Here’s what you need to know:
- Wall Street retreats a day after S&P 500 returned to break-even for the year.
- Chesapeake Energy, a Fracking Pioneer, Is Reeling
- Relying on delivery apps might make it even harder for restaurants to survive.
- Consumers will remember how companies responded to the pandemic.
- Shares of Men’s Wearhouse parent company plunge after bankruptcy report.
Wall Street retreats a day after S&P 500 returned to break-even for the year.
Stocks fell on Tuesday, pulling back after a string of gains that had lifted Wall Street by 6 percent this month.
The S&P 500 closed down less than 1 percent. Stocks in Britain, Germany and France were nearly 2 percent lower after a mostly positive day in Asia.
The S&P 500 erased its losses for this year on Monday. Investors have taken heart in signs that the global economy is on the mend, particularly in China, Europe and the United States. They have also been cheered by government and central bank efforts to use money to fight the global freeze.
Stocks that had fared the best in the rally, like those of airlines and cruise companies, pulled back on Tuesday. Shares of Delta Air Lines fell about 8 percent, and American Airlines was down about 9 percent, while the cruise line operator Carnival Corporation was down more than 7 percent.
Tuesday brought reminders that the global situation remained tenuous. Tensions on the Korean Peninsula rose, while prospects for a quick batch of new stimulus spending in the United States looked uncertain.
In Germany, new data showed exports had plunged in April by 24 percent, much more than expected, which cast doubt over how quickly Europe’s largest economy could bounce back.
And investors are wary of a second wave of the coronavirus outbreak that could force economic activity to halt once more. Infections are still rising in many U.S. states and public health officials are concerned that the nationwide protests over police brutality may lead to new cases of the virus.
Chesapeake Energy, a Fracking Pioneer, Is Reeling
Shares of Chesapeake Energy, a pioneer in extracting natural gas from shale rock that came to be known for an illegal scheme to suppress the price of oil and gas leases, went on a wild ride on Tuesday amid reports that it was preparing a bankruptcy filing.
Trading was halted for more than three hours in the morning. Then when buying and selling resumed, the trading was quickly interrupted again by circuit breakers. The company’s shares closed just below $24 for a loss of about 66 percent for the day.
Chesapeake’s successes at using hydraulic fracturing to produce gas helped convert the United States from a natural gas importer into a major global exporter. But the company overextended itself by amassing a large debt and has been struggling to survive over the last decade. It is the latest of more than a dozen heavily indebted oil and gas businesses to seek bankruptcy protection since the coronavirus pandemic took hold and Saudi Arabia and Russia flooded the global market with oil this spring.
The company hired advisers to explore bankruptcy in recent months after reporting a loss of $8.3 billion in the first quarter, and said it had just $82 million in cash at the end of March. Chesapeake was forced to write down the value of oil and gas assets by roughly $8.5 billion this year. With $9.5 billion in debts at the end of last year, it has bond payments of $192 millions that are due in August.
Relying on delivery apps might make it even harder for restaurants to survive.
Even as apps like Grubhub have cast themselves as economic saviors for restaurants in the pandemic, their fees have become an increasing source of difficulty for the establishments.
Complaints about the fees that the apps charge to both restaurants and consumers are longstanding, but the issue has become heightened as many restaurants have shut down in-room dining. Even as they begin reopening, delivery is likely to remain a bigger part of their business than before the pandemic.
Several restaurants have also publicly worried that if Uber’s talks to acquire Grubhub succeed, small restaurant owners will have even less power in pushing back against the fees.
Restaurant owners are concerned about more than the apps’ fees. In 18 interviews with restaurant owners and industry consultants, plus in lawsuits and social media posts, many said Grubhub, DoorDash and Uber Eats also engaged in deceptive practices like setting up websites with inaccurate information for the restaurants, all without asking permission.
Consumers will remember how companies responded to the pandemic.
Few people are looking forward to a return to business as usual, according to a new poll of Americans’ economic priorities after the pandemic.
The survey by Just Capital and The Harris Poll, reported first in today’s DealBook newsletter, found that just 25 percent of respondents thought capitalism as it stands was good for society. By contrast, a large majority thinks that the pandemic has exposed underlying structural problems and that big companies should “reset” their priorities.
More than 80 percent of respondents said they would remember which companies “did the right thing by their workers” during the Covid-19 crisis, whether that was extra safety measures or efforts to avoid layoffs. Three-quarters of those polled said they would remember the businesses that made missteps during the pandemic “long after it is over.”
Just Capital built a tool to track the actions taken during the pandemic by the 300 largest publicly traded employers in the United States. About 30 percent of those companies have announced pay cuts for executives or directors, while just over 10 percent have increased pay for front-line workers. In some cases, these temporary measures have already expired.
Shares of Men’s Wearhouse parent company plunge after bankruptcy report.
Shares of Tailored Brands, the owner of Men’s Wearhouse and Jos. A. Bank, plummeted 16 percent this week as the company reportedly considers filing for Chapter 11 bankruptcy protection.
The company, which has more than $1 billion in debt, may turn to a Chapter 11 filing in part so it can close some of its stores, Bloomberg News reported on Monday, citing unnamed people with knowledge of the matter. It had roughly 1,450 stores in the United States and Canada as of Feb. 2.
“As a matter of company policy, we don’t comment on market rumors or speculation,” Tailored Brands said in an email statement.
The company, which has seen its sales decline for the past few years, is being hit especially hard by the coronavirus pandemic as shoppers work from home and special occasions like proms and weddings are either canceled or postponed. About 13 percent of the company’s sales last year came from rentals, while alterations and other services made up 5 percent of the business. Like other retailers, it has also been dealing with temporary store closures.
France unveils a $17 billion package for the aerospace industry.
The French government announced an enormous financial support program for its flagship aviation industry on Tuesday as global travel restrictions from the coronavirus slashed passenger flights and orders for new planes, putting tens of thousands of jobs at risk.
The package, worth 15 billion euros (almost $17 billion), includes some previously announced measures, as well as aid for Air France, Airbus and major French parts suppliers through direct government investment, subsidies, loans and loan guarantees. It also includes a special fund jointly financed by the government, Airbus and other big manufacturers to support small suppliers.
In exchange for the support, companies will be required to invest in more low-emission aircraft, powered by electricity, hydrogen and other means, as the government capitalizes on the opportunity to make the French aviation industry the “cleanest in the world.”
“We are declaring a state of emergency to save our aeronautical industry to allow it to be more competitive,” Bruno Le Maire, the finance minister, said at a news briefing with France’s defense and environment ministers. He said the plan would allow France to set new global standards for low-carbon aircraft, with €1.5 billion earmarked over the next three years on the research and development of a carbon-neutral aircraft by 2035.
The aeronautical sector is one of the biggest employers in France, providing 300,000 direct or indirect jobs in manufacturing, research and development. A third of those would have been wiped out if the government hadn’t stepped in, said Mr. LeMaire, adding that preserving jobs was the top priority.
Central bankers may experiment more as attempts to rescue the economy continue.
Faced with a crisis unlike any other in recent memory, central bankers have gone beyond what the monetary authorities did even in the darkest days of the 2008 global financial crisis.
Central bankers entered the crisis with low interest rates, leaving them less room to goose growth using their tried-and-true tools. Because they went into the crisis with limited ammunition to stoke growth, experimentation may prove even more crucial in the months and years ahead as the world embarks on what could be a long slog back to prosperity.
Germany, France, the United States and many other countries have poured trillions of dollars into their economies through tax cuts, cheap credit and cash handouts. Monetary policy and fiscal policy can act as complements during a crisis to get economies back on track.
But appetite for further fiscal action is eroding in some places, including the United States. And the next stage — the recovery — could pose a fresh test for the world’s central banks, forcing them to get more creative as they try to keep pandemic aftershocks from permanently scarring growth potential. The Fed and its global counterparts are shifting from crisis-fighting mode, when they worked to keep credit markets open, to a period when they will have to stoke lending and spending to get economies churning again.
“It will be a potential concern as the economy turns around, if that turnaround is less than ideal,” said Donald Kohn, a former Fed vice chairman now at the Brookings Institution. “Central banks will have to work hard at supplying the extra push, the extra zip that they’d want to achieve.”
Cathay Pacific, battered by the virus, receives a nearly $4 billion government bailout.
The Hong Kong government is bailing out Cathay Pacific Airways, its beleaguered flag carrier, by injecting nearly $4 billion and taking a direct stake in its operations.
Like airlines around the world, Cathay Pacific was shaken to its core as its passenger traffic shrank to near zero amid the coronavirus pandemic. The airline said last month that its year-to-date losses totaled $580 million. So far this year, it has asked its employees to take unpaid leave, announced cuts to executive pay and grounded half of its fleet.
Cathay has also been hit by a year of protests, in which citizens have expressed fear over Beijing’s encroaching grip over the semiautonomous territory, and the airline’s shares lost 20 percent of their value.
In a filing to Hong Kong’s stock exchange on Tuesday, Cathay said the Hong Kong government would inject nearly $4 billion into it through loans and other means. As part of the terms of the bailout, the government will take an undisclosed stake in the carrier, a move that gives it a direct say in its operations through two “observer” boardroom seats.
Cathay’s announcement came on the same day that hundreds of protesters gathered in Hong Kong shopping malls to commemorate the one-year anniversary of a protest march that became the start of the city’s biggest political crisis in decades.
Ahead of the announcement, rumors had swirled around a possible takeover by Air China, a Chinese state-owned enterprise. That stoked fears about Beijing’s encroachment not only in the city’s politics but its finance sector.
3M sues third-party sellers on Amazon over masks.
The industrial conglomerate 3M filed a trademark infringement lawsuit in federal court in California on Monday, alleging price-gouging and bait-and-switch sales of 3M respirators from third-party Amazon sellers.
The complaint claims that three third-party sellers — all believed to be owned and operated by a California resident named Mao Yu — began in late February to sell what were advertised to be 3M-branded N95 masks on Amazon. The sellers charged for roughly 18 times 3M’s $1.27 list price for the respirators. Buyers spent more than $350,000 for such masks, and sometimes received fewer masks than promised or masks that were damaged or tampered with, according to the suit, which was filed in the United States District Court for the Central District of California.
“By selling and delivering to customers counterfeit, damaged, deficient or otherwise altered respirators and engaging in price-gouging, Defendants caused irreparable damage to 3M’s reputation,” the suit states.
The defendants in the case could not be reached for comment.
3M, based in a suburb of Saint Paul, Minn., has filed 12 other such suits as part of an effort to combat fraud, price-gouging and counterfeiting tied to its respirators and other high-demand health products as a result of the coronavirus outbreak.
Catch up: Here’s what else is happening.
Airlines are expected to lose more than $84 billion this year and nearly $16 billion next year, according to the International Air Transport Association, a global industry group. “Financially, 2020 will go down as the worst year in the history of aviation,” Alexandre de Juniac, the group’s chief executive, said.
Britain’s power system has been free of electricity generated by coal, the fuel that produces the highest carbon-dioxide emissions, since April 9, according to National Grid ESO, which operates the network. The system’s record-breaking coal-free streak, now reaching two months, is a result of the economic lockdown designed to curb transmission of the virus.
Reporting was contributed by Nathaniel Popper, Liz Alderman, Brooks Barnes, Sapna Maheshwari, Niraj Chokshi, Stanley Reed, Jason Karaian, Peter Eavis, Jack Ewing, Kevin Granville, Mohammed Hadi, Jeanna Smialek and Carlos Tejada.