Breakingviews – Corona Capital: Lockdown Regimes, Beat the Fed


NEW YORK / HONG KONG / LONDON / MILAN (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with brief and accurate information on the pandemic.

A Holstein-bred dairy cow stands in a field in Montitier, as the spread of coronavirus disease (COVID-19) continues, near Mont-Saint-Michel, France, April 18, 2020. REUTERS / Pascal Rossignol


– Cow feed

– Fed losses

GREENER FOOD. Healthy food can help humans ward off Covid-19, the World Health Organization has said. Today, Burger King is putting cows on a cleaner path to help the environment. Restaurant Brands International has introduced a cake made from cows that eat lemongrass, reducing cow gas and, in turn, methane emissions by about a third.

The fight against meat began long before the pandemic, but containment has also been a boon for pea cake producers. Many meat establishments have become hotspots for Covid-19, which, in addition to the hype for cleaner food and a better environment, has increased shares of Beyond Meat by more than 60% in the past three months, compared to an increase of 11% for the S&P 500 index.

Burger King’s decision, however, takes a little edge off its environmental stench. So investors are wary. What’s good for him can be bad for Beyond Meat. (By Amanda Gomez)

OBLIGATIONS BROKEN. Maybe you can beat the Fed – if you’re a garbage collector. On June 23, the central bank bought back bonds issued by Waste Management with a face value of $ 3 million due 2024. But the leader of the $ 44 billion trash can buy back that debt at 101 cents on the dollar, according to Bloomberg. Unfortunately, the Fed paid around 105 cents.

A so-called buy-back function was triggered because Waste Management failed to complete the purchase of Advanced Disposal Services on time. Progress has been hampered by – wait – the Department of Justice. The firm actually mentioned the buyout in a statement the day after the Fed’s purchase, before the deal was settled.

This was to happen once the Fed started picking up riskier debt. Any loss will be covered by the Treasury – and the blow here will be insignificant. Yet the government has managed to be on several sides of this drama except the one that made the money. (By Anna Szymanski)

WILE E. COYOTE BANK MOMENT. Lenders reporting quarterly profits this week are a lot like the cartoon dog running over the edge of a cliff without – at first – diving. A decline in customer creditworthiness seems almost certain, but has not yet fully occurred.

While JPMorgan, Citigroup and Wells Fargo set aside $ 23 billion on Tuesday to absorb bad debts, the delinquencies remain mostly moot. At Citi, North American consumer debt 90 days or more past due fell slightly to just under 1% of that division’s loans. Delinquency rates have also fallen at JPMorgan.

Two forces hold borrowers in the air. Banks waive fees and interest – Wells Fargo waived nearly $ 300 million this quarter. But the government’s stimulus measures also serve to service the debt. JPMorgan says half of the credit card and auto loan borrowers it withholds have made a payment anyway. It might not last, but as surprises come along, he’s the better guy. (By John Foley)

DEATH AND IMPTS. The pandemic makes more austerity a certainty for British voters. The country’s Office for Budget Responsibility described how Covid-19 will affect the country’s finances in its latest fiscal sustainability report. In the central watchdog scenario, which assumes that effective treatments or vaccines will soon be available, output will be 3% lower than forecast by 2025 and the budget deficit will still be 4.6% of GDP, i.e. more than two percentage points above the March forecast. Debt will hover just above 100% of GDP.

The longer-term outlook is more frightening, as UK finances suffer from an aging population and higher healthcare costs. The further blow from the pandemic means that debt could exceed 400% of GDP by 2070. To reduce borrowing to 75%, each decade would need a fiscal adjustment equivalent to 2.9% of GDP, up from 1 , 8% before the pandemic, estimates the OBR. Anyone lucky enough to be prime minister will have to impose unpopular spending cuts and tax hikes. (By Neil Unmack)

NO MAGIC PILL. Walt Disney is in an awkward position. The $ 210 billion entertainment giant is temporarily shutting down its Hong Kong theme park on Wednesday after more than 50 new cases of Covid-19 prompted the government to impose new measures to contain its spread. Still, the Magic Kingdom continued with plans to reopen Walt Disney World in Orlando, Florida last Saturday, even as the Sunshine State added 15,300 new cases of Covid-19 on Sunday, more than any other state has. reported, according to the New York Times.

Disney described all of the measures it was taking to deal with an outbreak, including temperature checks and required face coverings, in a video reminiscent of airline flight safety instructions. But the situation can quickly become hectic. The National Basketball Association said Monday that two of its players tested positive while in quarantine. Where? Walt Disney World. (By Jennifer Saba)

WINS SERIES. Shares of Macau casino operators, including Wynn Macau and MGM China, surged on Tuesday after authorities announced the easing of coronavirus-related border restrictions with neighboring Guangdong province. It’s a welcome respite for the world’s largest gaming center – gaming revenue fell 97% year-over-year in June. Nearly half of Chinese visitors to Macau came from Guangdong last year, analysts at Morgan Stanley estimate. The lifting of a mandatory 14-day quarantine for visitors arriving from Macau to Guangdong could lure big players to empty baccarat tables.

Obstacles remain. Visas for individual visits, which account for 73% of arrivals from Guangdong to Macau, remain on hold. A mocked travel bubble between Hong Kong and Macau seems less likely as the financial center grapples with a resurgence in Covid-19 cases. With operators paying around $ 15 million in daily operating expenses, according to Morgan Stanley, the news is welcome nonetheless. (By Sharon Lam)

LIGHTER BASKET. Ocado investors received another mixed bag from the online grocer. Ocado’s army of vans saw sales growth of 27% in the first half of the year, but its tech business continued to spend money and wipe out profits. The group’s EBITDA fell 36% to £ 19.8million, leaving chief executive Tim Steiner with a pre-tax loss of £ 40.6million. Shares of the £ 15 billion company fell nearly 4%.

Grocery sales were a big plus, up 87%. But uncertainty in the US and UK markets prevented it from accelerating its outlook. In its UK backyard, where most of its warehouses are located, gross domestic product rose only 1.8% in May after falling more than 20% in April. This could mean consumers are cutting back on their bulky online grocery bills. As long as Ocado’s significant valuation is tied to the deployment of large and expensive warehouses, shareholders will have to get used to certain moves. (By Aimée Donnellan)

TIC-TAC CLOCK. Swatch’s center of gravity is rapidly shifting towards mainland China. The Swiss watchmaker announced its first half-year loss on Tuesday, with net sales down 46% at current exchange rates. Still, he remained bullish – retail sales in China jumped 76% in May and 60% in June. In Hong Kong, traditionally a hub for Asian watchmaking, Swatch saw almost no sales due to political unrest.

The importance of mainland China to Swatch has grown since pro-democracy protests began in the former British colony in 2019. Hong Kong accounted for around 10-12% of net sales in 2018, but that number has fallen to 6-7% at the end of last year, when luxury groups started pulling the shutters. In contrast, analysts estimate that Swatch’s sales on the continent accounted for a quarter of total revenue last year. With Hong Kong’s woes showing little sign of abating, the change is starting to seem permanent. (By Lisa Jucca)


Reuters Breakingviews is the world’s leading source for agenda-setting financial information. As the Reuters brand for financial commentary, we dissect big business and economic stories from around the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide real-time expert analysis.

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