Market Brief: April 2, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Thursday, April 2, 2020
Oil Hopes. Stocks closed higher on Thursday amid hopes that Saudi Arabia and Russia will curtail oil production, providing stability to energy markets roiled by the price war between the two crude exporters. The S&P 500 rose 2.2% to about 2527. The Dow Jones Industrial Average advanced 470 points, or 2.2%, to 21,413, based on preliminary numbers. The Nasdaq Composite was up 1.7% to 7487. President Donald Trump said he expected Russia and Saudi Arabia to cut oil production by as much as 15 million barrels a day. The oil news helped markets shrug off worrisome labor-market data.
DJIA 21,413.44 469.93
S&P 500 2,526.90 56.40
NASDAQ 7,487.31 126.73
US 10-Year Note 0.62 0.04
Dollar Index 100.20 0.52
Crude Oil 24.74 4.43
Gold 1,636.30 44.90
Global Dow 2,399.34 30.75
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Oil Prices Spike Because Trump Is Optimistic About a Russia-Saudi Deal
Oil prices jumped more than 30% Thursday morning after President Donald Trump tweeted that he is confident Russia and Saudi Arabia will dramatically cut production to bring oil markets back into balance. Oil prices closed the day up more than 20%.

Trump said in the tweet that he had spoken to the Saudi Crown Prince, who had spoken with Putin. “I expect & hope that they will be cutting back approximately 10 million barrels, and maybe substantially more.”

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Record 6.6 Million Americans File Jobless Claims, Doubling the Week-Earlier Level
A record 6.6 million Americans filed for unemployment insurance last week, bringing the number of newly jobless to over 10 million as the coronavirus outbreak shutters businesses and keeps consumers home.

The jump in jobless claims for the week ended March 28 doubles the 3.3 million claims in the previous week, the Labor Department said Thursday. Economists expect the ranks of the unemployed to keep rising in the weeks ahead. Goldman Sachs, for example, predicted an increase of 6 million for the latest week and sees 18 million in claims by the end of April.

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Federal Reserve Temporarily Eases Capital Requirement for Big Banks
The Federal Reserve is temporarily relaxing a rule that imposes additional capital requirements on deposits and Treasury securities held by the biggest U.S. banks.

The supplementary leverage ratio, or SLR, requires banks to hold an extra buffer of high-quality capital against a bank’s total assets (including derivatives exposure and off-balance sheet transactions). Under the Fed’s new rule, banks’ Treasury securities and deposits with Federal Reserve Banks won’t count toward those assets.

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Global Covid-19 Cases Surpass 1 Million
The total number of Covid-19 infections topped 1 million globally Thursday afternoon, according to Worldometers. Fatalities topped 51,000, while documented recoveries are now more than 210,000.

There are several databases available for investors and others to track. Some, including the Centers for Disease Control and Prevention as well as the World Health Organization, lag behind others—including the Johns Hopkins Coronavirus Research Center—which are updated more frequently. The trends and totals, however, closely approximate one another.

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Boeing Is Laying Off Workers. CEO Says It Could Take Years for the Industry to Recover.
Commercial aerospace giant Boeing is taking additional action to protect itself from the fallout from the Covid-19 coronavirus outbreak.

“It will take time for the aerospace industry to recover from the crisis,” CEO Dave Calhoun said in a letter to employees on Thursday. “When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different.” He said the recovery process would take years.

It is a downbeat message. To address the “new reality,” Boeing is offering a voluntary layoff plan. It is essentially a buyout for employees who want to, or can afford to, leave the company.

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Luckin Coffee Suspends COO, Alleges He Fabricated Transactions
China’s Luckin Coffee saw its stock plunge about 80% at Thursday’s open after its board alleged that a top executive fabricated millions of dollars’ worth of transactions last year—essentially rendering financial statements and guidance for 2019 unreliable.

In a statement released on Thursday, the board said an internal investigation found that Luckin’s chief operating officer, Jian Liu, along with several employees reporting to him, fabricated transactions worth as much as 2.2 billion Chinese yuan ($310 million) from the second quarter to the fourth quarter of 2019. The number hasn’t been independently verified by the special committee, said the company, and is subject to change as the investigation proceeds.

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SoftBank Scraps $3 Billion Deal to Buy WeWork Stock. A Big Loan Is in Doubt Too.
SoftBank Group has terminated an agreement to buy up to $3 billion of shares in WeWork’s parent company We Co. Much of that stock was owned by venture fund Benchmark Capital and WeWork founder Adam Neumann—none of the proceeds of the transaction were ticketed for WeWork itself.

And in a March 26 letter to investors reviewed by Barron’s, WeWork said that $1.1 billion of debt financing committed by SoftBank had been conditioned on the now-scrubbed tender offer. Multiple sources connected with that $1.1 billion loan note that SoftBank hasn’t yet committed to go forward with the funding but that it still could.

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Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says
The diversification efforts by America’s biggest tobacco company are looking more like a debacle.

On Wednesday, the Federal Trade Commission sued Marlboro maker Altria Group to demand the unwinding of its $12.8 billion investment in the e-cigarette seller Juul Labs. Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

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Carnival Pays Steep Rates for Nearly $6 Billion in New Debt
Cruise operator Carnival is paying a steep price for a big new dose of debt financing.

The company said Thursday morning that it has priced private offerings of $4 billion of senior secured notes with a coupon of 11.5%. It also is raising $1.75 billion in convertible notes at 5.75%. The debt matures in 2023.

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As the Covid-19 Crisis Deepens, U.S. Pot Producers Prosper
As Covid-19 began to clobber the U.S. in February, sales of medical marijuana jumped at Trulieve Cannabis. The Florida-based chain sold 50% more smokable stuff in the month’s third week than in the same week of January. By March’s third week, new Covid cases in the state were soaring and Trulieve’s sales had jumped another 50%, to more than 21 thousand ounces in the week ended March 19. Medical-marijuana customers were loading up on a product they thought essential in a disaster.

Cannabis operations in every state that allows them to operate are reporting a rush on dispensaries, which have been deemed “essential services” as states close other retail activities. Recreational sales are up, too. “Like alcohol, people cope with stress by using cannabis,” says Matt Hawkins, who runs $165 million in cannabis private-equity investments at Entourage Effect Capital.

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