Friday’s Business News Briefing – The New York Times
Friday’s Business News Briefing – The New York Times
The British economy grew 0.8 percent in May as more pandemic restrictions were lifted, official data showed, but the pace of growth has slowed and economists warn that returning to prepandemic levels will be harder, especially if consumers react cautiously to rising coronavirus infections.
May was the fourth straight month of growth in Britain, the Office for National Statistics said on Friday, but the rate was nearly half of what economists were expecting. The monthly gross domestic product increased 2 percent in April and 2.4 percent in March.
The British economy was about 3 percent smaller in May than it was in February 2020, before the pandemic.
Other data published by the statistics agency this week that measures the economy in real time by examining retail foot traffic, restaurant reservations and credit card spending also showed signs of activity plateauing in June and early July.
The main propeller of economic growth in May was the hospitality sector as indoor dining reopened across the country. But the sector is still nearly 10 percent smaller than it was before the pandemic. The manufacturing sector was a drag on the economy after a global shortage of chips disrupted the industry, particularly in car production. And the construction sector contracted for the second-consecutive month.
“Growth is moderate outside the sectors being unlocked,” Rory MacQueen, an economist at the National Institute of Economic and Social Research, wrote in a note. It’s still unclear whether the government’s plans to lift all restrictions on July 19 will lead to “strong growth in the third quarter or — if cases of Covid-19 continue to rise — increased caution among consumers and even another national lockdown,” he added.
As coronavirus case numbers have risen, Britain’s National Health Service as warned hundreds of thousands of people through its track-and-trace app that they have come into contact with someone with the virus. There are concerns that millions of people could soon be asked to self-isolate.
That could explain why some of the economic data has leveled off, said James Smith, an economist at ING, adding that he expected the economy to return to its prepandemic size by the end of the year. “We’d still say the outlook beyond the summer looks reasonably good, assuming no significantly vaccine-evasive variants emerge in the near-term,” he wrote in a note.
Richard Branson is scheduled to fly into suborbital space this Sunday, nine days ahead of a similar journey by a fellow billionaire, Jeff Bezos. These first flights for the space moguls will also launch without liability insurance, the DealBook newsletter reports.
Brokers say that neither Virgin Galactic nor Mr. Branson appears to have purchased coverage should the British business mogul be hurt, or worse. (The craft is likely covered.) The same goes for Mr. Bezos and his company Blue Origin. Virgin, Mr. Branson and Blue Origin declined or did not respond to requests for comment.
“We have talked to those companies about insurance and regulatory issues a lot,” said Sima Adhya, the head of space insurance at Hamilton, a company that offers insurance through Lloyd’s of London. “But there have been no policies specifically written for these flights.”
Liability coverage is required on international flights. But Virgin’s craft, the V.S.S. Unity, launches and lands in the same place in New Mexico. As such, Mr. Branson’s flight, despite rocketing to the edge of space, is technically considered domestic travel. Virgin has said passengers will eventually be required to sign a contract agreeing to be fully liable for their own safety, but American law makes it nearly impossible to transfer all liability in the case of personal injury or loss of life.
Insurance providers say it’s very likely that regulators will soon require liability policies. Space travel wouldn’t be covered by a typical life insurance policy, industry experts say. And it could also be an issue for corporations if executives decided that they, like Mr. Branson and Mr. Bezos, would like to travel to space. So-called key person policies could theoretically cover the stock market fallout if something happened to a top executive.
There aren’t a lot of options for casual space travelers, but some insurers are interested in developing such policies. Allianz first began designing space tourism policies in 2012, though there is no evidence one has been sold. (Allianz did not return a request for comment.) Space tourism is new, but experts say there is now more than enough data on rocket launches to know how to price these policies.
Lloyd’s of London estimates that the space insurance market has averaged $500 million in annual premium payments over the past decade. But those policies have generally covered satellites and other nonhuman cargo.
“The big question for the insurance industry is whether this is more like aviation insurance or more like current space policies,” said Neil Stevens, a senior vice president of space products at the insurance broker Marsh. “There hasn’t been a situation where insurance markets haven’t stepped up.”
But for now, space travel is launching without an insurance net for passengers. Developing those policies is one more small step that is likely needed before space travel can leap into a fully functioning tourism market.
JINAN, China — Faced with gradually slackening economic growth and a direct order for action from China’s cabinet, China’s central bank said Friday that it was taking steps to help the country’s commercial banks lend more money.
Extra lending could help China’s small and midsize enterprises, particularly retailers. Consumer spending has been slow to recover from the pandemic in China. Many struggling smaller businesses need to be able to borrow money at affordable interest rates to stay open.
When commercial banks accept customers’ deposits, they are typically required to park a small share of the money at their country’s central bank. They are then free to lend the rest.
The People’s Bank of China, the country’s central bank, said on Friday evening that effective next Thursday, it would allow commercial banks to park a slightly smaller share of deposits. Allowing commercial banks to take back some of the money will, at least in theory, free them up to lend more.
But the People’s Bank also cautioned in its announcement that the effect might be somewhat muted, because part of any extra lending is likely to disappear quickly into the government’s coffers as the summer tax collection season starts.
China’s monetary policy has swung sharply over the past 18 months in response to the pandemic. The central bank pushed banks to lend heavily early last year as the virus raced through Wuhan and beyond, to make sure businesses did not run out of cash.
Worried that the extra money might fan inflation, the central bank later tightened policy. But with many companies struggling to pay interest on their debts, and with the economy not quite fully recovered from the pandemic, the central bank then changed policy again on Friday toward further easing.
The new rule allows practically all financial institutions to reduce the required percentage of deposits, the so-called reserve requirement ratio, by half a percentage point. The exact ratio varies with the size of the bank, but the average will be 8.9 percent after next Thursday, the central bank said.
The central bank encouraged commercial banks to lend more to smaller businesses. Lending has been growing less rapidly in the first half of this year. But there have also been some signs that lower lending might signal a wariness among borrowers to take on even more debt, as opposed to any regulatory constraint on how much the banks can lend.
The central bank said it was acting “to support the development of the real economy and promote a steady decline in overall financing costs.”
Li You contributed research.
The world’s top economic leaders are convening on Friday to hash out crucial details of a deal to put an end to global tax havens and force multinational corporations to pay an appropriate share of tax wherever they operate.
Negotiations are entering what officials hope to be the final stretch as finance ministers from the Group of 20 nations meet. Officials hope to complete a deal by October, when the leaders of the G20 countries return to Italy for the last summit of the year, Alan Rappeport reports for The New York Times.
Last week, 130 countries backed a conceptual framework for the new tax plan.
The blueprint includes a global minimum tax of at least 15 percent. The agreement also is intended to put an end to a cascade of digital services taxes that many countries around the world, including Britain, France and Italy, are adopting to capture more tax revenue from American technology companies.
The United States wants European countries to drop their digital services taxes immediately, but policymakers have suggested that they could remain in place until a new agreement is fully enacted, which could take years. The European Union is also pressing ahead with a new digital levy even as the tax talks proceed.
Other outstanding issues remain to be worked out this weekend and in the coming months, including the exact rate that global companies would face.
The Chinese internet conglomerate Tencent said this week that it would deploy facial recognition technology in its video games in an attempt to close a loophole in restrictions aimed at limiting screen time.
Underage players in China are required to log on using their real names and identification numbers as part of countrywide regulations aimed at keeping internet addiction in check. In 2019, the country imposed a curfew barring those under 18 from playing games from 10 p.m. to 8 a.m. But some might try to use their parents’ devices or identities to circumvent the restrictions, Tiffany May and Amy Chang Chien report for The New York Times.
“Children, put your phones away and go to sleep,” Tencent said in a statement on Tuesday when it officially introduced the features, called Midnight Patrol.
Tencent said it began testing facial recognition technology in April to verify the ages of avid nighttime players and has since used it in 60 of its games. In June, it prompted an average of 5.8 million users a day to show their faces while logging in, blocking more than 90 percent of those who rejected or failed facial verification from access to their accounts.
Fidji Simo, the leader of Facebook’s namesake app, said on Thursday that she was leaving the social network to become the chief executive of Instacart, the on-demand grocery start-up that is preparing to become a public company.
Ms. Simo, 35, will replace Apoorva Mehta, 34, Instacart’s founder and chief executive, effective immediately. Mr. Mehta will become Instacart’s executive chairman.
“I’m excited to work with the talented teams at Instacart, as well as our retail partners, to reimagine the future of grocery,” Ms. Simo said in a statement.
Mr. Mehta said in a statement that he would remain engaged with Instacart’s business and “will partner with Fidji on long-term and strategic moves that will shape the future of Instacart and our industry for years to come.”
Ms. Simo, who is French, spent a decade at Facebook, where she worked her way up from a product marketing role to the head of its “big blue app.” Before that, she worked as a strategist at eBay. A graduate of the HEC School of Management in Paris, she joined Instacart’s board of directors this year.
For Instacart, Ms. Simo’s appointment is another step to potentially becoming a public company.
Instacart makes money by selling subscriptions to its on-demand grocery service and through associated fees. But it is looking to expand its advertising business with brands that want to promote their groceries to customers on the platform. Ms. Simo worked on Facebook’s advertising business and helped develop parts of the company’s mobile advertising.
‘We’re grateful for Fidji’s incredible leadership over the past decade and wish her all the best in her next endeavor,” said Tom Williams, a Facebook spokesman.
Tom Alison, a product and engineering executive at Facebook, will take over day-to-day operations of the Facebook app by the end of July. CNBC earlier reported on Ms. Simo’s departure from Facebook.
The Pennsylvania Higher Education Assistance Agency — which oversees the loans of 8.5 million student borrowers — said Thursday that it would not renew its contract with the federal government when it ends later this year. The agency, which is known to most borrowers as FedLoan, is one of several companies the Education Department pays to manage the government’s $1.59 trillion student loan portfolio. About 23 million borrowers aren’t making payments right now because of the temporary pause put in place because of the pandemic — and FedLoan’s announcement will only increase the pressure to extend the moratorium. The millions of borrowers whose loans are overseen by FedLoan, including those in the Public Service Loan Forgiveness program, will have to be moved to a new servicer at the same time the machinery of payment processing is getting back up to speed.
Toyota said on Thursday that it would stop donating to Republicans who disputed the 2020 presidential vote after being the focus of an ad campaign by the Lincoln Project, a group that was founded to antagonize President Donald J. Trump with viral video criticisms. The automaker said in a statement that its support of the politicians had “troubled some stakeholders.” The Lincoln Project, known for its scathing anti-Trump videos and memes during the 2020 campaign, said the ad was part of a broader project aimed at decreasing funding for Republicans who resisted the results of the vote and played down the attack on the U.S. Capitol on Jan. 6. The group said it planned to release more ads in the following weeks naming companies that “have broken their pledges to withhold campaign funds to members of Congress who enabled, empowered and emboldened former President Trump and the insurrectionists.”
Stocks rebounded Friday and government bond yields rose after Wall Street’s worst decline since mid-June. Investor concerns over the economic recovery had led to a 0.9 percent drop in the S&P 500 on Thursday.
Yields on 10-year Treasury notes, a benchmark for borrowing costs across the economy and a measure of the outlook for growth, also fell sharply on Thursday as investors piled into United States government bonds in a flight to safety.
Financial markets were quieter on Friday:
The S&P 500 was up more than half a percent in early trading, while the Nasdaq composite was slightly higher.
The yield on 10-year Treasury notes jumped to 1.34 percent.
Markets in Europe were higher. The Stoxx Europe 600 rose 0.8 percent and the FTSE 100 rose half a percent. The British economy grew 0.8 percent in May as more pandemic restrictions were lifted, official data showed, but the pace of growth has slowed and economists warn that returning to prepandemic levels will be harder.
Oil prices rose. West Texas Intermediate, the U.S. crude benchmark, was up 1.5 percent to $74 a barrel.