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Our briefing for Monday June 15, 2020:
Jun 15, 2020 3:09:00 PM
- The United States Food and Drug Administration (FDA) has revoked its emergency use authorization for the drugs hydroxychloroquine and chloroquine for the treatment of COVID-19. The FDA based their termination on reviewing current research available on the drugs and that they don’t meet “the statutory criteria” for emergency use authorization as they are unlikely to be effective in treating the coronavirus. United States President Donald Trump had publicly backed the drugs in news conferences and admitted to taking it himself to help stave off the potential of catching COVID-19. White House economic adviser Larry Kudlow said during a media interview over the weekend the $600 boost in weekly unemployment benefits will end in late July. Instead, he touted a proposal for a hiring bonus as right now Kudlow says the government is paying people not to work and it is better than some of the salaries Americans would normally receive.
- North of the border in Canada, Prime Minister Justin Trudeau announced their country’s benefit for the unemployed (Canada Emergency Response Benefit – CERB) will be extended with details to follow in the days ahead. The CERB, which was launched in April is set to come to an end in early July. Eight million Canadians have applied for the CERB since its launch, but the treasury board president noted since the economy has reopened in many parts of the country, “new parameters” will be placed on the program when the extension is formally announced.
- United Kingdom residents formed long, socially-distanced lines outside of London’s most popular shopping districts as many non-essential retail outlets opened for the first time since March. As for those two metre social distancing measures, Prime Minister Boris Johnson said his government will be doing a review of that rule, noting it would be completed in a couple of weeks. The hospitality sector, which includes restaurants, pubs and hotels, are set to reopen July 4th and will be keen to see the results as many in the industry believe the two metre social distance rule will kill their businesses upon reopening as many don’t have the space to do so.
- Over the weekend, French President Emmanuel Macron announced a further easing of restrictions due to the coronavirus. The country will begin a full reopening of its cafes and restaurants, along with lifting the bans on travel from other European countries starting July 1st. The country was one of the hardest hit in Europe, suffering over 30,000 deaths due to COVID-19.
- The German government plans to invest €300M in a private biotech company that will give them a 23% stake in the company. CureVac is looking into developing a potential vaccine for the coronavirus and is set to start clinical trials next month using a technology that can produce a vaccine more swiftly than traditional methods. In March, a German newspaper had reported the US government had sought to take over CureVac in an effort to secure a supply of a potential vaccine.
- The southern Indian state of Tamil Nadu, which is home to the city of Chennai, is re-imposing a strict and total lockdown from June 19th-June 30th as it tries to stop the surge of the coronavirus. Chennai and the surrounding area are a hub for India’s car manufacturing industry. New Delhi, the country’s capital will not be going into another lockdown according to one of their chief ministers saying there are no such plans, even though they are struggling as well with a surge in cases.
- China’s capital Beijing have locked down residential compounds, including a seafood supermarket and have fired officials over a new COVID-19 outbreak in the area. Health officials have warned the risk of the outbreak worsening was “very high.” On Monday, 49 new cases were announced, 36 stemming from the Xinfadi seafood supermarket in Beijing’s southern section. The country’s capital had gone 55 days without community-based spread of the infection, but now have reported 79 such cases in the past four days.
Covid-19 – Due Diligence And Asset Management
Likely to See a Second Wave of Stock Selling Instead of a Second Wave of COVID-19 Cases: Strategist
Brief: Before there is any form of “second wave” of COVID-19 globally, the stock market may first experience asecond wave of sellingas it once again prices in worse-case scenarios for economies and companies. “We think you’re more likely to see a second wave down from markets as opposed to a second wave up in COVID-19 — we have concerns here,” said FBB Capital Partners director of research onYahoo Finance’s The First Trade. Bailey pulls no punches on how bad a second wave down in markets could be — the benchmark being the 35% downdraft from the late February highs to the March 23 lows for the S&P 500. Continued Bailey, “I don’t know if it will be as bad as the first wave [of selling]. It could be half that bad. You take a look at valuations for the S&P 500 now and we’re back to dot com bust levels. I think we have a reasonable downside over the next weeks or months here.” To be sure, the market has started the week equally concerned about a second wave of COVID-19 and still overheated valuations.
BlackRock Jumps on the Virtual-Life Bandwagon With a New Fund
Brief: BlackRock Inc. is planning to start an exchange-traded fund tracking companies that specialize in remote-working, learning and entertainment. The world’s largest asset manager is seeking to launch the iShares Virtual Work and Life Multisector ETF, according to a filing with the Securities and Exchange Commission. The list of holdings isn’t yet available. In April, Direxion announced plans to start a new “work-from-home” fund tracking industries such as cloud technologies, remote communications and cyber security. While Americans are moving around and interacting more than they did before the reopenings, concern over a second wave of the coronavirus threatens recent efforts to relax restrictions. That means companies that specialize in virtual living could keep growing in popularity, according to Jason Kotik, investment director at Aberdeen Standard Investments. “It’s kind of the next hot thing,” said Kotik. “People want to jump on this. While I agree there is definitely a change going on secularly, not everything is going to win.” One of the biggest challenges for those niche funds is that they have struggled in a crowded ETF marketplace. Another hurdle is that the coronavirus shutdowns have so rapidly differentiated winners from losers.
Schroders Boss Responds to £9M Coronavirus Pay Controversy
Brief: Schroders chief executive Peter Harrison has responded to controversy over his £2.5m pay increase announced in the midst of the coronavirus lockdown while the asset manager was urging companies to keep executive pay under control. In April, Schroders announced it would pay Harrison up to £9m for the current financial year, a 39% increase on the £6.48m he took home in 2019. Until April, he had also been chair of the Investment Association, which was also urging companies to exercise restraint on executive pay. In aninterview withThe Times, Harrison said: “In hindsight, I wish it had been different, because the point is a really important one,” he told the newspaper from his second home in Cornwall. “I’ve taken the very public view that we will not make any staff redundant, we won’t furlough anybody, we won’t accept [government] aid.” The Investment Association had linkedits comments about executive payto those companies that had slashed dividends. He has since paid £631,000 to the coronavirus relief effort.
Hedge Funds May See $100 Billion Redeemed in 2020, Barclays Says
Brief: Investors may pull as much as $100 billion from the hedge fund industry this year, as a result of the economic fallout from the coronavirus crisis. The outflows -- which may range from $50 billion to $100 billion -- would mark the largest drawdown since the global financial crisis, when the industry saw $154 billion in withdrawals in 2008, according to a Barclays Capital Solutions report. “We’re already $30 billion in -- in terms of redemptions,” Kate Holleran, managing director of capital solutions at Barclays, said in a telephone interview. “We were optimistic coming into this year, given the strength of 2019, that we might actually see inflows. That is clearly not going to be the case.” The year fell into chaos as Covid-19 became a global pandemic, seizing up credit markets and putting an end to Wall Street’s longest-ever bull market. The damage pushed the Federal Reserve to intervene, flooding the markets with trillions of dollars in stimulus. That effort, combined with the easing of lockdown restrictions across the U.S. and rising hopes of a quick economic recovery, helped the S&P 500 index soar from its March low. With markets defying the initial gloomy expectations, Holleran believes redemptions will likely come in at the lower end of the range.
Pimco’s Seidner Says It’s Time to Give ‘The New Normal’ a Rest
Brief: It may be time to scrap the oft-used phrase ‘the new normal.’ So says Marc Seidner of Pacific Investment Management Co. “Pimco often gets credit for coining the phrase ‘the new normal’ coming out of the financial crisis,” Seidner, the firm’s chief investment officer for non-traditional strategies, said in a webcast Friday organized by Boston College’s Carroll School of Management. “I’m actually getting pretty sick of the phrase.” Instead, Seidner said, he may try to convince his Pimco colleagues that “maybe we’re heading into what is an old, old normal.” The way Seidner sees it, investors were “lulled into complacency” over the last decade. The 2010s saw Wall Street’s longest-ever bull market, historically low interest rates and an economy that grew every year. “Perhaps we’re going back to some sense of old, old normal where we all have to manage through periods of radical uncertainty, where the distribution of possible outcomes isn’t this beautiful bell shaped curve where you can assign succinct probabilities to tail events,” he said. A Pimco spokesman declined to comment on his remarks.
Renaissance Technologies Posts 21% Drop at Market-Neutral Fund
Brief: Renaissance Technologies, the quantitative hedge fund firm founded by Jim Simons, lost almost 21% this year through the first week of June in its market-neutral vehicle. Part of the decline for the Renaissance Institutional Diversified Alpha fund came this month amid volatility brought on by the coronavirus crisis, according to a person briefed on the matter. The fund lost almost 9% in the first week of June, said the person, who asked not to be identified because the information isn’t public. A spokesman for the firm declined to comment on the returns, which were reported earlier by the Financial Times. The firm’s quantitative equity hedge fund rose 2.3% in May, Bloomberg reported last week. The Renaissance Institutional Equities Fund, which only trades U.S.-listed stocks that its computer models expect to rise, was down 11% this year through May. Renaissance, which oversaw about $75 billion as of earlier this year, has long been one of the $3 trillion hedge fund industry’s most profitable firms. The East Setauket, New York-based firm is best known for its Medallion fund, which is only open to executives and employees and has had annualized gains of roughly 40% over the past three decades.
