World stocks whipsaw on pandemic worries, gold gains

By Koh Gui Qing and Carolyn Cohn

NEW YORK/LONDON (Reuters) – U.S. and European shares whipsawed between modest gains and losses on Wednesday as investors tried to brush aside market risks to focus on the positive, but caution prevailed in the gold market with prices jumping more than 1%.

Reports that some European countries have started to close schools and cancel surgeries due to a resurgence in the COVID-19 pandemic weighed on sentiment, though European shares still managed to trim earlier losses.

In the United States, investors looked to positive earnings reports by investment bank Goldman Sachs Group and UnitedHealth Group Inc, the largest U.S. health insurer, and tried to shelve concerns over two stalled trials for COVID-19 treatment and vaccine that rattled markets on Tuesday.

Investors are hoping that a quick development of a treatment or vaccine for COVID-19 would end the pandemic and aid a recovery in the world economy.

“Bulls are looking to get back on track this morning,” Paul Hickey, a co-founder of Bespoke Investment Group LLC, wrote in a note, but added that an upbeat mood may not hold.

Major U.S. stock indices had given up early gains by 1426 GMT. The S&P 500 was largely flat at 3,512.90, and the Dow Jones Industrial Average was also little changed at 28,655.36. The Nasdaq Composite fell 30 points, or 0.3%, to 11,832.32.

The pan-European STOXX 600 narrowed losses and was down 0.1%, while markets in Frankfurt and Paris were up 0.1% and flat respectively. London, buffeted in part by Brexit angst, dropped 0.6%. World stocks were little changed but still within sight of an all-time high struck on Sept. 3.

Moving beyond bar and pub closures, the Czech Republic shifted schools to distance learning and hospitals started cutting non-urgent medical procedures to free beds.

Moscow authorities said on Wednesday they would introduce online learning for many students starting on Monday, while Northern Ireland announced schools would close for two weeks.

Asian stocks also had a lackluster showing. MSCI’s broadest index of Asia-Pacific shares outside of Japan had tracked Wall Street’s losses overnight to end a seven-day rally.

The index was last down 0.11%, having toppled from a two-and-a-half-year high of 588.76 touched on Tuesday. Chinese shares closed down 0.7%.

Bolstered by uncertainty around the pandemic, the price of gold, a safe-haven asset, climbed by more than 1% to a high of $1,912.51 an ounce.

Government bonds also benefited from investor caution. German bund yields, which move inversely to prices, hit their lowest since May, while the 10-year U.S. Treasury yield dipped to 0.7173%.

The U.S. dollar softened after pulling its best day in three weeks on Tuesday. Its index against a basket of six major currencies fell 0.3% to 93.25. That helped the euro to firm slightly to $1.1768.

Concerns that fuel demand will continue to falter as rising coronavirus cases across Europe and in the United States, the world’s biggest oil consumer, dragged on oil prices. Brent and U.S. crude pared earlier gains and were at $43.19 and $40.99 a barrel, respectively.

(Reporting by Koh Gui Qing; Editing by Lisa Shumaker)

U.S. companies criticized for cutting jobs rather than investor payouts

By Alwyn Scott, Ross Kerber, Jessica DiNapoli and Rebecca Spalding

NEW YORK/BOSTON (Reuters) – U.S. companies laying off workers in response to the coronavirus pandemic but still paying dividends and buying back shares are drawing criticism from labor unions, pension fund advisers, lawmakers and corporate governance experts.

While most U.S. companies are scaling back payouts after a decade in which the amount of money paid to investors through buybacks and dividends more than tripled, some are maintaining their policies despite the economic pain.

Royal Caribbean Cruises Ltd <RCL.N>, Halliburton Co <HAL.N>, General Motors Co <GM.N> and McDonald’s Corp <MCD.N> have all laid off staff, cut their hours, or slashed salaries while maintaining payouts, according to a Reuters review of regulatory filings, company announcements and company officials.

“This is the time for large companies to try to help, for systemic reasons, to keep things flowing,” said Ken Bertsch, executive director of the Council of Institutional Investors. The council’s members include public pension funds and endowments that manage assets worth about $4 trillion.

Royal Caribbean, which has halted its cruises in response to the pandemic and borrowed to boost its liquidity to more than $3.6 billion, said it began laying off contract workers in mid-March, though the moves did not affect its full-time employees.

The company has not suspended its remaining $600 million share buyback program, which expires in May, or its dividend, which totaled $602 million last year and is set quarterly.

“We continue to take decisive actions to protect (our) financial and liquidity positions,” Royal Caribbean spokesman Jonathon Fishman said. He declined to comment specifically on the layoffs or shareholder payouts.

While Royal Caribbean’s rival Carnival Corp <CCL.N> has also laid off contract workers, it has suspended dividends and buybacks as it raised more than $6 billion in capital markets to weather the coronavirus storm.

UNEMPLOYMENT SURGE

Goldman Sachs analysts forecast this week that S&P 500 companies would cut dividends in 2020 by an average of 50% because of the fallout from the coronavirus pandemic.

For a graphic on S&P 500 shareholder payouts from 2009 to 2018, please click on: https://reut.rs/349G2JV

While there has been criticism of companies maintaining investor payouts, only those receiving financial support from the U.S. government under a $2.3 trillion stimulus package are obliged to suspend share buybacks.

Layoffs contributed to U.S. unemployment skyrocketing last month. Jobless claims topped 6.6 million in the week ended March 28 – double the record set the prior week and far above the previous record of 695,000 set in 1982.

Companies say job cuts are necessary to offset a plunge in revenue but their critics say they should consider turning off the spigots to shareholders before letting employees go.

“If companies are paying dividends and doing buybacks, they do not have to lay off workers,” said William Lazonick, a corporate governance expert at the University of Massachusetts.

Workers at franchised McDonald’s restaurants say they are getting fewer shifts since dining areas were closed in March, leaving only carry-out and drive-through services open.

Alma Ceballos, 31, who has worked at a franchised McDonald’s near San Francisco for 14 years, said she could not pay her rent after her schedule was cut to 16 hours from 40 and her husband, a janitor at Apple Inc’s <AAPL.O> Cupertino, California, campus was laid off.

McDonald’s, which has suspended buybacks but maintained its annual dividend, worth $3.6 billion in 2019, told Reuters its staffing and opening hours were not related to “making a choice between employees and dividends”.

About 95% of its U.S. restaurants are run by franchisees who decide staffing. McDonald’s said it was offering rent deferrals and other help to keep franchises open and employing workers.

“McDonald’s could commit to 30 days of income for all workers,” Mary Kay Henry, president of the labor union SEIU which has 2 million members, said in an interview with Reuters. “Corporations need to pay their fair share here.”

‘IT’S JUST WRONG’

General Motors has halted normal production in North America and temporarily reduced cash pay for salaried workers by 20%. It paid its first-quarter dividend on March 20 and has a month before declaring its next dividend, a spokeswoman said, adding that GM would assess economic conditions before deciding.

“Our focus in the near term is to protect the health of our employees and customers, ensure we have ample liquidity for a very wide range of scenarios, and implement austerity measures to preserve cash,” spokeswoman Lauren Langille said.

Oilfield services firm Halliburton furloughed about 3,500 workers in its Houston office starting on March 23, according to a letter sent to the Texas Workforce Commission obtained by Reuters. It has also cut 350 positions in Oklahoma.

Halliburton cited disruption from the coronavirus as well as plunging oil prices as the reason for the furlough. In March, it paid its first-quarter dividend to shareholders as planned.

A Halliburton spokeswoman declined to comment on the furlough and the company’s dividend policy.

Some of the companies laying off workers while still paying out shareholders, such as General Motors, signed an initiative last year from the Business Roundtable, a group of chief executives, pledging to make business decisions in the interest of employees and other stakeholders, not just shareholders.

Large asset managers such as BlackRock and Vanguard have cited managing “human capital” as a priority for companies in which they invest. Yet they have been reluctant to publicly press companies to avoid layoffs during the crisis.

Vanguard told Reuters it “recognizes the need for companies to exercise judgment and flexibility as they balance short- and long-term business considerations”.

BlackRock did not respond with a statement when contacted for comment.

“Profits should be shared with the workers who actually create them,” U.S. Senator Tammy Baldwin, a long-standing critic of share buybacks, told Reuters in an email.

“It’s just wrong for big corporations to reward the wealthy or top executives with more stock buybacks, while closing facilities and laying off workers.”

(Reporting by Alwyn Scott, Jessica DiNapoli and Rebecca Spalding in New York and Ross Kerber in Boston; Additional reporting by Hilary Russ in New York; Editing by Greg Roumeliotis and David Clarke)

World Bank pandemic bond under pressure as coronavirus spreads

By Karin Strohecker

LONDON (Reuters) – A World Bank bond designed to deliver funding to help the world’s poorest countries to tackle fast-spreading diseases has lost half its value as the coronavirus outbreak in China has fanned fears that investors could face hefty losses.

After the 2013-2016 Ebola outbreak that ravaged Sierra Leone, Guinea and Liberia and killed at least 11,300 people, the World Bank launched bond and insurance instruments under its Pandemic Emergency Financing umbrella in 2017 to establish a mechanism that would speedily deploy funds where needed.

However, the World Bank’s two so-called pandemic bonds came under scrutiny after the second-worst Ebola outbreak on record.

The 2018 epidemic in the Democratic Republic of Congo raged for about a year and killed more than 2,000 people, but it failed to trigger the release of funds to help affected countries.

The bonds, issued by the World Bank’s International Bank for Reconstruction and Development (IBRD), offer investors high coupons in return for the risk of having to forgo some or all their money in the event of pandemic outbreaks of a number of infectious diseases, with the funds channeled instead to countries in need of aid.

With the coronavirus outbreak having infected more than 74,000 people and claimed more than 2,000 lives, prices for the IBRD pandemic bond with the highest investment risk – the Class B notes – have come under increasing pressure.

PRICE SLIDE

Losses to investors depend on the number of deaths and geographical spread. In the most extreme case, a global outbreak – defined as more than 2,500 deaths across more than eight countries with a certain number of fatalities in each country – will wipe out the bondholder’s entire investment.

Offer prices quoted by one broker have slipped as low as 45 cents in the dollar, while another is quoting 62.5 cents, market sources said. In the midst of the 2018 Ebola outbreak the bond traded at a little more than 70 cents.

“The market is clearly starting to price in a chance that the tranche most at risk could be affected,” said an investor who holds some of the World Bank’s pandemic debt.

“We all get the feeling that epidemics have become more and more frequent – we had SARS and Ebola and swine flu all within a short space of time.”

The bonds issued by the IBRD are not only aimed at providing relief for outbreaks of coronavirus or Ebola, but also for pandemics caused by infectious diseases such as Marburg, Crimean-Congo hemorrhagic fever or Lassa fever.

Both of the bonds are often closely held and largely illiquid. Filings show that the riskiest of the two <XS164110150=>, maturing on June 15, is held by asset managers including Baillie Gifford, Amundi and Oppenheimer.

The second of the bonds – a $225 million issue <XS164110117=> – is also exposed to a coronavirus outbreak but considered less at risk because its different trigger criteria means bondholders face a loss of 16.7%.

UNDER FIRE

For all the good intentions and the prospect that a payout to poor countries might be on the cards, the bonds remain under fire for failing to deliver sufficient or timely aid.

One point of contention is the length of time before a payout is triggered. In the case of a coronavirus outbreak for the Class B notes, this is 84 days from when the World Health Organization (WHO) publishes its first “situation report”. In the current outbreak, that would be in mid-April.

Think tanks and some policymakers say the focus should be on shoring up healthcare systems and early detection facilities in vulnerable parts of the world that are already overburdened with cases of Ebola, measles, malaria and other deadly diseases.

“The money for these bonds could have been better spent in providing the WHO with funds or help strengthen healthcare provisions in poor countries at risk,” said Bodo Ellmers, director of sustainable development finance at Global Policy Forum, an independent policy watchdog.

“It was an ideology-driven idea to get the private sector involved in humanitarian and emergency finance – and I think we have to say this has failed.”

The World Bank declined to comment.

(Reporting by Karin Strohecker; Editing by David Goodman)

Global protests gaining attention in financial markets

Global protests gaining attention in financial markets
By Marc Jones and Mike Dolan

LONDON (Reuters) – An alarming spread of street protests and civil unrest across the world in recent weeks looms large on the radar of financial markets, with investors wary the resulting pressures on stretched government finances will be one of many consequences.

Money managers and risk analysts seeking a common thread between often unconnected sources of popular anger – in Hong Kong, Beirut, Cairo, Santiago and beyond – reckon the unrest is particularly worrying following years of modest global economic growth and relatively low joblessness.

If, as many fear, the world is slipping back into its first recession in more than a decade, then the root causes of restive streets will only deepen and force embattled governments to loosen purse strings further to fund better employment, education, healthcare and other services to placate them.

Forced fiscal loosening in a world already swamped with debt and heading into another downturn may unnerve creditors and bond holders, especially those holding government debt as an insurance against recession and a haven from volatility.

“Protests per se are unpredictable for investors by definition and fit a pattern of rising political risks that have affected market perceptions in almost all geographies,” said Standard Chartered Bank strategist Philippe Dauba-Pantanacce.

“Investors will get more nervous when they see that a country‚Äôs IMF package or investment promises are conditioned on fiscal consolidation and that the first austerity measures are followed by massive protests.”

More broadly popular pushback against debt reduction and austerity raises serious questions about how still-mushrooming debt loads can be sustained, even after the massive central bank intervention to underwrite it in recent years.

Many also fear the feedback loop.

According to the International Monetary Fund this month, a global downturn half as severe as the one spurred by the last financial crisis in 2007-9 would result in $19 trillion of corporate debt being considered “at risk” – defined as debt from firms whose earnings would not cover the cost of their interest payments let alone pay off the original debt.

Rising bankruptcies at so-called “zombie” firms would, in turn, risk spurring rising job losses and yet more unrest.

Marc Ostwald, global strategist at ADM Investor Services, said he saw many of the protests as ‘straws that break the camel’s back’ – tipping points in a broad swathe of long-standing complaints about inequality, corruption and oppression, variations on the broader themes of populism and anti-globalization.

But Ostwald said there was a worry for financial markets who have surfed rising debt piles for years thanks to central bank money printing and bond buying.

“At some point the smothering impact of QE (quantitative easing) will run its course,” Ostwald said.

“And as many of the zombie companies then go to the wall, so governments will face rising unemployment and desperately need to borrow money to prop up their economies – particularly as social unrest rises, as we are witnessing.”

Of the dozens of protest movements that have emerged in recent years, here are some of the most prominent ones.

HONG KONG

Hong Kong has been battered by five months of often violent protests after the city state tried to bring in legislation that would have allowed extraditions to mainland China. The plan has been formally withdrawn but it is unlikely to end the unrest as it meets only one of five demands pro-democracy protesters have.

On Tuesday, authorities announced HK$2 billion ($255 million) relief measures for the city’s economy, particularly in its transport, tourism and retail industries. It followed a more sizeable HK$19.1 billion ($2.4 billion) package in August to support the underprivileged and businesses. Hong Kong’s Financial Secretary has also said more assistance will be given if needed.

The Hang Seng, one of Asia’s most prominent share markets, is down 12% since the protests started and although it has been recovered some ground over the last two months, it has continued to lag other major markets.

LEBANON

Hundreds of thousands of people have been flooding the streets for nearly two weeks, furious at a political class they accuse of pushing the economy to the point of collapse.

Prime Minister Saad al-Hariri announced on Monday a symbolic halving of the salaries of ministers and lawmakers, as well as steps toward implementing long-delayed measures vital to fixing the finances of the heavily indebted state.

Markets are increasingly worried it will all end in default. The government’s bonds are now selling at a 40% discount and Credit Default Swaps, which investor use as insurance against those risks, have soared.

IRAQ

Similar factors were behind deadly civil unrest in Iraq which flared in early October. More than 100 people died in violent protests across a country where many Iraqis, especially young people, felt they had seen few economic benefits since Islamic State militants were defeated in 2017.

The government responded with a 17-point plan to increase subsidized housing for the poor, stipends for the unemployed and training programs and small loans initiatives for unemployed youth.

 

EXTINCTION REBELLION

This London-bred movement is pushing for political, economic and social changes to avert the worst devastation of climate change. XR protesters began blockading streets and occupying prominent public spaces late last year, and following 11 days of back-to-back protests in April the UK government symbolically declared a climate “emergency”.

The movement is developing alongside the growing FridaysForFuture led by Swedish teenager Greta Thunberg which sees school children boycott lessons on Fridays.

It has been particularly strong in Germany and the government there recently launched the ‘Gruene Null’ or ‘Green Zero’ policy which specifies that any spending that pushes the government’s budget into deficit must be on climate-focused investments.

Incoming European Commission chief, Ursula von der Leyen, has also introduced an ambitious “European Green Deal” which would include the support of 1 trillion euros ($1.11 trillion) in sustainable investments across the bloc.

Amazon <AMZN.O> Chief Executive Officer Jeff Bezos last month pledged to make the largest U.S. e-commerce company net carbon neutral by 2040.

CHILE

At least 15 people have died in Chile’s protests which started over a hike in public transport costs but have grown to reflect simmering anger over intense economic inequality as well as costly health, education and pension systems seen by many as inadequate.

Chile’s President Sebastian Pinera announced an ambitious raft of measures on Tuesday aimed at quelling the unrest, including with a guaranteed minimum wage, a hike in the state pension offering and the stabilization of electricity costs.

ECUADOR

Violent protests at the start of October forced Ecuadorean President Lenin Moreno to scrap his own law to cut expensive fuel subsidies that have been in place for four decades.

The government had estimated the cuts would have freed up nearly $1.5 billion per year in the government budget, helping to shrink the fiscal deficit as part of a $4.2 billion IMF loan deal Moreno had signed.

BOLIVIA

Mass protests and marches broke out in Bolivia this week after the opposition said counting in the country’s presidential election at the weekend was rigged in favor of current leader Evo Morales.

The unrest – already the severest test of Morales’ rule since he came to power in 2006 – could spread if his declaration of outright victory is confirmed, after monitors, foreign governments and the opposition called for a second-round vote.

EGYPT

Protests against President Abdel Fattah al-Sisi broke out in Cairo and other cities in September following online calls for demonstrations against alleged government corruption, as well as recent austerity-focused measures.

Protests are rare under the former army chief and about 3,400 people have been arrested since the protests began, including about 300 who have since been released, according to the Egyptian Commission for Rights and Freedoms, an independent body.

The country’s main stock market <.EGX30> dropped 10% over three days as the protests kicked off although it has since recovered over half of that ground.

FRANCE

The Gilets Jaunes movement named after the fluorescent yellow safety vests that all French motorists must carry began a year ago to oppose fuel tax increases, but quickly morphed into a broader backlash against President Emmanuel Macron’s government, rising economic inequality and climate change.

Macron swiftly reversed the tax hikes and announced a swathe of other measures worth more than 10 billion euros ($11.3 billion) to boost the purchasing power of lower-income voters. That was followed up with another 5 billion euro package of tax cuts in April.

ARAB SPRING

Beginning in late 2010, anti-government protests roiled Tunisia. By early 2011 they had spread into what became known as the Arab Spring wave of protests and uprisings which ended up toppling not only Tunisia’s leader but Egypt, Libya, and Yemen’s too. The Arab Spring uprisings in Syria developed into a civil war that continues to be waged today.

ETHIOPIA

A total of 16 people have been killed in at least four cities since fierce clashes broke out on Wednesday against the reformist policies of Nobel Prize-winning Prime Minister Abiy Ahmed.

The greater freedoms that those policies bring have unleashed long-repressed tensions between Ethiopia’s many ethnic groups as local politicians claim more resources, power and land for their own regions. Ethiopia is due to hold elections next year.

(Reporting by Marc Jones and Mike Dolan, additional reporting by Karin Strohecker in London and Mitra Taj in La Paz; Editing by Sonya Hepinstall)

As Amazon burns, 230 big investors call on firms to protect world’s rainforests

By Gram Slattery

RIO DE JANEIRO (Reuters) – With widespread fires wreaking havoc on the Amazon, over 200 investors representing some $16.2 trillion under management on Wednesday called on companies to do their part in halting the destruction of the world’s largest tropical rainforest.

Nongovernment organization Ceres said in a statement that 230 funds have signed a declaration calling on firms to keep a close tab on supply chains, among other measures to curtail forest destruction.

Signatories range from major private managers like HSBC Global Asset Management and BNP Paribas Asset Management to public pension funds like California’s CalPERS, according to a list provided by Ceres, a Boston-based NGO encouraging sustainability among investors.

“Deforestation and loss of biodiversity are not only environmental problems. There are significant negative economic effects associated with these issues and they represent a risk that we as investors cannot ignore,” said Jan Erik Saugestad, CEO of Storebrand Asset Management, Norway’s largest private asset management firm and one of the signatories.

The resolution did not explicitly say signatories were threatening to withdraw investments from any companies. Still, it added to the pressure that international corporations and investors have put on partners operating in the Amazon, the world’s largest tropical rainforest that lies in Brazil, Bolivia and seven other countries.

In Brazil alone, more 2,400 square miles of the Amazon have been deforested this year, an area larger than the U.S. state of Delaware.

Meanwhile, 60,472 fires have been recorded year-to-date in the Amazon, up 47% from last year, according to government data. Many fires have been set intentionally by farmers and ranchers, and the response of the government of Brazil’s right-wing president, Jair Bolsonaro, has been criticized as indifferent.

In neighboring Bolivia, President Evo Morales has come under scrutiny for his ambitions to make the country a global food supplier, calling agricultural commodities the “new gold” that will help diversify the economy.

The resolution called on companies to implement a “no deforestation policy” with “quantifiable, time-bound commitments,” assess and disclose the risks their supply chains pose to forests, establish a monitoring system for supply chain partners and report annually on “deforestation risk exposure and management.”

“There is an urgent need to focus more on effective management of agricultural supply chains,” Jan Erik Saugestad, CEO of Storebrand Asset Management, was quoted as saying in a statement released by Ceres.

In August, VF Corp – owner of apparel brands such as The North Face and Vans – said it would stop purchasing leather from the Amazon in response to the fires.

Norway, home to the world’s largest sovereign wealth fund, has urged several of its companies to ensure they do not contribute to Amazon deforestation, including oil firm Equinor ASA, fertilizer-maker Yara International ASA and aluminum producer Norsk Hydro ASA.

Separately, investors managing $15 trillion in assets turned up the heat on oil and gas sector ahead of a United Nations summit in New York aimed at accelerating efforts to fight climate change.

(Reporting by Gram Slattery; Additional reporting by Tatiana Bautzer in Sao Paulo; Editing by David Gregorio)

Wall St. takes a breather with all eyes on Fed meeting

By Shreyashi Sanyal

(Reuters) – Wall Street’s main indexes took a pause on Wednesday, after a rally the previous day, as investors held back from making big bets ahead of the Federal Reserve’s policy statement that is expected to lay the groundwork for future interest rate cuts.

Markets have climbed this month, with the S&P 500 index gaining 6% so far and 1% away from its all-time high hit in early May, fueled by hopes of a rate cut.

The Fed’s statement and new economic projections are scheduled to be released at 2 p.m. ET (1800 GMT), providing investors an opportunity to gauge the impact of a prolonged U.S.-China trade conflict, President Donald Trump’s demands for a rate cut and softer-than-expected economic data on monetary policy thinking.

The U.S. central bank will likely leave rates unchanged but the market is factoring in a cut as soon as next month. Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. ET (1830 GMT).

“I think the potential for the Fed to disappoint today is significantly higher than the market expects,” said Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York.

“The Fed has already told us that it’s ready to act but with the metrics we’ve seen in the economy – yes, they’re mixed, but they’re still growing – it just becomes very difficult for someone to say we absolutely need a rate cut.”

U.S. Treasury yields rose on Wednesday, tracking the European market, after steep falls the previous day, as investors rebalanced positions ahead of the Fed decision.

The financial sector gained 0.40%, with bank stocks rising by 0.15%.

At 11:18 a.m. ET, the Dow Jones Industrial Average was up 39.27 points, or 0.15%, at 26,504.81 and the S&P 500 was down 0.23 points, or 0.01%, at 2,917.52.

The Nasdaq Composite was down 3.74 points, or 0.05%, at 7,950.15.

The healthcare sector rose 0.44%, the most among the 11 major S&amp;P sectors, helped by gains in UnitedHealth Group Inc, Pfizer Inc and Allergan Plc.

Allergan climbed 4.03% after the drugmaker said its constipation drug, jointly developed with Ironwood Pharmaceuticals Inc, improved symptoms of bloating, pain and discomfort in patients suffering from irritable bowel syndrome with constipation.

Adobe Inc jumped 4.43% after the Photoshop software provider beat analysts’ estimates for quarterly profit and revenue.

Advancing issues outnumbered decliners by a 1.10-to-1 ratio on the NYSE and by a 1.30-to-1 ratio on the Nasdaq.

The S&amp;P index recorded 15 new 52-week highs and one new low, while the Nasdaq recorded 35 new highs and 43 new lows.

(Reporting by Shreyashi Sanyal and Aparajita Saxena in Bengaluru; Editing by Sriraj Kalluvila)

Fed policymakers promise response if U.S. economy slows

FILE PHOTO: Federal Reserve Chairman Jerome Powell poses for photos with Fed Governor Lael Brainard (L) at the Federal Reserve Bank of Chicago, in Chicago, Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir

By Howard Schneider and Ann Saphir

CHICAGO (Reuters) – Signs that the economy is losing momentum hung over a Federal Reserve summit for a second straight day as policymakers hinted they would be ready to cut interest rates if the U.S. trade war threatens a decade-long expansion.

Investors added to bets that the Fed would have to lower borrowing costs multiple times by year-end on Wednesday after a report by a payrolls processor showed private employers added 27,000 jobs in May, well below economists’ expectations and the smallest monthly gain in more than nine years.

The U.S. economy will mark 10 years of expansion in July, the longest on record. Strong job gains have been a key feature. But rising trade tensions between the United States and China have led to tit-for-tat tariffs, put a chill on U.S. businesses’ spending and exacerbated a manufacturing slowdown.

Current and threatened U.S.-China tariffs could slash global economic output by 0.5% in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.

“We’ll be prepared to adjust policy to sustain the expansion,” Fed Governor Lael Brainard said in an interview with Yahoo Finance on the sidelines of the Fed’s Chicago summit. “The U.S. economy, generally, is in the midst of a very lengthy expansion, the U.S. consumer remains confident, but trade policy is definitely a downside risk.”

Brainard’s remarks follow a pledge on Tuesday by Fed Chairman Jerome Powell to react “as appropriate” to trade-war fallout. Other Fed officials struck a similarly cautious tone.

Since the Fed’s last rate-setting meeting, Trump slapped new 25% tariffs on $200 billion of Chinese imports and threatened new import taxes on Mexican goods unless immigration slows. Until recently officials had been largely signaling that they would keep rates at their 2.25-2.50% target range.

The trade war added urgency to what was intended to be a strategy session at the Chicago Fed focused on how the central bank can shore up its policies. Officials worry that economies risk getting stuck in a self-fulfilling cycle of low rates and low inflation that will make it harder to rebound from recessions and require increasingly forceful intervention.

To combat those risks, Fed officials are considering whether they want to temporarily welcome inflation a bit above their 2%-a-year target – and keep rates lower for longer – in the hopes that such a strategy will make attaining the central bank’s goals for maximum employment and price stability more likely.

Policymakers are also revisiting exactly what maximum employment means and whether they are doing a good enough job in how they speak to the public. No changes are expected until next year.

(Reporting by Howard Schneider and Ann Saphir; Writing and additional reporting by Trevor Hunnicutt; Editing by Andrea Ricci)

Wall Street plunges on heightening U.S.-China trade worries

By Amy Caren Daniel

(Reuters) – Wall Street’s main indexes tumbled more than 1 percent on Tuesday, as renewed worries over trade negotiations with China stoked global growth worries and kept investors away from risky assets.

Beijing said on Tuesday that Chinese Vice Premier Liu He will visit the United States this week for trade talks, playing down U.S. President Donald Trump’s unexpected threat on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent.

Trade tensions also pushed U.S. treasury yields lower as investors turned to low-risk government bonds, pressuring interest rate sensitive banking stocks, which fell 1.69%. [US/]

“Many had been looking at this week as providing a potential breakthrough in talks between the world’s two largest economies, yet we instead have seen the U.S. threaten a raft of new tariffs,” Joshua Mahony, senior market analyst at IG, wrote in a note.

“Much of the gains of the eventual deal have been factored into market valuations and thus there is a substantial risk that markets could jolt lower if the direction of talks shift towards more, rather than less barriers to trade.”

Boeing Co, the single largest U.S. exporter to China, slipped 2.7% and Caterpillar Inc declined 1.9%.

All the major S&amp;P sectors were trading in the red, with technology companies posting the steepest decline of 2%.

The CBOE Volatility Index, a gauge of investor anxiety, spiked to its higher level in over three months.

At 10:55 a.m. ET the Dow Jones Industrial Average was down 355.41 points, or 1.34%, at 26,083.07. The S&P 500 was down 42.23 points, or 1.44%, at 2,890.24 and the Nasdaq Composite was down 138.67 points, or 1.71%, at 7,984.62.

Marquee names including Microsoft Corp, Apple Inc, Amazon.com Inc and Facebook Inc fell more than 1.7% and weighed on markets.

The earnings season has now reached its homestretch. Of the 414 S&P companies that have reported earnings so far, about 75% have surpassed analysts’ estimates, according to Refinitiv data.

The upbeat reports have turned around earnings estimates for the first quarter to an almost 1.2% rise, a sharp improvement from the 2.3% decline expected at the start of the earnings season.

American International Group Inc jumped 6.7%, the most among S&amp;P companies, after the insurer reported a quarterly profit that blew past expectations.

Among decliners, Mylan NV tumbled 17% after the drugmaker missed Wall Street estimates for quarterly revenue, hurt partly by manufacturing problems at its Morgantown plant in West Virginia.

Shares of Regeneron Pharmaceuticals Inc fell 5% after the drugmaker missed quarterly profit estimates.

Declining issues outnumbered advancers for a 4.26-to-1 ratio on the NYSE and for a 2.95-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and four new lows, while the Nasdaq recorded 37 new highs and 22 new lows.

(Reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)

Your Money: What another U.S. interest rate rise means for you

A woman shows U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. REUTERS/Marcos Brindicci

By Beth Pinsker

NEW YORK (Reuters) – If you have credit card debt, take the next U.S. Federal Reserve move to raise interest rates as a big, flashing warning sign.

Short-term rates are the most affected when the government nudges up the federal funds rate, which the Fed is expected to do on Wednesday, likely raising it a quarter point. That will be the third move in 2018 and the eighth since the Fed started inching rates up from effectively zero in December 2015. One more hike is expected before the end of the year.

“That means your 15 percent interest rate on a credit card is now a 17 percent rate,” said Greg McBride, chief economist for Bankrate.com. “If you haven’t already, it’s important to take steps to insulate yourself.”

The message to get out of debt is a hard sell to the American households holding nearly a trillion dollars in credit card debt, according to Nerdwallet.com’s 2017 survey.

Many pay only the monthly minimum payments, incurring interest charges that balloon their balances.

It is a “treadmill to nowhere,” McBride said.

On a card with a $10,000 balance, paying the minimum (interest plus 1 percent of the balance) will cost you $12,000 in interest and take 27 years to pay off at a 15 percent rate. Bump that up to a 17 percent interest rate, and you pay $13,600 in interest – plus, it would take an extra year to be out of debt, according to Bankrate.com’s calculator (https://bit.ly/2v4vaMm).

Experts say you should push your credit card debt to a zero-percent balance transfer card. You can still get offers for as long as 21 months, with fees, according to Nick Clements, co-founder of the money advice site MagnifyMoney.com. Then pay down as much money as you can to reduce the debt in that time period.

It is also a good idea to explore the personal loan market, where rates are rising but not as fast because of competition, Clements said. These loans have short repayment periods, typically under five years.

AVOID HOME EQUITY LOANS

If you are in debt and own a home, now is not necessarily the best time to be tempted with a home equity loan to pay off debt, said Tendayi Kapfidze, chief economist of housing site LendingTree.com.

The variable interest rates of a home equity loan are also affected by the Fed raising interest rates, although not as highly correlated.

The biggest risk? Cashing out home equity to pay down debt, but then as soon as you are even, digging another financial hole and not having anything left to tap.

“You need a broader plan to control your spending,” said Kapfidze.

For those looking to buy a house or refinance, the latest Fed move will have a slower impact. Other things influence mortgage rates along with the Fed funds rate, but those factors are heading in the same direction.

Kapfidze does not expect any large mortgage rate moves in the near term, but that, he said, is because there had already been a runup in recent weeks.

Savings rates are the last to move because of Fed actions. Banks raise rates on what they are selling before they raise rates on what they are buying, Kapfidze said.

But if savers turn into shoppers, they will find some better deals in the coming months. Online banks are being particularly aggressive about rates for certificates of deposit, with new players like Goldman Sachs’ Marcus, Clements said.

Investors should look at the yield on their fixed income investments, which might be around 3 percent and compare it to a 12-month CD for 2.5 percent.

“If you think about it, low rates mean people take more risk. As rates are rising, people should be able to take less risk,” Clements said.

(Editing by Lauren Young and Bernadette Baum)

Twelve charts to watch for signs of the next U.S. downturn

FILE PHOTO: The Dow Jones Industrial average is displayed on a screen after the closing bell at the New York Stock Exchange (NYSE) in New York, U.S., May 29, 2018. REUTERS/Brendan McDermid/File Photo

By Megan Davies

NEW YORK (Reuters) – Economists and investors are watching for signs they hope can predict when the wheels will come off a near-record U.S. economic expansion and equities bull market.

Some are already worried about a flattening Treasuries yield curve and slowing housing market, even as other economic vital signs remain healthy.

U.S. economic growth will probably slow gradually over the next two years and the threat of a trade war has made a recession more likely, a recent Reuters poll predicted.

A majority of bond market experts in a separate poll now predict a yield curve inversion in the next one to two years, a red flag for those who believe short-term yields rising above longer-term yields means an imminent recession.

“Almost every client meeting includes questions about where the economy and markets sit in the cycle,” JPMorgan head of cross-asset fundamental strategy John Normand wrote in a recent research note.

The U.S. economy is a year away from surpassing the record 120-month 1991-2001 expansion, according to data from the National Bureau of Economic Research.

The stock market bull run is also nearing a record. Bull markets are typically measured retroactively, but U.S. equities could hit their longest bull run in history on Aug. 22, according to S&amp;P.

The U.S. economy is “late cycle” but a recession is not imminent, a number of economists and strategists say.

“We believe that the U.S. economic expansion is entering the final third of its cycle,” wrote analysts at Wells Fargo Investment Institute, although they said various indicators do not suggest a recession this year.

1. THE YIELD CURVE

The U.S. yield curve plots Treasury securities with maturities ranging from 4 weeks to 30 years. The spread between two-year and 10-year notes is typically used when discussing yield curve inversion. The gap between long- and short-dated yields turning negative has been a reliable predictor of recessions. The yield curve has been flattening in recent months.

2. SHORT-TERM BILLS

An alternative yield curve measures the difference in the current interest rate on 3-month Treasury bills and expectations for the yields 18 months from now. Federal Reserve officials have found this measure is a stronger predictor of recession in the coming year. The measure currently suggests little recession risk.

3. UNEMPLOYMENT

The unemployment rate and initial jobless claims ticked higher just ahead or in the early days of the last two recessions before rising sharply. Unemployment hit an 18-year low in May of 3.8 percent but nudged up to 4 percent in June.

4. OUTPUT GAP

The output gap between the economy’s actual and potential gross domestic product has fallen ahead of the last two recessions.

“Currently we estimate that the output gap is nearly closed, but not yet in the ‘overheating’ territory,” wrote Kathy Bostjancic, head of U.S. investor services at Oxford Economics, in May.

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

5. STOCK MARKETS

Falling equity markets can signal a recession is looming or has already started to take hold. Markets turned down before the 2001 recession and tumbled at the start of the 2008 recession.

On a 12-month rolling basis, the market has turned down ahead of the last two recessions. The 12-month rolling average percent move is now below its 2018 peak but higher than recent lows.

6. BOOM-BUST BAROMETER

The Boom-Bust Barometer devised by Ed Yardeni at Yardeni Research measures spot prices of industrials inputs like copper, steel and lead scrap, and divides that by initial unemployment claims. The measure fell before or during the last two recessions and is below its 2018 peak.

7. HOUSING MARKET

Housing starts and building permits have fallen ahead of some recent recessions. Housing starts and permits fell to the lowest level since September 2017 in June.

8. EARNINGS GROWTH

S&amp;P 500 earnings growth dipped ahead of the last recession. Earnings growth is expected to slow slightly this year and more next year, but remain in the high single digits or low double digits in 2019.

9. SOUTH KOREA EXPORTS

South Korean exports fell during the last recession and before the previous recession.

Those exports, which include cars, phones, steel and other products, tend to be a leading indicator, said Bank of America Merrill Lynch chief investment strategist Michael Hartnett. Exports from China are also increasingly important as weak Asian exports tend to coincide with weak global and U.S. growth.

South Korea’s export growth came to a halt in June. China, the world’s largest exporter, reported exports accelerated in June.

The United States and China have fired the first shots in what could become a protracted trade war. The United States and South Korea agreed in March to revise a trade pact.

10. HIGH-YIELD SPREADS

The gap between high-yield and government bond yields rose ahead of the 2007-2009 recession and then widened dramatically. Credit spreads typically widen when perceived risk of default rises. Spreads have fallen slightly this year.

11. INVESTMENT-GRADE YIELDS

Risk premiums on investment-grade corporate bonds over comparable Treasuries have topped 2 percent during or just before six of the seven U.S. recessions since 1970. Spreads on Baa-rated corporate bonds rose to 2 percent this month based on Moody’s Investors Services data, according to Leuthold Group’s chief investment strategist Jim Paulsen.

12. MISERY INDEX

The so-called Misery Index adds together the unemployment rate and the inflation rate. It typically rises during recessions and sometimes prior to downturns. It has nudged higher in 2018 but is still relatively low.

(Additional reporting by Richard Leong, Dan Burns, Jenn Ablan and Howard Schneider; Editing by Meredith Mazzilli)