Focus: US GDP & Federal Reserve

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Updated 30 April 2020
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Focus: US GDP & Federal Reserve

What happened:

US GDP numbers for the first quarter came in at minus 4.8 percent, breaking over a decade of uninterrupted growth. The first quarter only reflects the beginning of the outbreak and the number will deteriorate significantly in the upcoming quarter.

The Federal Reserve’s (Fed) Open Market Committee met and decided to leave interest rates unchanged between 0 and 0.25 bps. The Fed did not announce new measures on top of its current nine programmes. Fed Chairman Jerome Powell made clear that the institution was committed to use its full range of tools.

Spanish and French GDP fell by 5.8 and 3.8 percent respectively.

Earning’s season continued:
In the US it was a tale of two universes: Companies heavily impacted by the pandemic and lockdown on one hand; enterprises in a good position to benefit from new models of work on the other.

Boeing posted a first quarter loss of $641 million down 70 percent compared to Q1 2019. The planemaker burned through around $4 billion of cash during Q1 and will reduce its workforce by 15,000 or 10 percent. GE’s net industrial profit tumbled by 46 percent to $1.1 billion, with the health care division showing gains and aviation a radical decline.

Boeing’s woes reflect the contraction in the wider aviation sector as air travel has drastically dropped since the outbreak of the pandemic. Boeing is also a major part of US exports and its supply chain is global. Its 17,000 contractors will be hit hard by the company’s downturn with ripple effects in the US and beyond — particularly in Japan.

Microsoft revenue increased by $4 billion or 14 percent. Net income stood at $11.6 billion. Owing the success in part to shared cloud storage, which addresses key aspects of a large part of the workforce operating from home. Facebook doubled its net income to $4.9 billion.

Stock markets seemingly shrugged off the bad news and rallied on tech sector results and early positive results in clinical trials of Gilead’s antiviral coronavirus drug remdesivir.

On the other side of the Atlantic, Shell posted a net loss of $24 million down 100 percent compared to Q1 2019. The picture will turn bleaker in Q2 due to the deterioration in oil prices. The company slashed dividends by 75 percent, which represents the first cut of dividends since the Second World War and is in stark contrast with BP’s decision to leave dividend payments in place.

Société Générale posted a surprise loss of €326 million ($354 million) and Swiss Re’s profits fell to $426 million.

US President Donald Trump announced Operation Warp Speed, a program pulling together private pharmaceutical companies, government agencies and the military. Its aim is to develop a vaccine by January of next year.

Background:

It was widely expected that the Fed would leave interest rates unchanged until the economy has recovered and is on track to achieve maximum employment, while achieving price stability goals.

In a press conference, Powell voiced concerns that the current downturn would leave permanent scars. He stressed that “the ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near-term, and poses considerable risks to the economic outlook over the medium-term.”

Powell made clear that the Fed’s mission was to ensure the flow of credit and liquidity in the system and that the institution would deploy its full range of tools to this end. He stressed that providing liquidity is about more than just lending, but also creating confidence in the functioning of markets.

He reiterated the limitations to what the Fed could do, emphasizing the need for fiscal stimulus. He urged Congress to use its “great fiscal power,” pointing out that he would have preferred for the US to be in a stronger fiscal position going into the crisis, but that this was not the time for discussion but action.

The Fed’s chairman was particularly concerned about the unemployment rate having surged from a record low of 3.5 percent in February to double digits within the span of two months. This is relevant because consumption contributes 70 percent to US GDP and unemployment of this scale could have a permanent psychological impact on the US workforce and economic confidence.

Powell painted a bleak picture for the world’s largest economy, particularly citing the unpredictability of the pandemic until a vaccine or effective medicine was found.

Where we go from here:

Early afternoon CET, the European Central Bank will announce the outcome of its governing and general councils’ meetings and first time US jobless claims for the week ending April 24 will be released.

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


UN chief warns of cycle of retaliation after US bombs Iran

Updated 1 min 4 sec ago
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UN chief warns of cycle of retaliation after US bombs Iran

  • ‘The people of the region cannot endure another cycle of destruction,’ Guterres said Sunday
  • IAEA chief noted that no one had been able to assess the underground damage at Fordo nuclear facility
United Nations chief Antonio Guterres warned Sunday against yet “another cycle of destruction” and retaliation following the US strikes on Iran’s nuclear facilities, which he said marked a “perilous turn” in the region.
“I have repeatedly condemned any military escalation in the Middle East,” the secretary-general told an emergency meeting of the UN Security Council.
“The people of the region cannot endure another cycle of destruction. And yet, we now risk descending into a rathole of retaliation after retaliation.”
Rafael Grossi, director of the International Atomic Energy Agency (IAEA), also called for restraint as he voiced fears over “potential widening” of the conflict.
“We have a window of opportunity to return to dialogue and diplomacy. If that window closes, violence and destruction could reach unthinkable levels and the global non-proliferation regime as we know it could crumble and fall,” Grossi said.
Speaking to the Security Council by video link, he said there were visible craters at Iran’s key Fordo nuclear facility, “indicating the use by the United States of America of ground-penetrating munitions.”
But Grossi noted that no one had been able to assess the underground damage at Fordo.
He added that “armed attacks on nuclear facilities should never take place and could result in radioactive releases with grave consequences within and beyond the boundaries of the State which has been attacked.”

Israel rejects critical EU report ahead of ministers’ meeting

Updated 23 min 30 sec ago
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Israel rejects critical EU report ahead of ministers’ meeting

  • European nations have been increasingly critical of the massive civilian toll of Prime Minister Benjamin Netanyahu’s military campaign against Palestinian militant group Hamas since its October 7, 2023 attack on Israeli communities

BRUSSELS: Israel has rejected a European Union report saying it may be breaching human rights obligations in Gaza and the West Bank as a “moral and methodological failure,” according to a document seen by Reuters on Sunday.
The note, sent to EU officials ahead of a foreign ministers’ meeting on Monday, said the report by the bloc’s diplomatic service failed to consider Israel’s challenges and was based on inaccurate information.
“The Foreign Ministry of the State of Israel rejects the document ... and finds it to be a complete moral and methodological failure,” the note said, adding that it should be dismissed entirely.
European nations have been increasingly critical of the massive civilian toll of Prime Minister Benjamin Netanyahu’s military campaign against Palestinian militant group Hamas since its October 7, 2023 attack on Israeli communities.

 

 


Athens’ ancient theater closes for three-year restoration

Updated 26 min 52 sec ago
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Athens’ ancient theater closes for three-year restoration

ATHENS: For visitors to Athens, the ancient Odeon of Herod Atticus is the must-see theater at the foot of the Acropolis. Artists revere it for the majestic stage where legends have performed. And for the Greek capital’s residents it is the touchstone of their summer cultural calendar.

The Odeon of Herod Atticus recently opened the 70th season of the annual Athens Epidaurus Festival, a cherished annual tradition for many Greeks. But this edition marks the last before the theater that’s more than 18 centuries old shuts down for maintenance and restoration work that is expected to last at least three years.

While theater and dance grace its stage, music is its cornerstone. Renowned artists who have performed here include Luciano Pavarotti, Frank Sinatra, Coldplay, and Greece’s own Maria Callas.

Its closure will be a profound loss for spectators who have long enjoyed first-class performances under the stars in one of the world’s most iconic open-air theaters.

“When (people) think of the Athens cultural scene, everyone thinks of the festival and Herodion,” said Katerina Evangelatos, the festival’s artistic director since 2019, calling the theater by its commonly used Greek name. “It has become a synonym of the festival. It is the heart of the festival.”


Saudi Arabia condemns suicide attack on Syrian church

People and rescuers inspect the damage at the site of a reported suicide attack at the Saint Elias church in Damascus’ Dwelaa.
Updated 24 min 31 sec ago
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Saudi Arabia condemns suicide attack on Syrian church

  • Syria’s health ministry said an attack on a church in Damascus on Sunday killed 20 people

RIYADH: Saudi Arabia on Sunday condemned a suicide attack on a church in Damascus that killed at least 20 people.

Syria’s interior ministry said in a statement that “a suicide attacker affiliated with the Daesh terrorist group entered the Saint Elias church in the Dwelaa area of the capital Damascus where he opened fire then blew himself up with an explosive belt.”

The Foreign Ministry emphasized the Kingdom’s position rejecting the targeting of places of worship, the terrorizing of civilians, and the shedding of innocent blood.

It affirmed the Kingdom’s support for the Syrian Arab Republic against all forms of violence, extremism, and terrorism.


What We Are Reading Today: ‘India’ by Audrey Truschke

Updated 34 min 16 sec ago
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What We Are Reading Today: ‘India’ by Audrey Truschke

Much of world history is Indian history. Home today to one in four people, the subcontinent has long been densely populated and deeply connected to Asia, Africa, Europe, and the Americas through migration and trade.

In this magisterial history, Audrey Truschke tells the fascinating story of the region historically known as India—which includes today’s India, Pakistan, Bangladesh, and parts of Afghanistan—and the people who have lived there. A sweeping account of five millennia, from the dawn of the Indus Valley Civilization to the 21st century.