France Braces for Economic Suffering as Lockdown Returns
Last Updated Nov. 17, 2020, 7:14 a.m. ETNov. 17, 2020Nov. 17, 2020, 7:14 a.m. ET
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France was bracing for a fresh blow to its beleaguered economy as President Emmanuel Macron reimposed a nationwide lockdown through December to prevent an alarming surge of coronavirus cases from spiraling out of control.
In a televised address on Wednesday, Mr. Macron said the virus had rapidly resurfaced “everywhere” in France, and that requiring businesses to close and people to shelter at home was the only solution to curbing the pandemic. He pledged substantial financial support to prevent a wave of bankruptcies and layoffs from rippling through the eurozone’s second-largest economy.
“You can’t have a prosperous economy when you have the virus circulating throughout the country,” he said.
The new lockdown, which will begin Thursday night, would still allow essential sectors to keep operating, and it won’t be as severe as the country’s two-month nationwide quarantine earlier this year, when the entire country was shut in, Mr. Macron said.
Still, he acknowledged it would have a severe impact on businesses that have already grown cash poor because of previous restrictions to curb the virus.
France is expected to report on Friday a jump in growth during the third quarter, when summer vacations helped fuel a temporary economic revival.
But those figures will likely be eclipsed by the new lockdown, economists warned. The government has calculated that 60 billion euros is lopped off economic activity for every month in which a total lockdown is active.
“Macron did not want to be here,” Mujtaba Rahman, the managing director for Europe at London-based Eurasia Group, said in a note to clients ahead of the announcement. “He had hoped by now to be celebrating an economic recovery from the first lockdown.”
Vulnerable sectors are likely to sink further, including retail, aviation, tourism and hospitality, which make up over 10 percent of economic activity. In Paris alone, for example, the hotel occupancy rate had already plunged to 26 percent in September, when a new curfew was put into effect, according to MKG, a French consulting firm. That figure is likely to worsen.
Bars, restaurants and nonessential businesses will close, although students will continue to go to school. Factories, farms and construction sites will stay open, along with some public services, to limit potentially wider economic damage. Earlier Wednesday, Germany announced the closure of restaurants and bars, starting Monday.
French lawmakers last week approved a fresh 100 billion euro package to bolster the country’s economy, on top of nearly 500 billion in financial aid announced during the previous lockdown. Businesses hardest hit by the new confinement will get 10,000 euros per month, and their payrolls will effectively be nationalized so that employees who cannot work may keep their jobs.
Firms that can’t pay rent will be able to obtain waivers, while small- and medium-sized businesses would get additional financial help, Mr. Macron said. Remote work will be “the go-to solution” for all companies, Mr. Macron said.
“The economy must not come to a halt,” he said.
- Stocks on Wall Street slid on Wednesday, erasing any remaining gains for October, and European shares sank to their lowest levels in months as investors began to worry about the measures governments might take to control the coronavirus pandemic’s new wave.
- The S&P 500 fell 3.53 percent Wednesday, its biggest one-day drop since June 11. The Stoxx Europe 600 index tumbled 3 percent to its lowest level since May. In Britain, the FTSE 100 index also fell more than 2 percent, to its lowest since April.
- France and Germany face more severe shutdowns to curb the virus’s spread after localized efforts seem to have failed. In the United States, New Jersey’s largest city, Newark, has imposed a curfew and reinstated some limits on gatherings to control an outbreak there, while other local governments are considering similar steps.
- Highlighting the economic concern, oil prices fell more than 5 percent, and shares of energy producers were among the worst performing stocks in the S&P 500.
- Giant technology companies — which exert a large pull on the direction of market indexes — also fell sharply. Apple and Microsoft dropped more than 4 percent, while Google’s parent, Alphabet, slid more than 5 percent.
- Shares of the aircraft maker Boeing fell after it reported its fourth straight quarterly loss and warned of further layoffs, while Mastercard tumbled after it reported disappointing profit and sales data, with pandemic-related travel disruptions hurting its higher-fee cross-border payments business.
- Traders on Wall Street had already been on edge as the presidential election approaches and lawmakers failed to reach an agreement on what economists say is an essential plan to support businesses and out-of-work Americans.
- Expectations that congressional Democrats and the White House would strike a spending deal before the Nov. 3 election had helped lift the S&P 500 early in the month, but with those talks stalled and coronavirus cases reaching a new peak, the American economy is left to face the pandemic without the reassuring flow of federal dollars to prop up small businesses and consumer spending.
- With Wednesday’s decline included, the S&P 500 is now down more than 7 percent from its highest point in October.
- “You’ve had everybody pricing in best-case scenarios,” said William Delwiche, an investment strategist at Baird, a financial firm in Milwaukee. “And all of the sudden those aren’t being realized.”
- President Emmanuel Macron of France imposed a new nationwide lockdown that will begin Thursday night and be in effect through at least Dec. 1. Already, two-thirds of the population lives in areas with a 9 p.m. curfew, but cases have continued to rise.
- In Germany, Chancellor Angela Merkel and the heads of the federal states agreed on Wednesday to close restaurants, bars and gyms from Monday to the end of November. Schools, day care facilities and stores will stay open.
- In Italy, protests have broken out in response to a monthlong increase in restrictions, which includes a 6 p.m. closing time for bars and restaurants.
- “The continued spread of the virus and enactment of new measures risk slowing or reversing the bounce back in European growth in recent months, and delay the pace at which economic activity can return,” Mark Haefele, chief investment officer for UBS Global Wealth Management, wrote to clients this week.
Christopher F. Schuetze contributed reporting.
Oil prices dropped sharply Wednesday as mushrooming numbers of coronavirus cases in Europe and the United States threatened to head off further recovery in demand for oil or even to lead to renewed falls in consumption.
Adding to traders’ concerns, the supply of crude is rising faster than some analysts had predicted. Producers in the United States have added volume and Libya, where fighting has depressed production for months, suddenly ramped up output.
“Supply is higher than people anticipated and demand is plateauing,” said Bhushan Bahree, executive director at IHS Markit, a research firm.
The price of West Texas Intermediate crude, the American standard, fell about 5.7 percent to $37.33 a barrel, the lowest level since June. Brent crude, the international benchmark, dropped 5.2 percent to $39.06 a barrel.
Until recently, crude prices had held their ground after recovering from their April lows when some futures prices plunged into negative territory. Now, though, worries over market fundamentals are kicking in again. New restrictions to cope with growing numbers of coronavirus cases in countries like France and Germany could lead to a drop in oil consumption there on the order of 10 percent, analysts at Rystad Energy, a Norwegian consulting firm said on Wednesday.
In addition, the looming presidential election in the United States on Nov. 3 is adding volatility and uncertainty, analysts say. A victory by Joseph R. Biden Jr., for instance, could eventually lead to tighter regulation of the oil industry in the United States, while President Trump would likely push in the opposite direction if he remained in the White House.
Ford Motor reported a big jump in profit in the third quarter after a yearslong restructuring and a rebound in sales after the pandemic shut down dealerships and factories for about two months this spring.
The automaker earned $2.4 billion in the three months ended in September, up from $425 million for the same period a year earlier. While it lost money overseas, the company’s North American operations and its division that offers credit did well.
But the company said it expected to break even or show a loss of up to $500 million in the fourth quarter before interest expenses and taxes are taken into account. Ford said it would be hurt by higher costs and lower production as it introduces a fully redesigned F-150 pickup truck, a new Bronco and the Mustang Mach-E electric sport utility vehicle.
Fiat Chrysler said on Wednesday that it earned 1.2 billion euros ($1.4 billion), up from a small loss a year ago, as sales of profitable trucks and sport utility vehicles recovered after a sharp drop in the spring.
Revenue fell 6 percent, to 25.8 billion euros. Fiat Chrysler has agreed to merge with Peugeot, the French company, to become the world’s fourth largest automaker.
The online lender Social Finance, better known as SoFi, received tentative approval on Wednesday for a national banking charter, which would let the company hold deposits and offer consumers a broader range of financial services.
SoFi, based in San Francisco, is one of a crop of financial technology companies (often called fintechs) that compete with banks and other traditional financial providers. Its flagship products include privately refinancing student loans and offering personal loans, but it has expanded into areas like mortgage lending and stock and cryptocurrency trading accounts. This week, it began offering credit cards.
Because SoFi does not have a banking charter, it must rely on partner banks for the infrastructure for many of its products. Becoming a bank would eliminate that extra layer and allow the company to add traditional banking services like checking and savings accounts to its product mix.
The Office of the Comptroller of the Currency granted SoFi preliminary approval for a charter, subject to SoFi’s compliance with additional regulatory requirements. In particular, SoFi must apply for Federal Reserve membership and obtain deposit insurance from the Federal Deposit Insurance Corporation. Those next steps will take several months, at the least; the earliest SoFi could actually start running a bank would be some time next year.
Anthony Noto, SoFi’s chief executive, called the approval “a real testament to the quality, importance and durability of our company.”
Becoming a bank “is strategically important for us — we want to be able to offer our members great products at a great value, and using deposits to fund loans will meaningful lower our cost of funding,” Mr. Noto said in an interview.
Several other fintechs are also looking to transform themselves into banks. Varo, a mobile-focused financial provider that calls itself a “neo-bank,” got final approval from the same regulator in July for a banking charter. And Square, the digital payments company, received conditional approval this year for a banking charter from the Federal Deposit Insurance Corporation and from Utah’s state banking regulator.
SoFi pursued a national banking charter once before, in 2017, but withdrew its application after a scandal over an office culture that employees described as toxic and sexually charged led to the ouster of the company’s chief executive at the time, Mike Cagney. Mr. Noto, a former Twitter executive, took over in 2018.
The Commerce Department on Thursday will release its initial estimate of economic growth for the third quarter, and it’s going to show that the economy grew at its fastest rates since reliable records began after World War II.
But that doesn’t mean the economy has recovered from its collapse earlier this year, and it’s important to know why.
- The numbers will certainly show the economy rebounding. Economists surveyed by FactSet expect that gross domestic product — the broadest measure of goods and services produced in the United States — grew about 7 percent from the second quarter, or 30 percent on an annualized basis.
- It doesn’t make sense to consider Thursday’s report in isolation. The third quarter’s record-setting growth is effectively an echo of the second quarter’s equally unprecedented contraction, when business shutdowns and stay-at-home orders led gross domestic product to fall by 9 percent. Strong growth was inevitable as the economy began to reopen.
- The economy is still in a hole. If G.D.P. fell by 9 percent in the second quarter and rose by about 7 percent in the third quarter, the economy is not almost back to where it started. The big drop in output in the second quarter means that third-quarter growth is being measured against a smaller base, and the economy is still 3 to 4 percent smaller than it was before the pandemic. (For comparison, the economy shrank 4 percent during the entire Great Recession a decade ago.)
- Annualized figures are even more misleading. Gross domestic product in the United States is usually reported at an annual rate, meaning how much output would grow or shrink if that rate of change were sustained for a full year. But during periods of rapid change, annual rates can be confusing.
- In the second quarter, for example, G.D.P. fell at an annual rate of 31.4 percent. That makes it sound as if the economy shrank by nearly one-third, when in fact it shrank by a bit less than a tenth.To avoid confusion, The Times plans to emphasize simple, nonannual percentage changes from both the second quarter and the fourth quarter of last year, before the pandemic began. (We gave a more detailed explanation of this decision before the second-quarter report in July.)
Tiffany & Company said on Thursday that it has agreed to cut the price of its sale to the French conglomerate LVMH Moët Hennessy Louis Vuitton. The settlement would end a dispute between the companies and seal one of the luxury world’s largest deals.
Tiffany and LVMH agreed to a revised price of $131.50 a share, down from $135. That would bring the sale to just under $16 billion, or about $400 million less than before. They also agreed to settle dueling lawsuits in a Delaware court.
Directors of Tiffany met late on Wednesday to vote on the proposal.
LVMH agreed to buy Tiffany in November 2019, intent on adding the company’s diamond rings and robin’s egg blue boxes to a stable of brands that includes Louis Vuitton, Dior and Givenchy. The acquisition would give LVMH a bigger foothold in the United States, executives said at the time, as well as expose Tiffany to more shoppers in Europe and China. The move also promised to cement the status of Bernard Arnault, the LVMH chairman and chief executive, as the top deal maker in the luxury business.
But the French luxury giant grew increasingly nervous about the transaction, its biggest ever, as the pandemic devastated the retail industry. Tiffany’s sales fell by nearly 40 percent in the six months to July, and it recorded a loss of more than $30 million. The company’s shares fell far below the deal price, as investors doubted LVMH’s resolve in going through with the takeover.
A deadline to complete the deal in August was delayed by three months and then, in September, LVMH threatened to abandon the takeover altogether, accusing Tiffany of poor financial performance and breaches of the acquisition agreement. Also, and unusually, LVMH said that the French government had asked it to pause the takeover because of the United States’s trade battle with France.
Tiffany sued LVMH in a Delaware court to compel the company to complete the deal. After more legal wrangling about the timing of the trial, it was scheduled for early January. Now, that might not be needed.
Boeing said on Wednesday that it planned to slash another 7,000 jobs through the end of next year, building on a much larger cut announced this spring. In all, the company expects to end 2021 with about 130,000 employees, nearly 19 percent fewer than at the start of this year.
“As we align to market realities, our business units and functions are carefully making staffing decisions to prioritize natural attrition and stability in order to limit the impact on our people and our company,” Dave Calhoun, Boeing’s president and chief executive, said in a note to employees on Wednesday.
News of the job cuts comes as Boeing reported a $466 million loss in the three months through September, on revenue of more than $14 billion. Revenue from its commercial airplane business fell about 56 percent from the same quarter last year as Boeing dealt with crises caused by the pandemic and the grounding of the 737 Max in March 2019 after 346 people were killed in two fatal crashes.
The Max could return to the skies in the coming months, after making significant progress among global regulators. Boeing said it has completed about 1,400 test and check flights aboard the plane, a workhorse of its fleet, as it prepares for the recertification.
The company’s Max backlog has fallen by more than 1,000 orders this year because of cancellations and stricter accounting that weighs the diminishing odds that an order will be fulfilled. Over all, the company has more than 4,300 commercial planes in its backlog, which it values at $313 billion.
Boeing said it expected it would take about three years for airline passenger traffic to recover to the numbers seen in 2019. Foot traffic at federal airport checkpoints on Tuesday was down about 66 percent compared with a year ago, according to the Transportation Security Administration.
For more than two decades, internet companies have been shielded from liability for much of what their users post by a law called Section 230 of the Communications Decency Act. Now that shield — and how internet companies moderate content on their sites — is being questioned by lawmakers on both sides of the political aisle.
On Wednesday, the chief executives of Google, Facebook and Twitter testified before a Senate committee about their moderation practices.
The hearing, held by the Senate Committee on Commerce, Science and Transportation, was a repeat performance before Congress for Sundar Pichai of Google, Mark Zuckerberg of Facebook and Jack Dorsey of Twitter. But with the Nov. 3 election less than a week away, the executives faced additional pressure to manage misinformation without exerting unfair influence on the voting process.
- UPS reported revenue of $21.2 billion for the third quarter on Wednesday, a 16 percent increase from the same period last year, with many Americans still shopping online instead of at stores during the pandemic and retailers relying on shipping services to get purchases to customers’ homes. The company earned $2 billion for the quarter, up 11.8 percent compared with last year. “Our results were fueled by continued strong outbound demand from Asia and growth from small and medium-sized businesses,” the UPS chief executive, Carol Tomé, said in a statement.
- Microsoft reported its most profitable quarter ever on Tuesday, driven by the shift of work and school to online services. Sales for the quarter that ended in September were $37.2 billion, up 12 percent from a year earlier, and profit rose 30 percent to $13.9 billion. Revenue from Microsoft’s core cloud computing platform, Azure, grew 48 percent in the quarter, and large companies and other organizations accelerated their commitments to buy more cloud services in the future, with bookings up 18 percent, excluding currency fluctuations.
- 3M reported sales of $8.4 billion for the third quarter on Tuesday, a 4.5 percent increase from the same period last year. Demand for cleaning and home improvement supplies among other goods bolstered 3M’s domestic sales, offsetting lower sales for products such as office supplies, which took a hit as the pandemic continues to keep workers at home. 3M has ramped up production of N95 masks to respond to shortages of personal protective equipment for health care workers during the pandemic.
City Pages, a free newspaper that covered arts and culture in the Twin Cities for 41 years, will be shuttered, Star Tribune Media, its parent company, said Wednesday, as the pandemic continues to take a toll on the newspaper industry.
Mike Klingensmith, the chief executive and publisher of Star Tribune Media, informed staff that the print edition and website of City Pages would be closed effective immediately after advertiser and event revenue dried up.
“While City Pages has retained a strong brand in our market, the profound disruptions of the Covid-19 pandemic have made it economically unviable,” he wrote. “As you can imagine, following months of quarantines, restrictions, and closures, virtually every advertiser in the core advertising base for City Pages — local restaurants, theaters, clubs, museums, and more — has drastically reduced its ad spending.”
Founded in 1979 as a monthly called Sweet Potato, City Pages went weekly in 1981. It was an established voice of the arts and music scene across Minneapolis and St. Paul. Star Tribune Media, the largest media company in Minnesota, bought the publication in 2015.
Star Tribune Media said the last print issue of City Pages would be distributed this week, and the paper’s 30 employees would receive severance packages.
Emily Cassel, who became City Pages’ first woman editor in chief earlier this year, said in an interview that the newspaper’s staff, some of whom had worked there for two decades or more, were “devastated” by the closure.
“We posted stories other places probably wouldn’t. We are just so embedded in the community. We know the people who live and work and do really weird or unexpected stuff here,” Ms. Cassel said.
“Having a resource that is free and is out there in the community week after week covering the stories that really matter to people, it’s invaluable. To watch these publications disappear is really heartbreaking."
Years before he became president, Donald J. Trump got a very sweet deal from some very big financial institutions.
First, they agreed to lend him a total of $770 million to build a 92-story skyscraper in downtown Chicago. Then, when the 2008 financial crisis hit and Mr. Trump defaulted on his loans, those same banks and hedge funds either gave him years more to repay his loans or simply forgave much of what he owed. The Internal Revenue Service considers such forgiven debts to be taxable income, but Mr. Trump managed to avoid paying almost any taxes.
On Wednesday, after The New York Times reported on the project’s travails, Mr. Trump defended his handling of the Trump International Hotel and Tower in Chicago.
“I was able to make an appropriately great deal with the numerous lenders on a large and very beautiful tower,” the president wrote on Twitter. “Doesn’t that make me a smart guy rather than a bad guy?”
There is no question that the deal was a great one for Mr. Trump. His lenders — including Deutsche Bank and Fortress Investment Group, the hedge fund and private equity firm — had the right to seize the building as collateral but opted not to. Their conclusion was that it would be simpler and safer to reach a peaceful resolution to the dispute with the litigious and publicity-seeking reality-TV star.
As a result, about $270 million of debt that Mr. Trump owed to Fortress and other private equity firms and hedge funds was wiped away. Mr. Trump still owes Deutsche Bank a total of at least $330 million, including $45 million on the Chicago project. Those Deutsche Bank loans, which Mr. Trump has personally guaranteed, are due in 2023 and 2024.
In his tweet on Tuesday, Mr. Trump implied that his Chicago tower’s struggles were the result of politicians having run the city “into the ground.”
That is revisionist history. Mr. Trump and his daughter Ivanka have repeatedly boasted that the skyscraper was a great place to live. “I love Chicago” was the headline on a piece Mr. Trump wrote for The Chicago Tribune about his building in 2014.
The reality is that Mr. Trump’s hotel-and-condo tower has struggled compared to other nearby buildings — in part because of the tarnished Trump brand. Retailers balked at renting space in the skyscraper’s mezzanine interior. The Real Deal noted last year that the tower only had one retail client and called the skyscraper “Chicago retail’s biggest failure.”
PayPal announced plans to invest more than $50 million in eight Black- and Latino-led venture capital firms as part of a $530 million initiative to combat systemic racism and police brutality, reported first in the DealBook newsletter.
The eight firms — Chingona Ventures, Fearless Fund, Harlem Capital, Precursor, Slauson & Co., Vamos Ventures, Zeal Capital Partners and one fund yet to be named — were chosen after PayPal interviewed more than 60 candidates, all of whom applied through PayPal’s website. (PayPal declined to specify how much money each will receive.)
The payments giant had been thinking about how to erase the racial wealth gap, something that other companies have also addressed, and hit upon supporting Black- and Latino-led venture firms. These investors provide crucial capital to entrepreneurs at a stage that PayPal itself can’t — it invests in Series A fund-raising rounds and later — and are focused on businesses that bigger venture firms have largely ignored.
“So little venture money goes into minority communities,” said Dan Schulman, PayPal’s chief executive. “This is a way to think about how we start to create wealth creation.”
With its investments, PayPal will instantly become one of the biggest investors for each of the firms. The money “certainly moves the needle in terms of what we’re trying to do,” said Austin Clements of Slauson & Company. But corporate America could do more to help fight racial inequality, said Samara Hernandez of Chingona: “A lot of it is just P.R.”
Deutsche Bank, Germany’s largest bank, reported a profit in the third quarter of 2020 after a loss a year ago as volatile financial markets caused trading revenue to surge.
The bank, which is trying to recover from years of scandals and losses, has also cut costs.
It said that it earned 309 million euros, or $364 million, from July through September, compared with a loss of 832 million euros in the third quarter of 2019.
Deutsche Bank has long been regarded as one of Europe’s most troubled big banks. The earnings, the third quarterly profit in a row, provided some reassurance that the bank and others like it are surviving the pandemic and are less likely to set off a financial crisis.
Much of the improvement in profit came from helping clients to trade debt and currencies. Fees from trading those assets increased by nearly half, the bank said. That helped offset an increase, compared with a year earlier, in the amount of money the bank set aside for problem loans.
The bank also reduced the number of employees who work at retail branches and other activities by 3,000 from a year ago, to 87,000.