil, said the EIA, while shipments from non-Opec countries Colombia and Brazil also fell sharply.
The EIA estimated weekly production at 11m b/d again, 2m b/d beneath the historic peak set earlier this year. Many private consultants believe production to be far lower, despite a rise from the nadir below 10m b/d earlier this year after prices collapsed.
Florida reports more than 200 deaths in a single day for the first time
Florida joined only a handful of US states to have reported more than 200 deaths in a single day after confirming on Wednesday that fatalities had jumped by a record daily amount.
A further 217 people died, the state health department revealed on Wednesday morning, surpassing Tuesday’s record of 191.
That takes the total number of fatalities in Florida since the pandemic began to 6,457, surpassing Michigan’s 6,421 to become the seventh-worst-hit US state, according to Financial Times analysis of Covid Tracking Project data.
Only a handful of other US states have ever reported single-day increases of more than 200 coronavirus deaths. These include Connecticut, Massachusetts, New Jersey, New York and Pennsylvania, according to FT analysis of the CTP data.
Although deaths are typically regarded as a lagging indicator, Florida’s record jump casts a shadow over an encouraging trend that had developed in new cases. The state confirmed a further 9,466 people tested positive for Covid-19 over the past 24 hours, the fourth day in a row the increase had been less than 10,000.
A similar trend has also emerged at the national level. New cases have declined for four days in a row to 53,507 as of Tuesday from levels above 70,000 last week. Deaths have risen by more than 1,000 a day seven times in the past eight days, consistent with daily levels most recently seen in May.
Florida conducted nearly 88,300 tests over the past day, the fewest in just over a week. The percentage of these tests that came back positive for Covid-19 ticked up to 12.26 per cent, the first time it was over 12 per cent in five days.
US pending home sales hit 4-year high
Signed contracts to buy previously owned homes in the US jumped to their highest level in more than four years last month, as pent-up demand and record-low mortgage rates gave the housing market a boost.
The National Association of Realtors said its index tracking pending home sales – a gauge of future real estate transactions – rose 16.6 per cent in June to 116.1, the highest reading since April 2016. That surpassed economists’ expectations for a 15 per cent gain compared with the prior month. Pending home sales were also up 6.3 per cent year on year.
“It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago,” said Lawrence Yun, NAR’s chief economist.
The housing market has been one of the brighter spots in the US economy amid turmoil brought on by the pandemic and business shutdowns. Existing home sales recorded their highest monthly gain on record in June, and pending sales have climbed for two consecutive months, as buyers return to the market. Existing home sales account for more than 90 per cent of all US sales.
Buyers have also taken advantage of low interest rates. The average rate on a 30-year fixed-rate mortgage fell below 3 per cent this month for the first time, according to Freddie Mac, the US government-backed mortgage agency.
Mr Yun noted that contract signings in the north-east surged about 54 per cent following a longer lockdown than other regions, while the south “has consistently outperformed the rest of the country”. He added: “These remarkable rebounds speak to exceptionally high buyer demand.”
The NAR has now forecast a 3 per cent decline in existing home sales and a 3 per cent increase in new home sales, “in light of the apparent housing market turnaround”. The group had previously expected a 7.7 per cent decline in existing home sales and 1 per cent growth for new homes.
Greece makes face masks mandatory in shops, banks and public offices
Kerin Hope in Athens
Greece has made it mandatory to wear face masks in shops, banks and public offices following a recent spike in Covid-19 cases around the country.
The deputy citizens’ protection minister, Nikos Hardalias, advised that masks should also be worn “in all closed spaces and where social distancing is not possible.”
Athens and the northern city of Thessaloniki have seen a steady increase in new cases this month, accounting for 23 out of 52 new confirmed cases reported on Tuesday — the highest daily number since mid-June.
Several coronavirus clusters have been recorded in the Athens area, including one in the city centre, Mr Hardalias said.
He said the situation remained “manageable” with the R number, the average number of new Covid-19 cases generated by one infected person, standing at 0.4 this week.
Seven tourists were diagnosed with the virus on Tuesday after being tested on entering the country, according to figures from the public health organisation EODY.
The number of visitors who have tested positive since Greece re-opened for tourism on July 1 reached 344 this week out of a total of 1.29m arrivals from 17 European countries.
More than 170,000 tests were carried out this month at the country’s airports, ferry terminals and road border crossings, according to EODY.
US oil producer Denbury Resources files for bankruptcy protection
Denbury Resources has joined the pile-up of American oil and gas producers filing for bankruptcy protection in the wake of a price crash that has pummelled the sector.
The heavily indebted Texas-based oil producer said it had agreed a restructuring plan with lenders that would see it eliminate $2.1bn in debt after recent ructions in the oil market proved the final straw.
“Recently our entire industry has been highly impacted by the global oil demand destruction caused by the Covid-19 pandemic, driving record low oil prices and rapid changes in energy market conditions,” said Chris Kendall, Denbury president and chief executive.
“The difficult decision to undertake this financial restructuring process follows a comprehensive review of alternatives, and we believe it is an important and necessary step.”
Denbury — whose operations are based in the Rocky Mountains and Gulf Coast — is the fifth big oil and gas producer to seek bankruptcy protection in the wake of a price crash caused by coronavirus destroying demand and a Saudi-Russia price war that sent supply soaring. Twenty-three companies had filed for bankruptcy by the end of last month, according to Texas law firm Haynes & Boone.
The company has sought to differentiate itself from the rest of the industry by focusing on the use of CO2 enhanced oil recovery, a technique that involves injecting carbon dioxide into existing oil fields in order to force oil towards production wells.
But it has struggled under the weight of a heavy debt load that it has been unable to shake. Total debt at the end of 2019 was $2.3bn, half of which was due to mature by mid-2022. The move was expected by many in the market, after Denbury skipped a large interest payment earlier this month.
It produced around 56,000 barrels of oil per day in 2019.
US goods trade deficit shrinks in June
The US trade deficit in goods narrowed in June as exports jumped after coronavirus lockdowns that had disrupted the flow of goods around the world started to ease.
The advance trade gap in goods shrank to $70.6bn last month, down from $75.3bn in May, the commerce department said on Wednesday.
That came as exports grew 13.9 per cent month-on-month to $102.6bn, driven by a surge in exports of vehicles and auto parts. Meanwhile, imports grew by a more muted 4.8 per cent over the same period to $173.2bn, though imports of industrial supplies including petroleum fell 19.2 per cent.
The flow of goods had been disrupted as businesses closed and manufacturing stalled amid efforts to curb the spread of coronavirus. Those lockdowns began to ease in June, but in the US, a jump in new cases in the south and west have prompted parts of the country to halt or reverse reopening plans.
“Normalisation, though, is still some way off; core exports are still down by almost a quarter compared to the pre-Covid level, while core imports are down about 13 per cent,” said Ian Shepherdson, economist at Pantheon Macroeconomics. “The monthly movements in the deficit will be erratic as flows head back to something like normal.”
Indian airline IndiGo warns on ‘volatile’ outlook as earnings slide
Stephanie Findlay in New Delhi
India’s largest private airline IndiGo reported a 92 per cent drop in operational revenue for the quarter ending June 30, as Asia’s third largest economy struggles with surging coronavirus infections.
IndiGo’s loss before tax was Rs28.4bn ($380m), compared with profit before tax of Rs15bn ($201m) during the same period last year, said the airline on Wednesday.
“The aviation industry is going through a crisis of survival,” said IndiGo’s chief executive Ronojoy Dutta in a statement. “Our cash balance remains our number one priority.”
The coronavirus pandemic has been devastating for the global aviation sector, however the deteriorating scenario in India has inflicted particular pain for airlines in the country.
After Prime Minister Narendra Modi announced a strict nationwide lockdown on March 24, IndiGo planes did not return to the skies until two months later. The no-frills carrier is operating an average of 400 daily flights, compared with a peak of 1,634 for the quarter ending December 2019.
In an earnings conference call, chief financial officer Aditya Pande said that the “volatile” environment with still-climbing coronavirus cases made predicting the future difficult.
“Most of July was strong, the trend has weakened in the past few days,” he said, blaming a spike in Covid-19 cases and sporadic lockdowns in cities.
However, company executives said they were bullish on the long term, suggesting that IndiGo might win over customers who chose faster plane trips as a safer option over slower, often crowded, trains.
India has the world’s third-biggest coronavirus caseload after the US and Brazil, with more than 1.5m infections and over 34,000 deaths.
Pakistan announces lockdown in most populous province
Farhan Bokhari in Islamabad
Pakistan’s most populous province has initiated a lockdown that will restrict large gatherings during the Muslim holiday of Eid al-Adha this weekend.
Punjab, with a population of about 120m, is home to about 60 per cent of Pakistan’s population. Under the so-called “smart lockdown”, all large gatherings for social and religious purposes including congregations for early morning prayers on the day of Eid al-Adha, will be restricted.
Additionally, shopping malls will remain shut while sports with the possibility of contact between players will not be allowed.
Boeing announces deeper production cuts as pandemic hits air travel
Claire Bushey in Chicago
Boeing plans further cuts to production rates and employment levels as it continues to grapple with the fallout from Covid-19 and the 17-month grounding of the 737 Max.
The Chicago company had anticipated a slow ramp up for the Max, its highest margin jet, but on Wednesday said it would now be slower. Instead of workers building 31 a month by the end of 2021, the company said it would not reach that rate until 2022.
The manufacturer also cut the rates on the 787 Dreamliner and the 777X. Boeing, which had previously aimed to make seven per month in 2022, said it would not reach that goal, and would instead make six per month in 2021, down from 10 a month at present. The anticipated 777X rate fell to two per month in 2021 from three.
The company did not give details about how the additional rate cuts will affect the size of its workforce, but fewer planes require fewer workers to build them. The company is already cutting 12,000 jobs through a mix of lay-offs and severance packages, with a goal of shrinking its 160,000-strong workforce by 10 per cent.
Boeing posted a net loss of $2.4bn in the second quarter, compared with a $2.9bn loss for the same period a year ago. Revenue declined 25 per cent to $11.8bn, and it reported operating cash outflow of $5.3bn as jet deliveries and services performed for airlines decreased.
General Motors slides to a loss on falling demand for cars in the US
Peter Campbell, Global Motor Industry Correspondent
General Motors fell to a loss in the second quarter, dragged down by a collapse in profits and falling sales from its traditionally lucrative North American operations.
Global sales at the Chevrolet and Buick owner halved to $16.8bn in the quarter, with a net loss of $758m, compared with a $2.4bn profit in the same quarter in 2019.
Its North American arm posted a $101m net loss for the quarter, compared with a $3bn profit in the same period a year earlier.
US sales of Chevy trucks fell from 248,000 to 176,000, while deliveries from its GMC truck brand slid from 153,000 to 100,000. Both units are significant profit drivers at the business.
Total US vehicle sales fell from 747,000 to 492,000, while global sales dropped from 1.9m to 1.5m.
Carmakers across the world were hammered during the second quarter, as factories reopened but consumer demand was hit by the pandemic and global economic uncertainty.
GM slashed costs in the quarter, including “reductions in advertising and other discretionary spending, compensation deferments and certain employee furloughs”.
It said some of the cost-saving measures would remain “permanent”.
Shopify results boosted by online shopping boom
Tim Bradshaw in London
Shoppers’ rush to online stores during the pandemic propelled shares in Shopify to new highs on Wednesday, after it said purchases through its network of ecommerce sites more than doubled in the second quarter, overtaking those of eBay for the first time.
Shopify’s revenues rose by 97 per cent to $714.3m compared with the same period a year ago, busting through Wall Street’s consensus forecasts of about $500m.
Gross merchandise volume, a measure of consumers’ total spending through Shopify’s network of stores before fees and revenue splits with shop owners, rose 119 per cent year on year in the period to $30.1bn, driven by particularly rapid growth in food, beverages and tobacco.
That figure outstrips the $27.1bn in GMV reported by ecommerce pioneer eBay on Tuesday, demonstrating Shopify’s strong momentum among retailers both large and small who are having to shift their business online due to continuing restrictions on the high street.
Ottawa-based Shopify also swung to a profit in the quarter, reporting net income of $36.0m, compared with losses of $28.7m in the second quarter of 2019.
“The world is changing fast,” said Tobi Lütke, Shopify’s chief executive and co-founder. “With the rapid shift to online commerce, massive disruption to conventional employment, and growing conviction that opportunity needs to be more evenly distributed, entrepreneurship has never been more important.”
However, Shopify did not provide financial guidance for the rest of the year, as the accelerated switch to ecommerce driven by Covid-19 was counterbalanced by the “greater likelihood of an extended global recession” and fluctuating lockdowns.
Growth in GMV accelerated during April and May but slowed down in June and so far in July, Shopify said.
Shopify’s stock rose by as much as 9 per cent in pre-market trading, touching a new all-time high of $1,075. The shares have more than tripled in value during the last 12 months as Shopify grew to become the largest ecommerce platform after Amazon in the US.
GE to sell out of Baker Hughes as pandemic takes a toll
Naomi Rovnick in London
General Electric has pledged to “fully monetise” its stake in oilfield services business Baker Hughes, as the debt-laden conglomerate reported a $2.2bn quarterly loss after its aviation and power units were hit by the coronavirus pandemic.
GE, which paid $7.4bn for a controlling stake in Baker Hughes in 2016 in a bet on the future of energy prices under former chief executive Jeff Immelt, said it would sell the entire interest within three years. In a statement, GE described Baker Hughes as “a substantial non-core asset”.
The announcement came alongside quarterly results showing that GE lost $2.2bn in the quarter to June 30, or 27 cents per share. Orders in its aviation business fell by 56 per cent compared with the same period last year while power business orders fell 42 per cent.
But GE said it had also reduced its debt by $9.1bn so far this year. The group has promised to be “leverage-neutral” by the end of 2021.
“Our earnings performance was impacted by the ongoing impact of Covid-19 on our businesses,” chairman and chief executive Lawrence Culp said.
“We made faster progress on elements within our control, including our targeted cost and cash preservation actions,” he added.
Spotify losses swell even as premium subscribers reach 138m
Patricia Nilsson in London
Spotify’s losses widened heavily after payroll taxes soared* following the streaming company’s strong growth on stock markets.
The company, which has been largely unscathed by the pandemic, has seen its shares double in the past three months.
It said on Wednesday that operating losses swelled to €167m in the three months ending June, compared to €3m in the same period last year. The slump was largely due to payroll taxes tied to employee salaries and benefits, including share-based payments, which came in €126m higher than planned due to Spotify’s soaring share price.
Revenue reached €1.9bn, up by 13 per cent from the same period last year.
Spotify said on Wednesday that music listeners have largely returned to pre-pandemic habits, as it added eight million new paying subscribers in the last quarter.
The company had in June reached 138m so-called premium subscribers — the company’s most watched metric — up 27 per cent from a year ago and at the upper range of its previous guidance. As of June, the company said the number of hours spent listening to music on Spotify was back up to pre-Covid levels, particularly helped by people driving again.
Note: The piece has been amended to reflect payroll taxes associated with employee salaries and benefits rose.
Iran permits major religious ceremonies to go ahead
Najmeh Bozorgmehr in Tehran
Iran has permitted upcoming major religious ceremonies to go ahead despite a surge of Covid-19 deaths over the past month.
“It is clear that all religious ceremonies … will be held and it is clear that they should be within health protocols,” president Hassan Rouhani said at a cabinet meeting on Wednesday.
Mr Rouhani called on Iranian Muslims to observe hygienic guidelines while celebrating Eid al-Adha on Friday, the ceremony where Muslims commemorate Ibrahim’s willingness to sacrifice his son.
He also permitted the 10-day mourning ceremonies that mark the death of the third Imam of Shias, Hossein to go ahead next month.
Millions of mourners will be obliged to wear face masks, maintain social distancing and keep indoor gatherings to shorter hours than usual, the health ministry said.
Many ordinary Iranians have called for a ban on religious gatherings over fears that the virus will spread further and amid warnings by health authorities that most of the country is in an alarming situation. But some religious communities have also vowed to ignore any lockdown rules.
By Wednesday afternoon, 16,343 Iranians were reported to have died since the coronavirus outbreak.
Hong Kong’s economy shrinks more than expected in second quarter
Primrose Riordan in Hong Kong
Hong Kong’s economy took a greater hit than expected in the second quarter, with gross domestic product decreasing by 9 per cent in real terms according to advance estimates released by the city’s government on Wednesday.
Economists surveyed by Bloomberg had predicted an 8.3 per cent fall. The statistics mark four consecutive quarters of economic contraction with the coronavirus outbreak, the US-China trade war and the political crisis sparked by anti-government protests the year before, harming growth.
Private consumption dropped by 14.5 per cent in real terms in the quarter and services exports fell by 46.6 per cent. The city’s GDP had contracted by 9.1 in the first quarter of the year.
As a result of the estimate on Wednesday, Capital Economics revised down their GDP growth forecast for the territory for the year from minus 4.5 per cent to minus 8 per cent.
“With the city facing its worst Covid-19 outbreak yet, hopes for an imminent recovery have been dashed,” Capital Economics’ Martin Rasmussen wrote.
The Hong Kong government said on a seasonally adjusted basis GDP fell “marginally” by 0.1 per cent in real terms in the quarter compared with the first quarter.
“The recovery of the mainland economy also helped partly offset the external headwinds facing Hong Kong,” a government representative said. “The overall economic situation showed signs of stabilisation during the quarter.”
Tourism decline poses new challenge for Spanish retailers
The Spanish retail sector is slowly recovering from the impact of lockdown, although low tourism presents a new challenge for the country’s shops.
Spanish retail sales fell 4.7 per cent in June from a year earlier on a calendar-adjusted basis, after a record slump of 31.6 per cent recorded in April, the National Statistics Institute (INE) said. They were up by 17.8 per cent on the month of May.
Angel Talavera, head of Europe economics at Oxford Economics, said the release showed that the country’s retail sector had recovered around 85 per cent of the accumulated losses during the lockdown months.
Areas that are most dependent on tourism suffered the greatest decreases in retail sales, with annual declines of 21 per cent in the Balearic islands and 11.9 per cent in the Canaries.
The country did not allow for complete freedom of movement before the week of June 4. This, coupled with a decline in tourism and the fact that a large share of workers continued working from home, impacted service stations in particular, said INE, with a fall of 23.6 per cent compared with June 2019.
Miner Rio Tinto to pay $2.5bn dividend despite pandemic
Neil Hume in London
Rio Tinto, the world’s biggest producer of iron ore, has highlighted the resilience of the mining industry during the coronavirus pandemic by declaring a $2.5bn interim dividend.
News of the payout came as the Anglo Australia group reported underlying earnings of $4.75bn for the six months to the end of June, down 4 per cent from a year ago, but above market expectations of $4.36bn.
Rio chief executive Jean-Sébastien Jacques said China, its most important market, had enjoyed a “V-shaped” recovery and demand for iron ore, its main commodity, remained “very, very strong”.
“The order books are full,” he said.
However, the company was not completely unaffected by the pandemic.
It took more $1bn of impairment charges, mainly related to its aluminium business, which has struggled due to low prices and high power costs.
Rio also wrote down the value of its stake in the Diavik diamond mine in Canada.
Mr Jacques also offered an apology for the destruction of two ancient aboriginal rocks shelters in Western Australia earlier this year, promising that it would never happen again.
RBC Capital analyst Tyler Broda commented that considering the challenges associated with Covid and dramatic shifts in demand for aluminium, Rio’s first half performance was “exceptional”.
Heathrow says UK travel policy amounts to ‘quarantine roulette’
Heathrow Airport has warned that the UK risks being left behind other European countries unless the government rapidly introduces a passenger testing scheme to help the battered aviation industry recover from coronavirus disruption.
The airport operator slid to a £1bn loss in the first half of the year and warned the current government policy left the UK “playing a game of quarantine roulette” that was benefiting its European rivals.
“The UK needs a passenger testing regime and fast,” the airport’s chief executive John Holland-Kaye said on Wednesday. “If the UK doesn’t act soon, global Britain will be nothing more than a campaign slogan.”
But the government quickly responded that there was no safe way to test people on arrival.
“There is not a silver bullet of just testing immediately at the border,” culture minister Oliver Dowden told the BBC.
Fears of economic insecurity knock French consumer confidence
Federica Cocco in London
French consumer confidence dipped in July as households’ fears about unemployment and the economic outlook amid the coronavirus pandemic remained high.
The INSEE official statistics agency said its consumer sentiment index fell to 94 from 96 in June, below an average forecast of 99 in a Reuters poll of economists’ expectations. A score below 100 indicates that consumer confidence is lower than its long-term average, whereas a score above that mark represents an improvement.
INSEE said the share of households that believed it was a suitable time to make major purchases had decreased, while the number of French households that thought it was better to save had increased for the third consecutive month.
Fears about unemployment have decreased slightly but remain well above the long-term average. Fewer French households believe the standard of living in the country has improved during the past year.
Corporate round-up: companies count the costs of Covid-19
Barclays added a further £1.6bn to its reserves for bad loans in the second quarter, adding clarity to the scale of the damage coronavirus could wreak on Britain’s banks.
Credit impairment charges more than tripled from £408m in the same period last year, as strict global lockdowns to slow the spread of Covid-19 caused historic plunges in economic growth. The impact was worse than the £1.4bn analysts had forecast.
The charge helped depress net profit 91 per cent to £90m in the period, half the £180m expected by analysts. Profit before tax similarly fell 76 per cent to £359m, missing the £491m average forecast.
Heathrow Airport reported a £1.1bn pre-tax loss for the first half of the year, with passenger numbers down 96 per cent in the second quarter. Even on a prettified adjusted basis, the pre-tax loss was £471m, down from a £153m profit for the same time last year. The airport also said the opening of the much-disputed third runway would be delayed by at least two years because of the crisis and an appeals process.
Medical devices maker Smith & Nephew missed analysts’ earnings forecasts as its business continued to suffer as hospitals delayed elective surgeries to focus on the health crisis wrought by coronavirus.
The group, which makes devices for hip and knee replacements, reported a trading profit for the six months to June of $172m, compared with analysts’ expectations of $225m. Smith & Nephew’s sales also fell 19 per cent on an underlying basis.
Oil producer Tullow Oil said it would probably take impairment charges of up to $1.7bn in its forthcoming half-year results, as it lowered its outlook for fuel prices. The group, which has net debt worth almost six times its stock market capitalisation, has now followed larger rivals such as Royal Dutch Shell and BP in downgrading its expectations for oil prices.
Hungarian budget airline Wizz Air reported a €108m net loss for the three months to June 30, compared with a net profit of €72m the same time last year. The group, which restarted flights in May, said it was now flying at about 70 per cent of its capacity, compared with just 11.5 per cent in the first quarter of the year. Chief executive József Váradi argued, in a statement alongside the quarterly update, that Wizz Air’s young fleet and low costs made the business “best positioned to double down on the opportunities that present themselves,” and “emerge as a structural winner post-Covid-19.”
FTSE 100 housebuilder Taylor Wimpey’s revenues fell by half during the first six months of the year, dragging it to a £40m loss — a fall in profits of more than £300m from last year. Site closures and socially-distanced construction mean the builder expects to deliver around 40 per cent less completions this year, with a significant impact on revenues and margins and some knock-on impact next year.
Food producer Premier Foods reported a boost from lockdowns and increased supermarket shopping, however. The group said sales rose 22.5 per cent in its most recent quarter, compared with the same time last year. “As expected, we continued to see strong demand for our grocery brands,” chief executive Alex Whitehouse said, “with consumers eating the vast majority of their meals at home.”
Global stocks edge lower ahead of Federal Reserve Meeting
European stocks are set to follow their counterparts lower ahead of a US monetary policy decision and as Congress struggled to reach a deal on extending the country’s coronavirus relief package.
Futures linked to London’s FTSE 100 were down 0.2 per cent, suggesting that the UK index would drop when trading begins. Those for Germany’s Dax pointed to deeper losses of 0.4 per cent.
Analysts at SEB, a Swedish bank, said that investors were waiting for an announcement by the Federal Reserve on Wednesday on its latest monetary policy meeting.
“In addition to the Fed announcement, the market continues to be characterised by risks due to the continuous spread of [Covid-19] infections and its effects on economies,” they said.
In Asia-Pacific, Japan’s Topix index fell 1.3 per cent while equities in Australia and South Korea were little changed. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks and Hong Kong’s Hang Seng index were the exceptions, rising 2.1 per cent and 0.5 per cent, respectively.
Taylor Wimpey anticipates 40% fewer homes will be finished in 2020
Oliver Ralph in London
UK housebuilder Taylor Wimpey expects the number of home completions to drop by 40 per cent this year because of site closures caused by coronavirus.
The company had to close its building sites in March and, although they are now open again, they are only operating at 80 per cent of production capacity. That will hit sales this year, and there will also be a knock-on impact in 2021.
Nevertheless, chief executive Peter Redfern said: “While uncertainties remain, we are confident in the underlying fundamentals of the housing market.”
Reporting first half results on Wednesday, Taylor Wimpey said that the pandemic had “a material impact on our financial performance.” Revenue for the period more than halved to £754m, while the £300m pre-tax profit in the first half of last year became a £40m loss.
Taylor Wimpey raised £510m in a share placing in May to take advantage of opportunities in the land market over the next 12 months.
Barclays increases reserves to cushion against Covid-19 blows
Stephen Morris, Banking Editor
Barclays added a further £1.6bn to its reserves for bad loans in the second quarter, adding clarity to the scale of the damage coronavirus could wreak on Britain’s banks.
Credit impairment charges more than tripled from £408m in the same period last year, as strict global lockdowns to slow the spread of Covid-19 caused historic plunges in economic growth.
The impact was worse than the £1.4bn analysts had forecast. In the first quarter Barclays reserved £2.1bn, among the most conservative provisioning of any European lender, taking the total so far in 2020 to £3.7bn.
The charge helped depress net profit 91 per cent to £90m in the period, half the £180m expected by analysts. Profit before tax similarly fell 76 per cent to £359m, missing the £491m average forecast, the London-based bank said on Wednesday.
“While the remainder of 2020 will be challenging, our diversified model means we can remain financially resilient,” said Jes Staley, the lender’s chief executive.
“Although we will remain well capitalised… we may experience stronger capital headwinds in the second half. The board will decide on future dividends and capital returns at the year-end.”
The Covid-19 blow was tempered by a 49 per cent jump in trading income, as the investment bank benefited from high volumes in exceptionally turbulent markets as companies scrambled to raise emergency funds and hedge exposures. However, overall group revenue fell 4 per cent to £5.3bn as income in both the UK and credit card divisions fell.
Fixed-income revenue surged 59 per cent, but still lagged its larger Wall Street rivals such as JPMorgan, Goldman Sachs and Morgan Stanley, where revenues more than doubled. European peer Deutsche Bank posted a 39 per cent gain in the same business.
Sanofi and GSK to supply UK with Covid-19 vaccine
The UK has agreed to buy up to 60m doses of a vaccine being developed by Sanofi and GlaxoSmithKline if the companies are able to prove its efficacy against Covid-19 in clinical trials to start in September.
Financial details of the accord were not disclosed in a joint statement from the companies on Wednesday.
Countries have pledged to pour billions into helping pharmaceutical companies bring a vaccine to market in an effort to compress a process that usually takes a decade into a period of 12 to 18 months. The moves have prompted fears among public health experts that so-called vaccine nationalism will lead rich countries to hoard treatments while poorer ones have to wait.
The US has been particularly active via its Biomedical Advanced Research and Development Authority (Barda), which pioneered the model of bankrolling the manufacturing of doses before efficacy has been proven.
Britain’s deal with Sanofi and GSK is the fourth such advance purchase agreement it has signed since May.
It earlier agreed to buy 100m doses of the Oxford university vaccine being developed with AstraZeneca, as well as 30m doses from Germany’s BioNTech and US group Pfizer. A further 60m doses will come from France’s Valneva of France, which is less advanced in development but has a different mechanism than the others.
Deutsche Bank raises revenue outlook for 2020 to ‘essentially flat’
Olaf Storbeck in Frankfurt
Deutsche Bank has increased its full-year revenue outlook after slightly beating analyst expectations in the second quarter, while provisions for credit losses rose to the highest level in more than a decade.
Germany’s largest lender on Wednesday said it was now expecting that group revenue in 2020 would be “essentially flat”, compared with the previous guidance of a slight decrease.
A 46 per cent increase in investment banking revenue to €2.7bn in the quarter pushed group revenue to €6.3bn, €200m above analyst expectations. The net loss attributable to shareholders almost doubled to €77m but was only half as big as analysts had expected.
Provisions for credit losses at €761m were almost five times higher than a year ago, but still better than the €818m expected by analysts.
The lender also said that the risk that its common equity tier one ratio — a key measure of balance sheet strength — would temporarily fall below Deutsche’s internal target of 12.5 per cent in 2020 was “now significantly lower than was anticipated earlier in the second quarter 2020”.
Australian inflation falls at fastest rate in 72 years
Jamie Smyth in Sydney
Australia recorded its largest quarterly fall in inflation in 72 years on Wednesday, as the impact of coronavirus and government support measures rippled through the economy.
The consumer price index fell by a record 1.9 per cent in the June quarter due mainly to a 20 per cent slump in fuel prices and the introduction of free child care by Canberra in response to the pandemic.
On an annual basis the inflation rate was minus 0.3 per cent in the year to the end of June, pushing the economy into deflation for the first time since 1998.
“This was the largest quarterly fall in the 72-year history of the CPI,” said Bruce Hockman, chief economist of the Australian Bureau of Statistics, who noted this was only the third time annual inflation in Australia had been negative since 1949.
Retail spending linked to the public’s response to pandemic caused sharp increases in the prices of some goods, notably: cleaning products (6.2 per cent); toilet paper (4.5 per cent); furniture (3.8 per cent); and household appliances (3 per cent).
Economists said the Reserve Bank of Australia would probably ignore the dire inflation figures — given that the figures mainly related to coronavirus — when setting interest rates policy, until they could get a better handle on the true underlying prices trends.
“With Covid impacting price levels and measurement, the RBA will wait for some clear air before trying to get a handle on the true underlying price trend. That seems unlikely until the fourth quarter at the earliest,” said Phil O’Donaghue, economist at Deutsche Bank.
Australia clears banks to pay reduced dividends
Jamie Smyth in Sydney
Australia has eased restrictions on banks and insurers over paying shareholder dividends this year as part of efforts to support the economy during the coronavirus pandemic.
However, the prudential regulator Apra told lenders on Wednesday to keep dividend payout ratios below 50 per cent to bolster “capital resilience” during the health crisis, which has forced banks to defer A$236bn ($169bn) in loans.
Last year, the payout ratio of Australia’s main banks — Commonwealth Bank of Australia, ANZ Bank, Westpac and National Australia Bank — was 85 per cent. The lenders made combined profits after tax of A$26.9bn.
Tim Roche, an analyst at Fitch Ratings, said Apra’s relaxation was an acknowledgment of the role payments to shareholders played in supporting the economy. “A lot of shareholders rely on dividends as a cash flow stream in Australia and I think there is a reluctance to cut off that stream entirely,” he said.
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‘Silver bullet’ to beat Covid-19 unlikely, warns UK vaccine chief
Anna Gross in London
The chair of the UK government’s vaccine task force has damped hopes of finding a “silver bullet” that provides lifetime immunity against Covid-19 despite a week of positive trial results for potential inoculations.
Kate Bingham told the Financial Times it was more likely scientists would develop either a vaccine that provides a year’s immunity or one that only mitigates the symptoms of the virus.
“The assumption at the moment is that we’ll be shooting to get to a year’s immunity,” said Ms Bingham, who is co-ordinating efforts to develop, produce and disseminate a vaccine in the UK. “What I’ve been anxious about is that people . . . think we’ll have a silver bullet. That’s probably not going to happen.”
Even a two-dose vaccine might not last very long, cautioned Ms Bingham, who is also managing partner at SV Health Investors, a healthcare fund manager.
“You may need to boost [it] every year,” she said. “At minimum, we want to reduce symptoms, we want to stop people from dying. We have to accept that’s maybe where we’ll end up.”
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UK universities forced to innovate in fight for survival
Bethan Staton in London and Chris Tighe in Newcastle
At the University of Sunderland, the coronavirus lockdown has brought an opportunity.
Responding to a potential fall in student numbers and rising unemployment because of the pandemic, it has launched a “skills boost” scheme, giving local people who have lost their jobs or been furloughed a 20 per cent discount on courses.
“The question we were asking ourselves internally was ‘How do we carve out a place as a particular university?’” said vice-chancellor David Bell. “We’re not a research-intensive university. We’re much more locally focused. This seemed like a logical thing to do.”
Universities such as Sunderland are facing their biggest crisis in a generation and are being forced to innovate to secure their future. Student numbers and revenues are set to drop in September, leaving some at risk of insolvency.
And while the government has offered a bailout, it has made clear that state support will be conditional on institutions meeting stringent conditions — and warned that some may not survive.
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Vietnam announces more cases in Danang outbreak
Vietnam’s health ministry on Wednesday reported eight new locally transmitted coronavirus cases linked to three hospitals in Danang, taking the outbreak to 30 infections since the virus resurfaced at the weekend.
Vietnam is on high alert after authorities on Saturday confirmed that new cases had appeared in the city, the country’s first community infections since April. Vietnam has registered 446 coronavirus cases in total, with no deaths.
Nearly 83% of infected patients have recovered, the health ministry said.
Survey: 57% of Mumbai slum-dwellers have had Covid-19
Benjamin Parkin in New Delhi
A study has discovered that 57 per cent of residents in Mumbai’s slums have antibodies indicating past exposure to Covid-19, a sign of how the virus has spread through the city’s cramped informal settlements.
Local authorities surveyed nearly 6,936 out of an estimated 8,870 residents across three wards of the city for antibodies suggesting previous infection.
In contrast to the slums, only 16 per cent of those tested in nearby apartment blocks had antibodies.
Mumbai has been the Indian city hardest hit by coronavirus, with more than 100,000 cases. India’s nationwide caseload has swelled to become the world’s third-highest, with 1.5m infections.
Complicating Mumbai’s ability to control the virus has been its slums, where 40 per cent of the city’s population lives. Families and migrant workers often live several to a room while depending on communal toilets and taps.
A survey of more than 20,000 residents of New Delhi released this month found that 23.5 per cent of people surveyed indicated exposure to the virus.
Rights group calls for release of outspoken migrant worker
The arrest in Malaysia of a Bangladeshi migrant worker who was featured in a TV documentary about the country’s handling of migrants during the Covid-19 pandemic was clear retaliation for his criticism of the government, Human Rights Watch has said.
Having been interviewed for an episode of Al Jazeera’s 101 East programme that was entitled “Locked Up in Malaysia’s Lockdown” and broadcast on July 3, Mohamed Rayhan Kabir, 25, was tracked down and arrested on July 24.
Malaysia’s director-general of immigration said Mr Kabir “will be deported and blacklisted from entering Malaysia forever”. It is not clear whether he will also face criminal charges.
“The Malaysian authorities’ actions against Mr Kabir send a chilling message to all migrant workers that speaking out about rights abuses risks arbitrary arrest, deportation and blacklisting,” Phil Robertson, HRW’s deputy Asia director, said in a statement on Wednesday..
“The arrest of a source in a documentary adds to the devastating assault on free speech and media freedom in Malaysia.”
On the day of his arrest, HRW said, Mr Kabir wrote to a journalist, stating, “I did not commit any crime. I did not lie. I have only talked about discrimination against the migrants. I want the dignity of migrants and my country ensured. I believe all migrants and Bangladesh will stand with me.”
FedEx pilots call on company to suspend Hong Kong flights over quarantines
FedEx pilots have called on the company to suspend operations to Hong Kong for what they see as “unacceptable conditions” after crew who tested positive for the virus were hospitalised.
Pilots from the FedEx Express unit of the Air Line Pilots’ Association said three pilots who tested positive for the virus but showed no symptoms had been hospitalised in the city for up to 10 days.
The comments from the pilots’ group came as the city reported 106 new coronavirus cases on Tuesday, marking the seventh consecutive day of more than 100 new infections.
Hong Kong had received praise for its earlier handling of the pandemic but was this week forced to tighten restrictions on air crew and sea crew after experts said loopholes allowing these groups to enter the city without quarantines had sparked a third wave of infections.
Sophia Chan, secretary for food and health, said on a radio programme on Tuesday that evidence now suggested the outbreak could be linked to the quarantine exemptions, reversing earlier government statements.
From Wednesday, air crew will need to provide proof of a negative coronavirus test taken within 48 hours of departure or be tested on arrival.
Sea crew will only be permitted to travel between their ships and the airport, and crew from ships that are not delivering cargo to Hong Kong will not be permitted to enter the territory.
The surge in infections has forced the government to introduce its strictest measures to halt the spread of the virus, limiting restaurants to take-out service only. People are now required to wear masks at all times when outside their homes.
The FedEx pilots’ group said other pilots who had been in contact with persons who tested positive for the virus had been placed in government quarantine, in what the group described as “difficult conditions”.
“Not only do these situations pose unacceptable risks to our pilots’ safety and wellbeing, but they also create added stress and distraction for flight operations,” said Dave Chase, master executive council chairman for FedEx ALPA.
Elsewhere in the region, Singapore requires air crew on layovers in the city state to remain at their designated accommodation at all times.
A FedEx pilot was given a four-week prison sentence in Singapore in May for leaving his hotel to buy medical supplies.
Trump defends hydroxychloroquine after sharing viral video
Courtney Weaver and Peter Wells in New York
President Donald Trump has defended the efficacy of hydroxychloroquine after sharing a viral video that alleged masks and shutdowns did not work in stopping the coronavirus.
One week after Mr Trump sought to strike a new tone and resumed regular press briefings, the US president found himself once again defending his decision to promote people taking the drug hydroxychloroquine to treat or ward off the virus — a claim many leading health professionals have questioned.
“Many doctors think it is extremely successful . . . and some people don’t . . . As you know, I took it for a 14-day period. And I’m here.”
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China reports 98 local Covid-19 cases
Health authorities in China reported 98 new locally transmitted Covid-19 cases, its highest one-day tally since early March, as outbreaks in Xinjiang and Liaoning continued to grow.
There were 89 new cases on Tuesday in Xinjiang, in western China, taking the province’s tally over the past two weeks to 324.
The region’s capital Urumqi has been put on a “wartime” footing, with mass testing in a bid to halt the spread of the virus.
A separate outbreak in the port city of Dalian, Liaoning province, in north-east China added another eight cases, taking its total since the first infection was identified seven days earlier to 53.
Officials in Dalian have launched a programme to test the city’s almost 6m residents after the outbreak was linked to a seafood processing plant.
Residents of medium and high-risk districts in Dalian are barred from travelling outside the city. Those from low-risk areas are only permitted to travel if they test negative for the virus, state media reported.
Beijing also reported one Covid-19 case.
Three new imported cases bring China’s official total for Covid-19 to 84,060.
Asia-Pacific stocks mixed ahead of Federal Reserve meeting
Asia-Pacific equities had a mixed start on Wednesday and gold remained near its record high ahead of the Federal Reserve’s policy meeting later in the session.
The Topix in Japan was down 0.6 per cent, the Kospi in South Korea added 0.2 per cent and Australia’s S&P/ASX 200 was flat. S&P 500 futures were up 0.2 per cent
Gold prices were down 0.2 per cent at $1,955 an ounce after coming within striking distance of $2,000 for the first time on Tuesday. Concerns over the hit to the US economy from the pandemic have sparked demand for the precious metal and sent the dollar to a two-year low.
Investors are focused on the post-pandemic recovery for the US economy and are awaiting details of any further support from the Federal Reserve.
Overnight on Wall Street, the S&P 500 ended down 0.6 per cent and the Nasdaq Composite shed 1.3 per cent. Those moves came after disappointing earnings from McDonald’s and 3M.
Colombia reports record 10,000 new coronavirus cases
Gideon Long in Bogotá
For the first time since the coronavirus pandemic began, Colombia has recorded more than 10,000 new cases in a single 24-hour period, and President Iván Duque has extended a general lockdown for another month.
Mr Duque said on Tuesday that 10,284 people had tested positive in the previous 24 hours, surpassing the previous record of 8,934 set 11 days ago.
That takes the total since the pandemic started to 267,385 in a country of 50m. He said 297 people died in the 24-hour period, pushing the cumulative death toll to 9,074.
Colombia has fared better than its neighbours Brazil, Peru and Ecuador in the fight against coronavirus but its numbers are rising relentlessly. The capital Bogotá has re-imposed lockdowns in some areas in a bid to ease the burden on the health system.
Mr Duque said that while the general quarantine would remain in place until the end of next month it would be graded, depending on the severity of the pandemic in different parts of the country.
Earlier on Tuesday, the mayor of the country’s second city, Medellín, confirmed he had tested positive for the virus.
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Starbucks swung to its first quarterly loss in seven years after the coffee chain lost $3.1bn worth of sales and incurred expenses in responding to the pandemic, but also said it was over the worst of the slump.
Online marketplace eBay added an extra 8m shoppers in the last quarter. The company recorded $2.87bn in revenue against analysts’ expectations of $2.8bn.
Payments over Visa networks fell 10 per cent in the June quarter, driving big declines in revenue and net income, but volumes improved “meaningfully” as the quarter went on.
Ohio’s largest school district has delayed the start of the new term and will adopt online learning until at least late October, with cases in the midwestern state continuing to hover at elevated levels.
The mayor of Colombia’s second-largest city Medellín has tested positive for coronavirus. Daniel Quintero, who turns 40 on Wednesday, confirmed the news on social media, saying he would remain in isolation for a fortnight.
Amazon has started selling protective face shields, designed with help from engineers from its drone delivery programme. It has donated 300,000 shields to front-line workers, and will now begin selling them at cost price.
Twitter has temporarily suspended Donald Trump Jr for violating its misinformation rules after he shared a viral video of politically affiliated doctors promoting the use of hydroxychloroquine to treat coronavirus.
Milwaukee-based Harley-Davidson reported a loss of $92m or 60 cents a share in the second quarter — its first loss since the fourth quarter of 2010.
US seven-day average death toll hits highest since May
The US has averaged more than 1,000 coronavirus deaths a day over the past week, offsetting some encouraging signs of a plateau in new case numbers. A further 1,121 people died on Tuesday, according to Covid Tracking Project data, from 1,059 a day earlier.
This is the seventh time in eight days that the daily increase in fatalities has topped 1,000 and brings the seven-day average to 1,003.
The seven-day average is now back above 1,000 for the first time since May 27, compared with an average of as low as 490 in early July, according to Financial Times analysis of Covid Tracking Project data.
Florida (191) reported a record increase in fatalities, while Texas (164) and Arizona (101) also had large jumps.
Recent signs of a slowdown in new infections appeared intact. A further 53,507 people in the US tested positive for coronavirus over the past 24 hours, from 55,134 on Monday. That has pulled the rolling seven-day average of cases to about 64,500, the lowest in nearly two weeks.
Florida (9,230) reported fewer than 10,000 new cases for a third straight day, while Texas (8,342) jumped up from Monday’s three-week low. California (6,000) reported its fewest cases since July 6.