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Our briefing for Friday June 19, 2020:
Jun 19, 2020 3:33:34 PM
- In the United States, all eyes will be on Tulsa, Oklahoma over the weekend as President Donald Trump holds his first campaign-style rally since early March. The rally has health officials nervous as it is planned to take place in an indoor arena that can hold 20,000 people, but local officials are expecting 100,000 people to show up in the Tulsa area. For those who do get into the arena, attendees will not be required to maintain social distancing, or wear masks. Elsewhere in America, California Governor Gavin Newsom issued a statewide order for people to wear masks or facial coverings in public spaces, including public transportation, those seeking medical care, shopping and in most work scenarios. However, the governor didn’t address how this order would be enforced in America’s most populous state.
- In Canada, the average number of Canadians infected by someone with the coronavirus has been falling since the third week of May. Nationally, the reproduction number, or the average number of Canadians infected by someone, is down to .65. This means on average three Canadians with the virus will pass it on to two other individuals. At the height of the pandemic, every infected Canadian would pass on the virus to three more individuals. Health experts attribute the falling numbers to increased use of masks, lack of gatherings and the warmer weather.
- United Kingdom biosecurity experts have recommended downgrading the country’s official coronavirus alert level, following a steady decrease in new cases for the virus. The level has been downgraded from a four to a three, which means while the virus is deemed to be in general circulation, transmission is no longer high, or rising at exponential rates. Prime Minister Boris Johnson said with the alert level coming down, the government can now start making progress on plans to end the lockdown. Prime Minister Johnson highlighted he would be giving guidance “very shortly” to help businesses, particularly the hospitality industry on how to reopen. Pubs and restaurants are scheduled to be allowed to reopen on July 4th.
- A German government spokeswoman has said the country’s new coronavirus smartphone app has been downloaded 9.6 million times since it was launched on Tuesday. The 9.6 million would be equivalent to 12% of Germany’s population, but it is unknown whether some people have downloaded it on multiple phones.
- According to a Reuters report, the European Commission is in advanced talks with pharmaceutical company Johnson & Johnson to reserve or buy up-front doses of its COVID-19 vaccine under development. If true, it would mark the first move since the 27-member European Union agreed to an emergency fund with more than $2 billion euros available to reach deals with up to six vaccine makers.
- With India’s COVID-19 cases expected to surge by the end of July, India’s capital city is creating the “world’s largest quarantine facility”. The new facility to be set-up by Delhi’s border, will have 10,000 recyclable beds made out of cardboard to save on sanitation time. Studies have shown the virus doesn’t remain on cardboard surfaces for more than 24 hours. The city’s deputy chief minister has speculated the national capital may have to deal with more than 500,000 cases by July 31st.
- China’s government and independent researchers are saying the latest outbreak in Beijing originated from Europe. According to China’s Centre for Disease Control and Prevention, “The results of preliminary genetic sequencing research show that this virus came from Europe… but is older than the viruses currently circulating in Europe.” A Chinese CDC official had told local media that the virus could have started spreading in Beijing as early as the start of May. Before last weekend’s noted cases, Beijing had no confirmed symptomatic infections for almost two months.
Covid-19 – Due Diligence And Asset Management
Fed Adds Coronavirus Scenarios to This Year’s Bank Stress Tests
Brief: Historically unique financial conditions brought on by the coronavirus have changed the way the Federal Reserve is conducting its stress tests for banks this year. In addition to the usual rigors that measure how well institutions are prepared for sharp downturns, the Fed is adding three new scenarios this year, Vice Chair for supervision Randal Quarles announced Friday. The scenarios examine different patterns of recovery and look to see how banks will respond. The initial testing focus was for stress in corporate debt and real estate and an unemployment rate higher than the 10% peak that prevailed during the Great Recession from 2007-09. In effect, that situation was less drastic than the current jobless level, at 13.3%, but more so than the conditions in debt markets, which have eased amid aggressive Fed actions. “But the larger issue is the unprecedented uncertainty about the course of the COVID event and the economy,” Quarles said in prepared remarks. “The range of plausible forecasts is high and continues to shift. We don’t know about the pace of reopening, how consumers will behave, or the prospects for a new round of containment. There’s probably never been more uncertainty about the economic outlook.”
MSD Partners Raises $1.1 Billion for Real Estate Credit Bets
Brief: MSD Partners has raised about $1.1 billion for a fund dedicated to bets on structured credit secured by real estate, beating an initial target of $750 million. The MSD Real Estate Credit Opportunity Fund gathered about $300 million from Michael Dell and his family, as well as MSD employees. The vehicle will make and purchase commercial real estate loans and securities, in addition to structured investments.“ Since launching the fund, we have been investing actively, particularly during the recent market dislocation,” portfolio manager Rob Platek said in a statement, adding that the fund is positioned to tackle opportunities that arise in the current market environment. MSD Partners was formed in 2009 by partners of MSD Capital, the family office for Dell, the founder of the namesake computer maker. Starting with $400 million of capital two decades ago, the firms collectively manage about $16 billion. Dell is worth about $29 billion, according to the Bloomberg Billionaires Index. Previous wagers by the MSD Partners real estate credit team include buying transferable development rights attached to New York’s Grand Central Terminal and providing financing to One Thousand Museum, a luxury condominium in downtown Miami.
Hintze’s CQS Cuts at Least 50 Jobs as Hedge Fund Retrenches
Brief: Hedge fund firm CQS has slashed at least 50 jobs in an overhaul, as billionaire founder Michael Hintze retrenches to focus on core credit trading strategies. The cuts are mainly concentrated in sales and support areas, but have also affected trading teams focused on asset-backed securities, according to people with knowledge of the matter, who asked not to be identified because the information is private. CQS is seeking to reduce costs following a slump in high-fee earning hedge fund assets, the people said. The firm employed more than 280 people globally at the start of December, according to a letter to investors seen by Bloomberg. A spokesman for the London-based money manager declined to comment. While CQS still manages $17 billion, up from about $15 billion in March, its share of lucrative hedge fund assets has shrunk to about a third of the money managed by the firm, down from around half last year. That’s putting pressure on revenues. The CQS Directional Opportunities strategy, run by Hintze himself, is facing redemptions after losing 33% in March and another 17% in April, according to people familiar with the matter.
Covid-19 Business Disruption to End in 10 Months
Brief: Business activity across most sectors and regions is expected to return to a stable level within a year and grow to pre-Covid levels by the end of 2021, according to a survey of Fidelity International’s in-house analysts. This month’s survey shows growing optimism over the path of the Covid-19 outbreak, with business disruption estimated to come to an end within 10 months, according to the global average of responses. Fiona O’Neill, director, global research, Fidelity International, said: “Against tough economic data, green shoots are starting to emerge. China is leading the recovery, with our analysts expecting a wait of just under 6 months to reach stability, a sign the country’s economic momentum is gathering pace. “The general upbeat picture is confirmed by a noticeable jump in the proportion of Fidelity analysts seeing positive leading indicators in their sectors.” O’Neill highlighted that the energy sector has seen the greatest improvement in fortunes, led by the stabilising price of oil, with 73% of analysts responding that leading indicators are positive, up from just 8% two months ago.
BlackRock CEO Larry Fink Ranks China Among Biggest Opportunities
Brief: BlackRock Inc. Chief Executive Officer Larry Fink said China remains one of the firm’s top regions for growth despite uncertainties brought on by trade tensions with the U.S. and the virus outbreak.“We are here to work with China,” Fink said via video conference at the Lujiazui Forum in Shanghai on Thursday. “We firmly believe China will be one of the biggest opportunities for BlackRock.”The company is expanding in China to tap one of the fastest-growing wealth markets. China’s trillion dollar industry opened further in April, luring investment from companies including BlackRock, Vanguard Group Inc. and JPMorgan Chase & Co. While the further liberalization of the money management sector in China has been overshadowed by the coronavirus crisis, wealth firms are nonetheless laying out plans to tap a market in which retail funds alone could reach $3.4 trillion in three years, says Deloitte LLP.Fink added he was hopeful that the U.S. and China would continue to develop their relationship. “Despite the noise in the markets now, I am optimistic that the U.S.-China relationship can continue to develop for the whole world in a positive manner,” Fink said.He also sees signs that China and the rest of the world are slowly recovering from virus-induced slowdowns.“Encouraging signs are emerging,” Fink said. “As dramatic as this has been, I do believe the global economy will stabilize and recover steadily.”
RBC, Brookfield CEO’s Join Push Against Canada’s Travel Restrictions
Brief: The heads of 27 Canadian companies, including the CEOs of two large banks and Brookfield Asset Management Inc., are urging Prime Minister Justin Trudeau and provincial premiers to ease air travel restrictions. Most international flights have been cancelled and the U.S.-Canada border has been shut to most travellers since March 21 — a policy that was extended to July 21. Last week, Air Canada Chief Executive Officer Calin Rovinescu called the restrictions “disproportionate” as the coronavirus outbreak improves in most parts of Canada. Now Rovinescu has the backing of the chief executive officers of nine companies in the S&P/TSX 60, who are among the 27 signatories to a letter published in Canada’s Globe and Mail newspaper on Thursday. “We are now entering a new phase, one in which we must find a responsible way to co-exist with COVID-19 until there is a vaccine. This includes prudently and thoughtfully opening aviation and lifting restrictions to safely resume travel throughout all provinces of Canada, as well as from select countries,” the executives wrote.
