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Stock futures up after Fed’s Powell says economy could recover later in 2020

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A man walks by the Wall Street subway sign on March 23, 2020 in New York City.

Angela Weiss | AFP | Getty Images

Futures contracts tied to the major U.S. stock indexes inched higher at the start of the overnight session Sunday evening as investors awaited comments on the state of the American economy from Federal Reserve Chairman Jerome Powell.

Dow Jones Industrial Average futures rose 37 points, implying an opening loss of about 50 points, or 0.2%. S&P 500 and Nasdaq futures were also slightly higher and pointed to declines of about 0.2% for Monday’s open.

The overnight moves Sunday evening followed a red week on Wall Street. The Nasdaq Composite and S&P 500 fell 1.1% and 2.2%, respectively, last week with the latter notching its worst week since March. The Dow industrials finished the week down 2.65% for its third negative week in four and its worst week since April 3.

But by the start of Sunday’s overnight trading, investors were awaiting the broadcast of CBS’ “60 Minutes” interview with Fed chief Powell

Though the entire interview is set to broadcast starting at 7 p.m. ET, the show aired a segment of Powell’s remarks earlier Sunday. He said the U.S. economy will claw its way back from the current pullback, but that it may not fully recover until a Covid-19 vaccine is complete.

“In the long run and even in the medium run, you wouldn’t want to bet against the American economy. The American economy will recover,” Powell told “60 Minutes” in an excerpt aired Sunday morning on “Face the Nation.”

“Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of the year,” the Fed chief added. Still, Powell cautioned that “for the economy to fully recover … that may have to await the arrival of a vaccine.”

Wall Street’s veteran investors say stocks could be in for choppy trading until it’s clear that state efforts to reopen their economies aren’t met with significant spikes in new cases of Covid-19.

A flurry of recent economic data, including record-setting unemployment figures and a 16.4% plunge in April retail sales, show just how abruptly state-imposed business closures impacted the broader U.S. economy.

Patrick Leary, chief market strategist at Incapital, told CNBC’s Patti Domm that financial markets are looking a little fatigued between abysmal economic data, recent state-by-state efforts to restart business and worries over renewed animosity between the U.S. and China.

“Market reactions to the data have been somewhat muted,” he said. He said stocks on Friday were reacting negatively to threats from China that U.S. companies could be targeted if the U.S. does not ease up on Huawei.

“The markets right now don’t need another reason to be pessimistic. It seems like both the bond market and stock market are getting a little tired. Both markets are looking for the next catalyst,” he added.

CNBC’s Jeff Cox and Patti Domm contributed reporting.

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Brazil’s Embraer draws foreign interest after Boeing rift, sources say

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Aircraft makers are circling Brazil’s Embraer weeks after Boeing ditched plans for a historic commercial aviation tie-up, people familiar with the matter said.

Boeing axed plans to buy 80% of Embraer’s commercial unit in April, ending a planned move into regional jets that mirrored rival Airbus‘ purchase in 2018 of a competing model developed by Canada’s Bombardier.

China’s state-owned COMAC planemaker has voiced informal interest in co-operation with the world’s third-largest jetmaker, two of the people said. Russian aircraft manufacturer Irkut has also explored the issue, two others said, though the company denied any current interest.

India, another rising aerospace power focusing mainly on defense but with a huge civil market, has informally conveyed interest at government level while still studying the matter, sources said.

That places Embraer’s fate at the center of the so-called BRIC group of nations, with each honing aerospace strategies as Airbus and Boeing reel from the coronavirus crisis.

Embraer shares rose around 8% immediately after publication of the Reuters report, with trading halted momentarily in New York due to excess volatility.

China’s COMAC and the Indian and Brazilian governments did not reply to requests for comment.

An Irkut spokeswoman denied interest in Embraer. The Brazilian planemaker declined to comment.

Both COMAC and Irkut are developing aircraft to compete directly with Airbus and Boeing in the busy 150-seat market. China’s plans are considered the most advanced.

A deal with Embraer would add engineering resources and global support but also clash with smaller and commercially less successful regional jets developed by both countries.

A Russian industry source said Irkut’s ultimate parent Rostec is focusing on its existing MS-21, designed to compete with Airbus and Boeing, and Superjet regional aircraft.

Although it has invested heavily in parts and maintenance, India is the least visible suitor in commercial aerospace with no active project other than a 14-seater jet dubbed SARAS.

But India has a potential requirement for developing an 80-90-seat regional jet – a category occupied by Embraer – for Prime Minister Narendra Modi’s signature UDAN project to expand air services to small towns.

Embraer is also seen as a one-off chance to re-balance India’s aerospace ambitions against strategic rival China.

R.K. Tyagi, ex-chairman of state-run Hindustan Aeronautics, said he had written to the government urging it to move fast.

“Any country with ambitions will look at this. I feel this is a good opportunity. Valuation is down and if we get control of a modern, proven aircraft programme, it is a big jump.”

Modi administration officials and a government think tank are preparing a strategy paper on Embraer but no formal approach has yet been made, an official aware of the plans said.

“The situation at Embraer is fairly bad, share value is drastically eroded; there would be many countries showing interest in this including us,” the official said.

Although Embraer says it can rebound, aircraft buyers have said it lacks deep enough pockets to counter Airbus’ powerful commercial backing for the Canadian-designed A220.

Valuation
Embraer’s jetliner boss said on May 1 the company had not initiated talks with anyone, but that he could not “legislate for the inbound calls that could come.”

Embraer has said it will consider its next moves carefully. A major headache for the company is a valuation down 64% this year, underperforming the crisis-hit aviation sector.

Embraer may be reluctant to yield to bargain-hunters, but with aviation in shock globally from the pandemic, its options remain limited even though it is the only available full-scale manufacturer, Teal Group analyst Richard Aboulafia said.

“Embraer is a fantastic commercial prime (contractor) but very few people are trying to buy a commercial prime,” he said.

Privatized in the 1990s, Embraer remains close to Brazil’s government, which can veto strategic decisions.

Any negotiation with China, Russia or India would require a slow and methodical process to put everyone at ease, said Oliver Stuenkel, a professor at the Getulio Vargas Foundation and expert on the BRICS group that since 2010 includes South Africa.

Tensions with China have risen since Brazil’s right-wing President Jair Bolsonaro took over last year, while Brazil has deepened ties with India in various sectors.

Stuenkel does not expect resistance to China, Russia or India from Brazil’s politicians. But he said Bolsonaro might not want to be linked publicly to any talks with China and would likely enlist his vice-president, retired general Hamilton Mourao, who has already backed Embraer having a Chinese partner.

“Bolsonaro does not want to be seen as the one who sold Embraer to the Chinese,” Stuenkel said.

Other industry analysts cautioned that while China has discussed buying major aerospace assets in the past, including the Canadian jet that eventually went to Airbus and became the A220, but has completed relatively few acquisitions.

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Google said to rescind job offers for thousands of contractors, temps

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Alphabet CEO Sundar Pichai gestures during a session at the World Economic Forum (WEF) annual meeting in Davos, on January 22, 2020.

Fabrice Coffrini | AFP | Getty Images

Google rescinded offers for more than 2,000 people who had agreed to work as contractors or temporary employees, The New York Times first reported Friday.

In an email viewed by the Times, Google told contracting agencies last week that it has been “slowing our pace of hiring and investment, and are not bringing on as many new starters as we had planned at the beginning of the year.” Google said it would not “not be moving forward to onboard” the workers it had brought on through the agencies.

A Google spokesperson would not comment on details in the Times report, like the number of contractors whose offers were rescinded, but said in a statement: “As we’ve publicly indicated, we’re slowing our pace of hiring and investment, and as a result are not bringing on as many new people – full-time and temporary – as we’d planned at the beginning of the year. We’re continuing to hire in a number of strategic areas.”

Last month, CEO Sundar Pichai acknowledged to employees that hiring and investments would slow as the coronavirus pandemic created uncertainty for businesses across industries. In the memo, Pichai said Google added 20,000 employees in 2019 and had planned to do the same this year. At the time, it had brought on 4,000 new employees and a thousand more were scheduled to start soon, according to the memo.

A spokesperson told CNBC at the time that Google would be “maintaining momentum in a small number of strategic areas, and onboarding the many people who’ve been hired but haven’t started yet.”

Later in April, a global director warned of budget cuts and hiring freezes in its marketing department, according to internal materials viewed by CNBC.

Google’s reported decision to rescind offers from contractors and temp workers once again draws attention to a vast portion of the company’s workforce that does not enjoy the same benefits and protections of its full-time employees. Such workers, commonly known inside the company as TVCs (temporary, vendors and contractors) make up at least half of Google’s roughly 300,000-person workforce.

But their differential status has been highlighted periodically in Google’s history, like in April when Google told contract workers they could no longer access skills training tools reserved for full-time employees, as CNBC reported.

Still, Google has made some concessions to contract workers during the Covid-19 crisis. Google moved to extend contracts for temporary staff whose work was about to end during the crisis by 60 days, CNBC reported in March.

Read the full report at The New York Times.

-CNBC’s Jennifer Elias contributed to this report.

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Migrant workers struggle to send money home during the crisis

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A customer at a bank in Mogadishu, Somalia on June 7, 2015.

Abdulfitah Hashi Nor | AFP | Getty Images

The coronavirus pandemic is leaving migrant workers unable to send money or goods home to families, cutting off a vital lifeline for communities already under siege from a barrage of external shocks.

Remittance flows to low and middle-income countries (LMICs) are projected to fall by almost 20% in 2020, one of the sharpest declines in history, according to the World Bank.

The coronavirus pandemic has led to mass unemployment and hammered wages in the U.S. and Europe, key destinations for migrant workers, leaving many unable to send money home. 

A number of major European countries have introduced furlough schemes to partially subsidize wages for those unable to work, but many of those in less formal employment have still found themselves without income. For workers in the U.S., there is less of a social safety net, which has led to more than 40 million Americans filing for unemployment since the pandemic was declared in mid-March.

Sub-Saharan Africa is projected by the World Bank to suffer a 23.1% decline in remittances over the course of 2020. To compound the tighter financial conditions for African migrant workers, in the first quarter of 2020, the region continued to have the highest average remittance costs, with the average transfer of $200 charged at about 9%.

Residents transfer money using the M-Pesa banking service at a store in Nairobi, Kenya, on Sunday, April 14, 2013.

Trevor Snapp | Bloomberg | Getty Images

Even for those who have maintained the financial capability to transfer money, lockdown measures have impacted access to MTOs (money transfer operators) in receiving countries.

Oxfam and around 90 other NGOs, academics and aid workers recently penned a letter to international bodies documenting the impact of the plunge in remittance payments in Somalia, in particular.

The letter urges the U.S. and European governments to take urgent action to facilitate wiring or other payment settlement mechanisms, and calls on Somali officials, MTOs, international banks and bodies such as the UN to coordinate efforts to boost the accessibility of remittance payments.

Somalia: A case study

Many domestic economies in Sub-Saharan Africa are suffering as a result of shutdowns associated with the coronavirus pandemic, and in some cases dealing with multiple concurrent shocks such as historic locust swarms, droughts, flash flooding or violent insurgencies.

Almost half of all households in Somalia rely on remittances to cover basic needs such as food, water, health care and education. The UN estimates that 4.1 million Somalis are food insecure in 2020, while around 2.6 million are internally displaced and more than a third have insufficient water for their basic day-to-day needs. The country’s total population is just over 15 million, according to World Bank data from 2018.

The above average rainy season anticipated in the coming months is expected to exacerbate the flash flooding which has devastated communities, along with offering ideal breeding conditions for the locust swarms that have affected around 360,000 hectares of land.

Meanwhile, conflict continues to rage between government forces, clan actors and insurgent groups, including notorious terror organization Al Shabaab.

People gather near burnt vehicles a day after a truck bomb exploded in the center of Mogadishu on October 15, 2017.

Mohamed Abdiwahab | AFP | Getty Images

Some MTOs in Somalia have had their bank accounts closed due to bank concerns about exposure to terrorism financing and anti-money laundering regulation, preventing access to their online services, according to the letter. Others have been rendered unable to reach more remote locations of the country, including settlements for internally displaced persons and refugees, the most vulnerable portion of the population.

“MTOs not only provide the only viable mechanism to legally and transparently send money to Somalia/Somaliland, they also serve a dual function in terms of providing letters of credit to Somali traders who come to Dubai, Djibouti and other international hubs to purchase essential food and nonfood items for sale inside Somalia/Somaliland,” the letter explained.

“Across the U.S. and around the globe, Somalis are working hard to support their families back home,” Scott Paul, Oxfam America’s humanitarian policy lead, said in a recent statement.

“Sadly, many have fewer resources to share today, and because of the U.S. government’s irresponsible approach to bank regulation, banks have been scared away from helping Somalis send what they can.”

A displaced Somali woman sits outside her temporary dwelling after fleeing famine

Feisal Omar | Reuters

Paul called on the Treasury Department in the U.S. and governments elsewhere to take urgent action to enable Somali families to cover their “rent, food, medicine and school fees as Covid-19 spreads.”

As of Friday morning, Somalia has 1,828 confirmed cases of Covid-19 with 72 deaths. 

Oxfam’s country director in Somalia, Amjad Ali, said the pandemic is “laying bare and exacerbating inequalities” and highlighting that “too many among us are living on the brink.”

“We now need to see leaders step up to support vulnerable communities with the social protection they need and deserve, while also easing the way for families to support each other through hard work and remittance payments.”

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