Gap records nearly $1 billion in losses on coronavirus-led store closures

(Reuters) – Gap Inc (GPS.N) on Thursday reported a quarterly loss of nearly $1 billion as the apparel retailer was forced to close its stores due to the coronavirus outbreak, sending its shares down about 8% after market hours.

Retailers that sell non-essential goods such as clothing have been crushed by the COVID-19 pandemic as they were forced to restrict their businesses to online operations and curbside pickups.

San Francisco-based Gap, which operates nearly 2,800 stores in North America, said 55% of its company-operated stores in the region were now open and sales from online operations were booming.

The company’s more expensive brands Gap and Banana Republic did not do well as customers opted for casual clothing as they stayed at home during the lockdowns, Chief Executive Officer Sonia Syngal said.

However, its affordable clothing brands, Old Navy and Athleta, were seeing signs of strong demand, Syngal added.

The retailer, which is streamlining its fleet of retail stores, said it would prioritize closing some Gap stores and seek rent concessions for well-positioned stores that cannot support the current rent structures.

“While our economics in our Old Navy and Athleta fleets are strong, our specialty store fleet (Gap and Banana Republic) has not been as profitable as we need it to be,” Chief Financial Officer Katrina O’Connell said in a conference call with analysts.

Net loss came in at $932 million, or $2.51 per share, for the three months ended May 2, which included a $484 million writedown on store and operating lease assets and a $235 million charge on excess inventory.

Net sales fell 43% to $2.11 billion from $3.71 billion.

Analysts had forecast a loss of 67 cents per share and revenue of $2.30 billion, according to IBES data from Refinitiv.

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Wall Street Week Ahead: Bond investors look for Fed to justify steepening yield curve

NEW YORK (Reuters) – Expectations that the global economy has dodged the worst-case scenarios for the coronavirus pandemic have led to a dramatic selloff in U.S. government bonds from their record highs, pushing the yield curve to its steepest level since March.

Investors will get a chance next week to see whether the U.S. Federal Reserve agrees with their optimism. The U.S. central bank is expected to hold a two-day meeting that will conclude Wednesday, the first since a meeting in April in which Fed Chair Jerome Powell said that the U.S. economy could feel the weight of the economic shutdown for more than a year.

While the Fed could introduce additional bond-buying programs known as quantitative easing or yield-curve control measures to target short-term rates, some fund managers say they expect that yields would need to rise significantly from here to justify any intervention in the bulk of the curve. Instead, they are watching for hints that the central bank believes the worst part of the coronavirus crisis has passed.

“They are really in this transition phase,” said Eric Stein, co-director of global income and portfolio manager at Eaton Vance. “Markets are functioning, if not all the way back to pre-shock levels, with very strong debt issuance and market improvement, even though the real economy is incredibly weak.”

As a result, Stein is looking for signs the Fed believes the economic rebound can support the rise in yields.

“The Fed will be okay with a slow creep higher, particularly with a backdrop of a recovery, but if it moves too much and destabilizes the recovery, there’s a reason for concern,” he said.

Ed Al-Hussainy, senior interest rate analyst at Columbia Threadneedle, expects the Fed to focus on its newly announced Main Street Lending Program, meant to support small- and medium-sized businesses facing financial strain because of the pandemic, as opposed to introducing significant new stimulus measures.

“The Fed is likely to communicate that there is more scope for fiscal measures but that is a very uncomfortable spot to be in,” he said. “We won’t have a clear sense of direction of the economy until well into the fourth quarter because all the sequential data now is massively positive.”

The manufacturing ISM index rose to 43.1 in May from 41.5 in April, while weekly jobless claims fell to 1.877 million from 2.126 million the week before.

“Recent economic reports in the U.S. have been uniformly weak, though not any worse than expected,” said Kevin Cummins,senior U.S. economist at NatWest Markets.

Eddy Vataru, lead portfolio manager at Osterweis Capital Management, said the larger risk for the Fed is that rates remain too low, making it unlikely that there will be a significant push for yield curve-control measures.

“We can now discredit the worst outcomes of the virus. The sentiment around the risks around the virus have really changed,” he said, pointing to declining infection and fatality rates in coronavirus hot spots such as the New York City region.

As a result, he is moving into corporate debt and mortgage-backed securities and shying away from Treasuries, which he said have “no investment value” at their current yields.

“At the end of the day, we have a ton of stimulus, both fiscal and monetary, and the markets have reacted to it,” he said.

(This story has been refiled to correct time element in paragraph 2.)

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American Airlines soars on news it will boost U.S. flights in July

WASHINGTON (Reuters) – American Airlines Group Inc (AAL.O) shares jumped by 25% after it said Thursday it will significantly boost its U.S. flight schedule next month after dramatic reductions caused by the coronavirus pandemic, flying more than 55% of its July 2019 domestic capacity.

American shares, up 24.6% to $14.77 on the bullish announcement, are still down more than 50% since mid-February.

The airline, the largest U.S. carrier, will also boost its international flights schedule next month, flying nearly 20% of its July 2019 schedule.

By comparison, American flew just 20% of its domestic schedule in May and is flying 25% in June, said Vasu Raja, American Airlines’ senior vice president of network strategy.

“As an airline, we’ve consciously bet on demand coming back. We have bet the economy,” Raja said, noting American has been operating a larger schedule than U.S. rivals.

Raja told Reuters that the airline would fly just over 4,000 flights on peak days in July compared with nearly 2,000 on peak days in May. That is still down from the peak 6,800 daily flights before the crisis.

Other U.S. carriers are also adding flights to summer schedules.

In total, American plans to fly 40% of July 2019 capacity.

The airline is boosting flights from New York City airports, Los Angeles and Washington and adding flights from its Dallas Fort Worth and Charlotte hubs. It is also increasing flights to major cities in Florida, Gulf Coast cities and mountain destinations as national parks and outdoor recreational spaces reopen.

In late May, the airline carried a daily average of about 110,000 customers – an increase of 71% over the 32,000 daily average the airline served in April, but still far below last year. Load factors rose to 55% by late May.

American plans to resume service to additional European and Latin American destinations in August. It will resume service to Rio de Janeiro, Brazil from Miami on July 7.

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LVMH propels Arnault scion to head up Tag Heuer watches

PARIS (Reuters) – LVMH (LVMH.PA) on Thursday said that Frederic Arnault, one of the younger sons of the luxury goods group’s billionaire boss, would take over running watch brand Tag Heuer, joining his siblings in taking on bigger roles within the conglomerate.

The Arnault family controls just under half of LVMH, which was vastly expanded through acquisitions under CEO Bernard Arnault, France’s richest man, and owns fashion labels such as Louis Vuitton and also champagne and jewellery brands.

Frederic Arnault, 25, will step up at Tag Heuer as of July 1, the company said. He had previously worked at the label, but with a focus on developing its digital activities, at a time when watch brands are struggling to re-invent themselves for a younger clientele and face falling demand.

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Asian stocks set to extend gains as stimulus fans recovery hopes

NEW YORK (Reuters) – Stronger appetite for riskier assets is set to lift Asian equities on Thursday, as government stimulus expectations support investor confidence in an economic recovery from the coronavirus.

E-mini futures for the S&P 500 were up 0.05% and Australian S&P/ASX 200 futures rose 1.23% in early trading. Japan’s Nikkei futures rose 1.1%.

The safe-have U.S. dollar continued to fall.

Markets for risk assets have been on a tear, carrying major stock market indexes to within sight of pre-pandemic, all-time highs.

MSCI’s gauge of stocks across the globe moved up for the seventh consecutive trading day on Wednesday with a gain of 1.68%.

The rise came as the Nasdaq Composite, S&P 500 and the Dow Jones Industrial Average continued their rise from March cornonavirus-lockdown-lows to come within 2%, 8% and 11%, respectively, of overtaking all-time closing highs registered in February.

The dollar index fell 0.24% against a basket of other currencies early on Thursday, having hit an 11-week low on Wednesday. The euro rose as high as $1.1251, a level not seen since March 12.

“Liquidity provision by central banks – and expectations that more is coming – is helping to support the recent drive in risk markets,” ANZ Research senior economist Liz Kendall and strategist David Croy, said in a note early on Thursday.

But the analysts cautioned asset prices would need a recovery in the global economy to sustain gains.

On Wednesday, the Dow rose 2.05%, the S&P 500 gained 1.36% and the Nasdaq Composite added 0.78%.

The pan-European STOXX 600 closed at its highest since March 6. European markets have performed strongly so far this week as several countries eased strict lockdown measures.

The move to riskier assets continued to take down prices for U.S. Treasuries. The yield on the benchmark 10-year reached 0.7333% on Wednesday, up from 0.667% on Tuesday.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, reached 55 basis points on Wednesday, the steepest level since mid-March. A steepening curve often points to a stronger economy.

Governments around the world have gradually started to lift tough lockdown measures imposed to contain the coronavirus which has infected nearly 6.4 million people and killed over 379,000.

Markets await Friday’s U.S. Labor Department May jobs report, which is expected to show unemployment soaring to a post-World War Two high of nearly 20% from 14.7% in April.

On Wednesday, a report showed that U.S. private payrolls fell less than expected in May, suggesting layoffs were abating as businesses reopen.

Investors are also focused on whether the European Central Bank will increase the size of its 750 billion euro ($669 billion) Pandemic Emergency Purchase Programme, when it meets on Thursday.

Oil prices rose again on Wednesday, briefly trading above $40 a barrel, the highest since March, and reflecting increased demand.

Brent crude futures for August settled up 22 cents, or 0.6%, at $39.79 a barrel. The session high of $40.53 was the highest since March 6. West Texas Intermediate (WTI) crude for July rose 48 cents, to $37.29 a barrel.

Spot gold added 0.1% to $1,698.39 an ounce early on Thursday after losing 1.6 % on Wednesday.

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Wall Street closes sharply higher on signs of economic rebound

NEW YORK (Reuters) – Wall Street rallied broadly on Wednesday with the Nasdaq approaching record highs as signs of an economic recovery from mandated shutdowns helped investors look beyond U.S. social unrest and pandemic worries.

Financials, industrials and tech pushed the three major U.S. stock indexes well into the black. The S&P 500 and the Nasdaq each posted their fourth straight day of solid gains.

The Nasdaq, the S&P 500 and the Dow have rebounded sharply from March lows hit as coronavirus-related lockdowns shocked the stock market, and they are now 1.4%, 7.8%, and 11.1%, respectively, away from overtaking all-time closing highs set in February.

(GRAPHIC – Nasdaq closes in on record high: here)

The Nasdaq 100 is now just over 0.1% below its February record, having briefly breached that level late in the session.

“There is growing confidence the U.S. economy can safely re-open, much as other economies such as China and Italy have successfully done,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “Risk appetite for equities has been helped by optimism in the economy, as well as investors having few other alternatives.”

Nationwide protests over the death of an unarmed black man in police custody extended to an eighth night as protesters ignored curfews, but violence subsided after President Donald Trump threatened to deploy the military.

A spate of grim economic data was not as bad as economists feared, with ADP reporting many fewer private-sector job cuts in May than expected.

Market participants now await the U.S. Labor Department’s more comprehensive May jobs report, which is expected to show unemployment soaring to a historic 19.7%.

The Dow Jones Industrial Average rose 527.24 points, or 2.05%, to 26,269.89, the S&P 500 gained 42.05 points, or 1.36%, to 3,122.87 and the Nasdaq Composite added 74.54 points, or 0.78%, to 9,682.91.

Of the 11 major sectors in the S&P 500, all but healthcare closed in positive territory, with industrials and financials enjoying the biggest percentage gains.

Boeing Co gave the biggest boost to the blue-chip Dow, its shares rising 12.9% following news that billionaire investor Daniel Loeb’s Third Point had taken a stake in the company.

Lyft Inc jumped 8.7% after the ride-sharing platform reported rides increased 26% in May.

Microchip Technology Inc surged 12.3% after the chipmaker raised its forecast for current-quarter sales and profit.

Teleconferencing firm Zoom Communications Inc nearly doubled its annual sales expectations, but also reported a sharp rise in costs. Its shares were up 7.6%.

Cosmetics maker Coty Inc rose 13.4% after announcing it was in talks to collaborate on a beauty line with reality TV star Kim Kardashian West.

Campbell Soup Co beat earnings expectations and hiked its full-year forecast, but troubles meeting surging consumer demand sent its shares down 6.1%.

Advancing issues outnumbered declining ones on the NYSE by a 3.81-to-1 ratio; on Nasdaq, a 2.26-to-1 ratio favored advancers.

The S&P 500 posted 32 new 52-week highs and no new lows; the Nasdaq Composite recorded 96 new highs and four new lows.

Volume on U.S. exchanges was 12.62 billion shares, compared with the 11.45 billion average over the last 20 trading days.

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Asian stocks set to gain as stimulus hopes support risk appetite

NEW YORK (Reuters) – Asian stocks were poised to follow the global rally on Wednesday as hopes of more government stimulus bolstered riskier assets and overshadowed a host of other worries from the coronavirus to Hong Kong and growing U.S. civil unrest.

E-mini futures for the S&P 500 were up 0.3% and Japan’s Nikkei 225 futures were 1.6% higher in Asia on Wednesday morning, while Australian S&P/ASX 200 futures rose 0.58% in early trading.

That comes after stocks in the United States, Europe and emerging markets hit their highest levels on Tuesday since early March and as bidding for riskier currencies pushed the dollar toward three-month lows and oil neared three-week highs.

From its March 23 low, MSCI’s gauge of stocks across the globe was up 35%. Despite lockdowns to control the COVID-19 pandemic, the global index is down year-to-date only about 8%.

U.S. stocks indexes rose about 1% even as the worst civil unrest in decades left dozens of cities under curfews following protests over the death of an unarmed black man in police custody.

With its gains, the U.S. tech-heavy Nasdaq Composite is down less than 3% from its pre-pandemic record highs.

“The good times continue to roll in risk markets,” Mazen Issa, senior FX strategist at TD Securities, said in a report. “As intense as the rally has been, this is likely set to continue as the breadth of the equity rally has now spread outside the U.S.”

The U.S. Treasury yield curve steepened, reflecting the sale of more government debt to finance massive stimulus efforts. The gap between yields on 5- and 30-year Treasuries reached 116 basis points on Tuesday, its highest since early 2017.

“A steepening curve does give equities a bit of a kick,” said Kim Rupert, senior economist for Action Economics.

Expectations for additional support from the European Central Bank and the German government boosted European stocks and the euro on Tuesday.

Volkswagen (VOWG_p.DE), Daimler and BMW, for example, gained more than 5% on confidence that Germany’s proposed 5 billion euro ($5.6 billion) stimulus package will boost car sales.

The ECB is expected to ramp up stimulative bond purchases when it meets on Thursday.

Oil prices climbed more than 3%, or $1 a barrel, on Tuesday on renewed U.S. demand for gasoline and hopes that major crude producers will agree this week to extend output cuts. U.S. West Texas Intermediate crude (WTI) settled at $36.81 and Brent crude settled at $39.57 a barrel.

Gold retreated 1% on Tuesday amid the broader optimism.

U.S. gold futures settled down 0.9% at $1,734.

Gold is still up more than 18% from a low of $1,450.98 in March because of the economic damage from the pandemic and the massive amounts of money coming from central banks.

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U.S. auto sales in May encourage Detroit plan to rebuild inventories

DETROIT (Reuters) – Several automakers on Tuesday reported stronger-than-expected May sales in the United States, and the Detroit automakers said they will work through their annual summer shutdowns to rebuild inventories as demand recovers from coronavirus shutdowns.

The U.S. auto sector has reopened assembly plants following the shutdown and automakers that reported May sales said they saw signs of recovery in consumer demand.

Toyota Motor Corp(7203.T), said overall U.S. sales fell about 26% in May, but retail demand rebounded to 86% of levels in May 2019, exceeding the company’s forecasts. Retail sales almost doubled from April to May, a spokesman said.

Hyundai Motor Co(005380.KS) said overall U.S. sales in May fell 13%, but that was significantly better than the 33% industry decline Cox Automotive had forecast. Hyundai cited a 5% increase in retail sales.

No. 1 U.S. automaker General Motors Co (GM.N) said it will keep building vehicles at most of its U.S. plants “to meet strengthening customer demand,” instead of taking a traditional two-week summer shutdown starting June 29, GM spokesman Jim Cain said.

“Our share has been increasing and we want to be able to carry that momentum through to the other side of the pandemic,” he said.

Half of Ford Motor Co’s (F.N) eight U.S. assembly plants have reduced their shutdowns to one week. Others are shifting their breaks to later in the year.

GM and Ford no longer report monthly U.S. sales.

The University of Michigan’s Surveys of Consumers, closely followed by the auto sector, showed that 64% of those polled in May said it was a good time to buy a car. That was up from 57% in April and the highest level since December. Those saying times were bad or the future was uncertain fell to 28% from 38% the prior month.

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U.S. companies issue shares at fastest rate ever, selling the rally

NEW YORK (Reuters) – U.S. public companies sold more than $60 billion in shares in May, the biggest monthly haul ever, as they capitalized on a stock market rally fueled by hopes that the COVID-19 pandemic is subsiding.

The benchmark S&P 500 Index .SPX has risen around 40% off of recent lows, hit in late-March at the height of market panic during the coronavirus outbreak, and is now roughly 10% shy of all-time highs hit in February.

The whipsawing markets stunted companies’ ability to issue new shares and raise cash, with just $4.8 billion sold in March, the lowest monthly total since December 2018, Refinitiv data showed.

The market has rocketed back with $22.3 billion sold in April and $65.3 billion in May, the highest on record.

(GRAPHIC – U.S. public companies sell the rally: here)

The likes of Southwest Airlines Co (LUV.N) and cruise operator Carnival Corp (CCL.N) have issued new stock to raise money. Major shareholders in companies such as BlackRock Inc (BLK.N) and U.S. drugmaker Regeneron Pharmaceuticals Inc (REGN.O) have cashed out their stock, with the market rebound far from certain to last.

“We’re talking to a lot of companies around the fact that the market is here, you don’t know what lies in the economy to come,” said Ryan Parrish, head of Americas equity capital markets syndicate at Bank of America (BAC.N). “If you even remotely have a need you should get it done now.”

The share sales echo a similar trend in U.S. debt markets, where companies have raised more than $1 trillion so far in 2020.

As in debt markets, the balance of companies selling new shares has shifted from those facing an imminent cash crunch to those stocking up on rainy day funds.

“There are a whole host of companies that have been hugely impacted by COVID-19 and have had to recapitalize,” said Santosh Sreenivasan, head of equity-linked capital markets for the Americas at JPMorgan Chase & Co.

“Issuers that have seen their stock prices recover are now also taking the perspective that they don’t want to miss this window in case this rebound is short-lived,” Sreenivasan said.

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U.S. manufacturing activity crawls off 11-year low

WASHINGTON (Reuters) – U.S. manufacturing activity eased off an 11-year low in May, the strongest sign yet that the worst of the economic downturn was behind as businesses reopen, though the recovery from the COVID-19 crisis could take years because of high unemployment.

The promising signs of stabilization in manufacturing reported by the Institute for Supply Management on Monday are a welcome respite as the country braces for data on Friday expected to show the worst unemployment rate since World War Two. Rampant joblessness will lead to tepid demand and economic growth.

“Today’s report on the manufacturing sector represents good news that hints the economy is turning the corner as the states reopened in May,” said Chris Rupkey, chief economist at MUFG in New York. “It will not be a quick recovery for sure, but at least the worst is over.”

The ISM said its index of national factory activity rose to a reading of 43.1 last month from 41.5 in April, which was the lowest level since April 2009. A reading below 50 indicates contraction in manufacturing, which accounts for 11% of the U.S. economy. May marked the third straight monthly contraction.

Still, the first increase in the ISM index since January mirrored improvements in regional manufacturing surveys in May and suggested April was the nadir for economic activity. A survey on Monday from data firm IHS Markit also showed stabilization in manufacturing conditions in May.

The ISM also viewed May as the “transition month,” but cautioned that “demand remains uncertain.”

The improvement was not uniform. Disruptions to the supply chain and social distancing are limiting transportation equipment manufacturers’ ability to restart production. Food, beverage and tobacco industries were overwhelmed, nothing that increased demand “stressed our production capabilities.”

The ISM’s forward-looking new orders sub-index rose to a reading of 31.8 in May from 27.1 in April, which was the lowest since December 2008. Despite the slight improvement last month, new orders at current levels suggest business investment could continue to shrink. The COVID-19 crisis has undercut corporate profits, which declined in the first quarter at rates last seen during the 2007-09 Great Recession. Business investment has contracted for four straight quarters.

Stocks on Wall Street were higher, though caution reigned amid country-wide protests over race relations and a flare-up in tensions between Washington and Beijing. The dollar fell against a basket of currencies. U.S. Treasury prices slipped.

BOTTOM REACHED

The economy contracted at a 5% annualized rate in the first quarter, the worst performance since the 2007-09 recession. Gross domestic product is expected to decline at a rate as sharp as 40% in the second quarter, which would be the biggest contraction in output since the Great Depression of the 1930s.

The ISM’s measure of factory employment advanced to a reading of 32.1 in May after plunging to 27.5 in the prior month, which was the lowest since February 1949.

About 21.4 million jobs were lost in March and April. The Labor Department is expected to report on Friday that at least another 8 million were lost in May, with the unemployment rate rocketing to 19.7%, according to a Reuters survey of economists. That would be the highest since the government started tracking the series in 1948, and up from 14.7% in April.

“Manufacturers are being squeezed by both a collapse in demand and disrupted supply chains,” said James Knightley, chief international economist at ING in New York. “With profitability under immense pressure firms are increasingly looking to cut costs, which will limit the ability of the U.S. economy to rebound quickly.”

A separate report from the Commerce Department on Monday showed construction spending dropped 2.9% in April, the largest decrease since October 2018, after being unchanged in March.

Economists had forecast construction spending declining 6.5% in April. The construction sector has fared better than other segments of the economy as some large projects were likely put in place months before the COVID-19 pandemic.

In addition, many states regarded the industry as essential business, when restaurants and other social gathering venues were shuttered in mid-March to slow the spread of COVID-19.

The industry is also being supported by near record low interest rates. In April, spending on private sector construction projects dropped 3.0%. Outlays on homebuilding tumbled 4.5%. Spending on nonresidential structures, which include manufacturing plant and mining exploration, shafts and wells, decreased 1.3%. Investment in public construction projects fell 2.5% in April.

“Construction spending can be a somewhat lagging indicator, as outlays each month in part reflect projects started in prior months,” said Nancy Vanden Houten, a senior U.S. economist at Oxford Economics in New York.

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