World Economic Outlook Worsens Warns IMF. The world’s economic outlook has darkened since mid-April, the International Monetary Fund says.
A month ago, the IMF forecast a global economic contraction of 3 percent this year, with developed countries’ GDPs shrinking 6.1 percent and those in emerging nations 1 percent.
The forecast also said that emerging nations would need $2.5 trillion in aid the weather the crisis.
The IMF’s analysis in June will predict greater contractions and developing countries needing even more help, said Kristalina Georgieva, the IMF’s managing director, on 12 May.
The IMF draws hope from the flood of money that central banks are releasing to prop up their own countries. “Spend as much as you can and then a little bit more,” Georgieva urged the world’s developed economies.
Insurers Warn of Losses. Major insurance companies are bracing for waves of damage claims due to canceled events and other business losses from the global economic shutdown and are warning that their profits will suffer.
Lloyd’s of London expects to pay out at least $3 billion and perhaps as much as $4.3 billion, among its biggest payouts on record.
If lockdowns persist past June, the payouts could be $1 to $2 billion more, the insurance syndicate warned.
German reinsurer Munich Re Group reported paying out about €800 million, the equivalent of $979 million, in lockdown-related claims. Allianz SES, another German insurance giant, said it could see €1 billion in losses this year.
The two companies have scrapped their investment guidance and profit targets for the year.
Swiss Re Group lost €225 million in the first quarter this year, it said.
Lloyd’s estimates that the insurance industry overall will cover about $107 billion in losses from the shutdown, about what it paid out in hurricane claims in 2005 and 2017.
The syndicate also expects the industry’s investment portfolio, which it uses to build up reserves to cover future losses, to lose $96 billion this year.
The combination of a record-level payout and plummeting investment values “is something the likes of which we have never seen,” said John Neal, Lloyd’s CEO.
Economy Will Recover Slowly. A quick, V-shaped economic recovery is “off the table,” according to Neil Kashkari, president of the Federal Reserve Bank of Minneapolis.
He expects any recovery to be gradual and said the official 14.7-percent unemployment figure reported recently likely masks an actual rate as high as 25 percent.
Kashkari also expressed concern that states and businesses are trying to kick-start their economies before it is safe to do so.
He praised federal guidelines for lifting the lockdown but added that “it doesn’t strike me that even most of the country is even following the standards.”
Traders Gamble on Negative U.S. Interest Rates. Although the U.S. Federal Reserve has repeated that it has no plans to formally set interest rates below zero, some traders in Fed funds futures – the market where gamblers bet on upcoming Fed policy – are still betting the Fed will drop rates below zero within 12 months.
TREND FORECAST: We maintain our forecast that the Fed will set interest rates below zero by the end of this year.
Endeavor Group Holdings Ups Borrowing. The international entertainment conglomerate has arranged a $260-million loan to supplement the $2.8 billion it already has borrowed to see itself through the economic crisis.
The loan is being circulated by JPMorgan Chase with Oaktree Capital Group providing the bulk of the money. Oaktree has long been one of Endeavor’s chief investors.
Endeavor is a talent management, event promoter, and film and television streaming service that owns the Miss Universe Pageant, the Professional Bull Riders organization, the Ultimate Fighting Championship mixed martial arts business, and Euroleague basketball, among other enterprises.
Endeavor’s revenue has fallen 70 percent during the economic shutdown as movie premieres were postponed and sports games and other live events canceled.
Boeing’s Chief Forecasts Airline’s Demise. David Calhoun, Boeing’s CEO, said in a 12 May “Today” television interview that a major U.S. airline probably will go out of business this fall.
Asked about the prospect, Calhoun said “Yes, most likely something will happen when September comes around.”
His conjecture prompted ire from Douglas Parker, American Airlines CEO, who phoned Calhoun to complain. United Airlines also let Calhoun know of its displeasure with his comment.
Hotels Make Changes to Assure Guests. To persuade travelers that hotel rooms are safe to stay in, the InterContinental Hotels Group will make changes to its rooms’ amenities.
The chain, which owns Holiday Inn and Crown Plaza hotels, is removing pens and paper from rooms, and other items previous guests may have handled, to assure new arrivals their rooms are sanitary. The company also is testing the use of electrostatic sprayers, which deliver a mist that envelopes and disinfects germs.
The company’s revenues fell to record lows during the first quarter, with revenue per available room off 55 percent. The company expects the figure to reach 80 percent for April.
Hilton Hotels reported its first quarter profit plunged to $18 million, a crash of more than 90 percent from a year earlier. The company said the economic lockdown and its aftermath will have a “material negative effect” on the hotel business for “an indeterminate length of time.”
Rents Along Hong Kong’s “Rodeo Drives” Crash. Rent prices along Hong Kong’s swanky shopping streets have fallen to their lowest levels since 2008.
Hong Kong never forced its shops to close but did impose a 14-day quarantine on visitors from mainland China. That, and months of anti-government street protests, kept most mainland tourists – the greatest source of luxury spending for the island – away.
Partly as a result, fashion houses Chloe, La Perla, Prada, Tiffany, and Valentina, among others, have scaled down their operations or moved out of the district entirely.
The rents have fallen 27 percent to an average of $2,000 a square foot, still pricey but only about a third as high as their 2013 peak.
Major landlords, whose share prices have sunk by as much as 31 percent this year, say further rent cuts are likely.
Tempest in the Ticket Market. With the concert industry expected to not return until next year, many smaller promoters and ticket vendors are expected to close their doors for good. That would leave industry giants Live Nation Entertainment and Ticketmaster dominating the market, which could cause ticket prices to rise.
A group of senators have written a letter to the U.S. justice department urging it to “closely monitor” the ticket market to ensure a healthy degree of competition.
Late in 2019, Live Nation settled with the justice department over allegations it had violated a 2010 antitrust agreement that allowed it to merge with Ticketmaster.
JPMorgan Chase Accepts First Crypto Clients. The U.S.’s biggest bank has accepted its first two banking clients from the world of cryptocurrency.
The bank will handle dollar-based transactions for eight-year-old Coinbase, the world’s largest crypto exchange with more than 30 million accounts, and Gemini Trust Co., an innovator in the field.
Banks have shunned crypto clients in the past, fearing a taint that could come with digital currencies more nefarious uses, such as money laundering. Coinbase and Gemini agreed to undergo a rigorous vetting process before JPMorgan would accept them as clients.
The bank’s move signals the industry’s growing comfort with cryptocurrencies.
JPMorgan has experimented with blockchains, Bitcoin’s underlying technology, and recently created JPM Coin, a digital currency its clients can use among themselves.
No Fun to Fly. Ireland-based RyanAir, which reportedly carries more passengers than any other European airline, plans to resume service 1 July with 1,000 flights per day, up from the 30 daily hops it has been flying since mid-March.
Passengers will be required to check in online, submit to a temperature check on arriving in the airport, and wear masks in terminals and aboard planes. Food service will be limited and lines outside restroom doors are banned.
The 1 July date is based on the airline’s expectation that the continent’s governments will lift restrictions on inter-nation travel by then. The date or number of flights would need to be adjusted if governments maintain restrictions in full or in part.
Michael O’Leary, RyanAir’s CEO, also challenged the British government’s directive that most air passengers arriving in the U.K. quarantine themselves for 14 days in private residences.
O’Leary called the mandate “nonsense,” “entirely arbitrary,” and “entirely unenforceable.”
“This is a country that can’t even do testing and tracing,” he added.
