By Geoffrey Smith
Investing.com -- The U.S. government agrees to bail out the airline industry, while Airbnb turns to the debt markets to get through the crisis. Retail sales and industrial production data will shed more light on the U.S. economy's slowdown, while San Francisco Fed President Mary Daly says she expects a slow and bumpy recovery. Stocks are expected to open lower, while oil has slumped again after the International Energy Agency warned that the world's storage tanks will soon be full. Germany is expected to extend its lockdown for another two weeks, while India relaxes its lockdown, accepting that it can't compensate its poor adequately for shutting them indoors. Here's what you need to know in financial markets on Wednesday, April 15th.
1. Airline bailout agreed
The U.S. government agreed to inject some $25 billion into the airline industry to cover payroll costs through the Covid-19 crisis.
American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL) are the biggest recipients of aid, receiving $5.8 billion and $5.4 billion respectively. Southwest (NYSE:LUV) will receive $3.2 billion. JetBlue (NASDAQ:JBLU) and other airlines have also signed up for the aid, most of which is being disbursed as a grant, with the rest coming in the form of low-interest loans and stock warrants.
The conditions attached to the aid mean that the airlines won’t be allowed to furlough staff or cut pay until the end of September, while buybacks and dividends will be banned until September 2021 and executive pay will be limited for another six months beyond that.
2. U.S. data horror show - new episodes out at 8:30 AM ET
More hard data from the U.S. is on the way to flesh out the economic damage from Covid-19 and the associated lockdowns.
Retail sales for March are due at 8:30 AM ET (1230 GMT), while industrial production and manufacturing output will follow at 9:15 AM. As states shut down at different speeds during the month, the data may be hard to interpret holistically, warned Paul Donovan, chief economist of UBS Global Wealth Management, in a morning note.
There’s also the New York Empire State Manufacturing index at 8:30, which will shed a light on the state that has – so far – been the worst hit of all in the U.S.
3. Germany expected to extend lockdown another two weeks; India relents
German Chancellor Angela Merkel is expected to agree an extension of Germany’s current lockdown with state governors on a telephone call later.
The news agency Deutsche Presse Agentur reported that Merkel wants to keep Europe’s largest economy locked down until May 3. Some state governors are agitating to at least reopen their schools before then (neighboring Denmark reopened its kindergartens and primary schools Wednesday).
Elsewhere, Indian Prime Minister Narendra Modi agreed a partial lifting of the lockdown announced earlier this week, acknowledging that the government had no effective way of mitigating its effect on poorer parts of Indian society.
4. Stocks set to open lower; Fed's Daly strikes pessimistic note
U.S. stock markets are set to open lower on Wednesday, after a rally on Tuesday that threatened to get ahead of economic reality.
By 6:40 AM ET (1040 GMT), the Dow Jones 30 Futures contract was down 422 points or 1.8%, while the S&P 500 Futures contract was down 1.9% and the Nasdaq 100 contract was down 1.4%.
The International Monetary Fund on Tuesday had forecast a 3% drop in world GDP in 2020 – the worst contraction since the 1930s – including a 5.9% drop in U.S. GDP.
San Francisco Fed President Mary Daly told The Wall Street Journal that she expects the recovery to be uneven and slow.
“I don’t expect a sharp V-shaped recovery, I expect something more like negative quarters of growth throughout 2020, and then a gradual return to positive growth in 2021,” Daly said.
Elsewhere, Covid-19 has all but done for what was likely to be the biggest IPO of 2020. Airbnb said late on Tuesday that it had raised another $1 billion in senior debt, only days after raising the same amount in subordinated debt and equity warrants from private investors. The money didn’t come cheap. The Financial Times reported the company will pay 7.5% for the senior debt, having paid 10% for the more junior tranche last week.
5 Oil tumbles on IEA warning
Oil prices tumbled again after the International Energy Agency warned that the global deal to cut supply, agreed at the weekend, wouldn’t be enough to stop the world running out of storage capacity “within weeks.”
By 6:40 AM ET, U.S. crude futures were trading down 3.5% at $19.41 a barrel, having earlier tested and bounced from the year’s low of $19.27. The international benchmark Brent contract was down 4.2% at $28.37 a barrel.
The IEA said it expects global oil demand to be 29 million barrels a day below year-earlier levels in April, easing to 26 million b/d in May and 15 million b/d in June. If producers cut as expected (the IEA forecasts non-OPEC+ supply to drop by 3.5 million b/d on average this year), and if countries such as China and the U.S. buy for their strategic reserves as agreed, then the physical market could start to draw down record high commercial stocks in the second half, the IEA said.