MARKETS AROUND THE WORLD


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EUROPE
Germany Begins to Gradually Reopen Economy
Germany will begin restarting its economy this week, with Volkswagen returning some factories to production before the end of this month.
Select kinds of small stores that had been deemed “non-essential” can open now. Schools will reopen 4 May for older students. Younger students will return in stages.
Bars and restaurants, however, will remain closed and large gatherings banned at least through 31 August.
The decision was attributed to a slower rate of infection across the country due to public health measures imposed in March.
The country’s economy will remain in recession at least through June, the economic ministry predicted, because of the ongoing loss of full productivity. The economy will lose almost 10 percent of its normal productivity during 2020’s first half, then rebound in the last six months of the year, the ministry predicted.
Germany’s return will be easier than that of many other countries. Unlike France, Spain, and Italy, Germany never ordered all of its factories to shut down and many offices have remained open.
The planned reopening may be scaled back or halted if the virus resurges, said German chancellor Angela Merkel.
“What we have achieved is a temporary success,” she said, “but it is a fragile success.”
Spain also has allowed some nonessential businesses to reopen, while France and Italy have extended their lockdowns into May.
TRENDPOST: Photos in major media over the past few days show everyday people walking and playing in parks in Berlin wearing no masks and no social distancing, while in America, Italy and other nations, lockdowns and other Executive Orders not only remain in place, but lockups and fines are being imposed on citizens who do not obey the letter of the new draconian laws.
Central Bank: No Good Options
Italy and Spain, where the pandemic’s damage has been dramatic, face soaring borrowing costs; their economies were weak and getting weaker before the virus arrived.
As a result, the European Central Bank, or ECB, has focused much of its €750-billion economic rescue program of buying corporate and government debt on the two countries.
Now other nations are pushing back.
At the current pace, the bank will own 20 percent of Italy’s sovereign debt by 2021 and 30 percent of Germany’s, according to Frederik Ducrozet, an economist with Pictet Wealth Management.
As those totals rise, the Eurozone’s political alliance is pulling in different directions.
“A central bank owning 50 percent or more of Italian debt would lose political support in Germany and many other countries,” said Guntram Wolff, director of Bruegel, a Brussels analysis firm. “Then the ECB has a big problem.”
Other lenders, however, hesitate to invest in economies that were already frail when 2020 began. A collapse of the Italian and Spanish economies could ripple disastrously through the European alliance.
The ECB is now scooping up about €130 billion a month in European debt, including €85 billion between 7 April and 18 April, according to Nomura Holdings.
In contrast, the U.S. Federal Reserve has bought $1.6 trillion in government securities in the past four weeks.
Unlike the ECB, Fed’s policy choices are unencumbered by competing national political interests.
Hedge Funds Want Bans on Short Sales Lifted
Austria, Belgium, France, Greece, and Spain are extending bans until mid-May on short selling in the face of hedge funds’ pressures to lift them.
Short selling is placing a bet that a stock’s price will fall in the future.
The countries banned short sales when stock markets began to crumble as the global economic lockdown took hold. Since then, equity markets have rebounded by about 15 percent in Europe. Hedge funds argue the recovery is strong enough to accommodate short-selling again.
The bans raise trading costs and limit investment opportunities, according to the Managed Funds Association, a hedge fund trade group.
But France said the consequences of the virus and subsequent economic shutdown are still rippling through its economy and markets’ stability isn’t assured.
Hedge funds argue that selling short should face no more restrictions than “going long” or betting a stock’s price will rise.
Ban supporters contend, however, that short sales can amplify panic in a plunging market and allow “vultures” to profit by others’ losses.
Germany and the UK were among the European nations that have not banned short sales.
JAPAN
Softbank Venture Fund Goes Soft
Softbank Group, the Japanese tech conglomerate, has lost an estimated $17 billion from its Vision Fund tech venture capital pool in the fiscal year that ended on 31 March.
If that estimate is accurate, the fund, which had been valued at $100 billion, has lost virtually all of its profits since its founding three years ago.
The fund was known for investing in glitzy companies such as Uber, WeWork, and Chinese e-commerce giant Alibaba, in which it has a stake worth more than $100 billion.
The fund also is expected to post an operating loss of $12 billion and a net loss of $7 billion for the year.
Softbank’s share price has dropped 30 percent over the past 12 months and at one point the stock traded at a price equivalent to just one-third of its assets.
The drop was due, in part, to poorly performing investments such as the fund’s bet on WeWork, where plans for a billion-dollar IPO were scrapped when WeWork was revealed to have exorbitant expenses and weak corporate governance.
In March, Softbank announced it would sell enough assets to buy back $18 billion worth of its stock and pay off $23 billion in debt.
The Vision Fund’s realized gains were listed as $6.4 billion last 30 June. During the past nine months of 2019, the fund lost $7 billion but booked $9 billion in gains from selling some assets and the rising value of some of its holdings.
If the $17-billion estimated loss is accurate, all of the fund’s gains since its 2017 inception would be wiped out, said analyst David Gibson at Astris Advisory Japan. Given the company’s weakness before the virus struck, “we all knew this was going to happen,” he added.
CHINA
Central Bank Cuts Key Rate
China’s central bank has taken 0.2 points off its one-year, medium-term lending rate, dropping it to 2.95 percent, its lowest rate since the lending facility was opened in 2014.
Through the program, the bank also funneled $14 billion into the national economy.
Economists have warned that more stimulus will be needed and Chinese media have stated more is likely forthcoming.
Economists polled by Reuters calculate that China’s economy contracted by 6,5 percent during this year’s first quarter compared to that in 2019.
Shoppers Snap Up Luxury Goods, Cars Not So Much
Shoppers in mainland China are flocking back to high-end boutiques now that their national lockdown has ended, but car buyers have shown less energy.
LVMH Moet Hennessy Louis Vuitton SE, the conglomerate that owns Dior and dozens of other glamour brands, reported once its stores reopened in mid-March, shoppers returned in droves. Sales in April are exceeding the same period a year earlier, “sometimes in excess of 50 percent,” the company said.
Still, the company’s Chinese sales for 2020’s first quarter were 17 percent less than the same period in 2019.
L’Oreal SA, the world’s largest cosmetics company and owner of the Armani and Yves St. Laurent brands, reported sales in China down 8 percent in the first quarter year-on-year but that the market “shows clear and encouraging signs of a recovery in consumption.”
Despite the good news, LVMH announced it will cut its dividend by 30 percent this year and capital spending by 40 percent.
Chinese consumers make up the luxury goods industry’s most important clientele, accounting for about a third of all sales worldwide.
The car market is showing less energy.
The country’s vehicle factories once again have parts on hand and are producing, but consumers are slower to return to showrooms than to fashion boutiques.
Sales were climbing in March, in part because regional governments offered subsidies to buyers. Some analysts say car sales in April are approaching normal levels.
Overall consumer vehicle sales, however, are likely to finish the year 10 percent below 2019’s volume, said Tang Jin, an auto analyst at Mizuho Bank. “Coronavirus has not yet left the minds of consumers,” Tang said.
TREND FORECAST: China’s auto industry was in a slump before the COVID-19 panic closed down much of its economy. And since China’s economy is very much export dependent, as the “Greatest Depression” increases, so, too, will the Chinese economy rapidly decrease. Therefore, the spike in luxury sales is at best temporary and at best, will increase modestly.
EMERGING MARKETS
Argentina Wants Three-Year Payment Hiatus
Argentina has asked for a three-year suspension on its foreign debt payments and lower interest rates on its balances.
Since December, the nation’s government has been trying to renegotiate terms with foreign investors holding $70 billion of its bonds.
Following a 2018 currency crisis, the country received a $44-billion bailout from the International Monetary Fund and now is also trying to restructure a portion of that loan.
Earlier this month, the government delayed until 2021 a $10-billion payment on a batch of dollar-denominated bonds.
“Argentina can’t pay anything,” said economic minister Martin Guzman.
The new proposal calls for a 62-percent cut in the interest portion of the debt, saving the country $3.8 billion, and outright forgiveness of 5.4 percent of the principal, or about $3.6 billion.
The proposal was not well-received.
“My understanding is that this offer is not being supported by the various bondholder groups,” said Jared Lou, an emerging-markets portfolio manager at William Blair, a Chicago investment firm.
Bondholders seem to be waiting for the IMF to blink first.
Over the next four years, 40 percent of Argentina’s debt payments belong to the IMF.
“Until they have written assurances from the IMF that the IMF will postpone or refinance or do something about 40 percent of the problem,” said economist Arturo Perzecanski at American University, “they are not going to deal with the remaining 60 percent.”
He called any other approach “a nonstarter.”
The IMF expects Argentina’s economy to shrink 5.7 percent this year.
South Africa Cuts Rates Again
South Africa’s central bank cut the interest rate for its repurchase agreements, or short-term “repo” loans to commercial banks, by a full percentage point to 4.25 percent, the lowest rate in 26 years.
This cut follows a previous one-percentage-point reduction less than a month ago.
After the cut was announced, the rand dropped in value against the U.S. dollar by more than one percent, to 18.3.
The central bank also has bought an undisclosed amount of government bonds to unclog the nation’s money markets amid an extended national lockdown.
South Africa’s economy was struggling before the pandemic struck, with unemployment near 30 percent and virtually no growth.
Last month, Moody’s downgraded the nation’s bonds to junk status following the country’s sharp rise in debt.
India Begins to Reopen
India, which imposed one of the world’s strictest lockdown regimes last month, is allowing some manufacturing, food supply chains, and a few other activities to resume this week, although all forms of public transportation will remain idle at least through 3 May.
Schools, public spaces such as shopping malls, and public gatherings including weddings and cricket matches also remain banned.
Ports are now allowed to unload and move cargo. Rural factories in specified areas can operate if they provide living space for workers on-site or nearby. Construction can resume on projects where laborers have been sequestered on-site since the lockdown began; no new workers can be allowed in. Self-employed tradespeople can return to work except in virus hotspots.
TREND FORECAST: The emerging markets will submerge much deeper.  Not only will there be no economic recovery, violence and civil unrest, which preceded the COVID-19 global lockdown, was raging across the globe… as detailed in one of our 2020 Top Trends, “New World Disorder.”
Indeed, many nations, such as India, Chile, South Africa, Bolivia, etc., where coronavirus deaths are negligible, particularly when compared to the unsanitary and polluted environments and basic living conditions affecting their citizens… the strict lockdowns are used to quell protests rather than stopping the virus.
For example, India, with a population of 1.3 billion has registered only 603 deaths to date.
Thus, politicians locked down the nation not because of a virus that has killed so few, but rather to prohibit the massive worker strikes and protests against is Citizenship (Amendment) Act, which discriminated against Muslims, that was rocking the nation.

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