Stocks Waver as China Tension Rises
Stocks Waver as China Tension Rises
Devastated by the pandemic, Hertz files for bankruptcy protection.
Hertz, which started with a fleet of a dozen Ford Model T’s a century ago and became one of the world’s largest car rental companies, filed for bankruptcy protection late Friday after falling victim to its mountain of debt.
The coronavirus pandemic has devastated Hertz by grounding business travelers and tourists, making it impossible for the company to continue paying its lenders. A sharp drop in used car prices has also decreased the value of its fleet.
“They were doing quite well, but when you turn off the revenues and you own all these cars and all of a sudden the cars are worth less it’s a very tough business,” said John Healy, an analyst and managing director with Northcoast Research in Cleveland.
Hertz, which also owns the Dollar and Thrifty brands, had piled up $17 billion in debt but was reporting healthy sales at the start 2020. But the pandemic dealt what the company has described as “a rapid, sudden and dramatic” blow. Sales dried up in March as much of the world started to shelter at home.
The company’s march to bankruptcy began in late April when it missed a payment on a lease for some of its fleet. It persuaded lenders to give it until midnight on Friday to put together a financial plan that they could accept. But in a filing this month, Hertz acknowledged the enormity of the task.
Airlines are given tentative approval to halt service at dozens of U.S. cities.
The Transportation Department said late Friday that it would tentatively allow 15 airlines to stop flights to about 60 mostly small and midsize cities, though none of the destinations stand to lose service entirely.
The destinations are mostly in secondary markets where airlines have said there is little demand for flights or that could be served by other nearby airports.
American Airlines, for example, would be allowed to stop flying to an airport in Worcester, Mass., which is a little over an hour’s drive from Boston Logan International Airport. It would also be allowed to stop flying to Aspen and Eagle, Colo.
Delta Air Lines would be able to stop service to Erie, Pa.; Flint, Mich.; Lincoln, Neb.; and Williston, N.D., among others. United Airlines would be able to stop flights to Fairbanks, Alaska; Kalamazoo, Mich.; Myrtle Beach, S.C.; and others.
The decision is rooted in the federal stimulus passed in late March, known as the CARES Act. Under that law, any airline that received federal assistance, including all of the major carriers, is required to maintain a minimum number of flights to locations that it had served before the pandemic erased virtually all demand for air travel. But the law also allowed the Transportation Department to grant exceptions, which it has done regularly for weeks.
The agency said it would review any objections or comments on its decision filed before 5 p.m. next Thursday.
China abandons growth target and lays plans to ramp up spending.
Chinese officials declined to set an economic growth target for this year and outlined plans to ramp up government spending, as they continue to look for ways to recover from the economic toll of the coronavirus.
In his annual report to Chinese lawmakers on Friday, Premier Li Keqiang said that the country’s leaders had declined to set a target for the first time in years “because our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment.”
China’s economy shrank in the first three months of the year compared with a year earlier, the first decline in the modern era, after efforts to fight the outbreak froze vast parts of its industrial machine.
China’s growth target represents a gauge of how the country’s leaders see the economy faring, and its official figures — which most economists consider to be too smooth and steady to be precisely accurate — generally meet or exceed the goal. Last year, it set a target of 6 percent to 6.5 percent.
Mr. Li’s report said China would ramp up government spending by $140 billion to stir growth, plus issue a similar amount on bonds for coronavirus recovery efforts. While significant, the spending represents about 2 percent of China’s annual economic output, a smaller proportion compared with what other countries have done. The country’s leaders are leery of putting in place the kind of debt-fueled stimulus programs that helped the Chinese economy rebound quickly from the global financial crisis a decade ago but burdened it with debt.
A mass firing on Zoom is the latest sign of unrest at Weight Watchers.
On the afternoon of May 14, Joanne Patten sat down at her computer in her home in Houston and logged in to a Zoom call with her employer, WW International, the company formerly known as Weight Watchers.
She listened as her boss, reading from a script, said she and the other employees on the Zoom call were being fired, effective when the three-minute session ended. It was one of numerous Zoom calls that occurred simultaneously across the country, resulting in the firing of an undisclosed number of WW employees.
For employees of WW, the mass terminations were especially painful because in recent years the company, under its chief executive, Mindy Grossman, and its high-profile investor and board member Oprah Winfrey, has moved from focusing on weight loss to a more full-on embrace of the broader wellness movement. In 2018, the company changed its five-decade-old moniker from Weight Watchers to WW and introduced the slogan “Wellness That Works.”
This is supposed to be a caring, wellness corporation,” said Ms. Patten, who said she would have preferred to be let go in a one-on-one conversation with her boss. “The way they did it, it was just heartless.”
Nick Hotchkin, the chief financial officer for WW, declined to say how many employees were fired through the Zoom calls; the company had more than 17,000 employees at the end of last year, most of them part-time workers.
Summer internships are vanishing, closing off a route to full-time employment.
For millions of college students, internships can be a steppingstone to full-time work, a vital source of income and even a graduation requirement.
Students who had locked down internships as early as September are now jobless. Others who had hoped to experience an office setting for the first time are instead looking for work at fast-food restaurants. Many low-income undergraduates, already saddled with student loans, are concerned that a jobless summer could put them at a disadvantage in future application cycles, making it harder to find full-time work after graduation.
“I feel like I had such a strong plan,” said Lydia Burns, whose internship at a nonprofit organization in Washington was canceled. “I knew what I was going to do — I had been working for it all of college. Now I don’t know what I’m going to do.”
Some companies are continuing to pay interns to work from home, sending corporate laptops in the mail and holding get-to-know-you sessions over Zoom. But students fear that remote internships will not afford the networking opportunities that can make spending a summer in an office so valuable, especially for interns who have few professional contacts.
Reduced demand for electricity leads to power giveaways.
The coronavirus pandemic has played havoc with energy markets. Last month, the price of benchmark American crude oil fell below zero as the economy shut down and demand plunged.
And now a British utility this weekend will actually pay some of its residential consumers to use electricity — to plug in the appliances, and run them full blast.
So-called negative electricity prices usually show up in wholesale power markets, when a big electricity user like a factory or a water treatment plant is paid to consume more power. Having too much power on the line could lead to damaged equipment or even blackouts.
Negative prices were once relatively rare, but during the pandemic have suddenly become almost routine in Britain, Germany and other European countries.
In Britain, the price of power plunged into negative territory 66 times in April, more than twice as often as in any previous month in the last decade, according to Iain Chappell, senior lecturer in sustainable energy at Imperial College in London. The reason for these dips is similar to what caused the price of oil to plunge: oversupply meeting a collapse in demand.
Amazon moves to regain its dominance.
Amazon remains by far the country’s biggest online retailer. But the coronavirus put the tech giant on its heels, struggling to keep up with a surge in demand while keeping its warehouses safe. As it stumbled, some of its top rivals pounced, grabbing more online shoppers.
But Amazon has been making changes to get customers back. The company is shipping many more items in a day or two and is again running promotions. It has also removed limits on the types of products allowed in its warehouses, meaning that more products can arrive on doorsteps quickly.
The changes position Amazon to recapture its customers who had fled elsewhere when the outbreak took hold. And the moves signal that Amazon’s leaders feel confident that the business, and in particular its shipping network, is no longer in crisis mode in response to the pandemic.
“They eliminated their own competitive advantage they had built over 20 years,” said John Ghiorso, who runs Orca Pacific, an agency that helps brands run their Amazon business. “Now they are getting it back pretty quickly.”
Alibaba credits China’s quick handling of the virus for stronger-than-expected sales.
The coronavirus outbreak caused China’s economy to shrink for the first time in decades in the first three months of this year. Its impact on the fortunes of the country’s biggest online shopping company was far less dramatic.
The Alibaba Group generated $16 billion in sales in the first quarter, up 22 percent from a year earlier, the company said on Friday. That was a slower pace of growth than the e-commerce giant typically reports, but it was better than Wall Street had feared a few months ago, when the company warned that sales in certain areas, such as its retail business in China, might shrink. (In fact, revenue in that segment was up 21 percent).
On a Friday conference call with analysts, Alibaba executives attributed the better-than-expected results to the Chinese government’s “effective” handling of the outbreak, which allowed the country to start reopening for business in late February and early March.
During the nationwide lockdown, sales of groceries were particularly strong, the company said. On the other hand, with people working from home and wearing face masks, sales of clothes and makeup were not as good.
Alibaba’s profit for the quarter was down by 88 percent from a year before, which the company attributed to losses on its investments in publicly traded stocks.
An unsteady day on Wall Street ends with a small gain.
It was an uneasy day for global stock markets, as China’s pledges to combat the damage of the coronavirus fell short of those by other countries, and Beijing’s efforts to tighten its grip in Hong Kong worried investors.
At the annual National People’s Congress, China’s leaders unveiled a plan to spend another $140 billion to combat the pandemic’s economic effects, an amount smaller than what other countries have earmarked to fight the outbreak-related global economic crisis.
China’s plan to place Hong Kong firmly under Beijing’s control and crack down on new antigovernment protests set off a sharp decline in the city’s stock market — which fell more than 5 percent.
The move could further increase tensions between the United States and China, coming as President Trump and Republican lawmakers seek to focus blame for the coronavirus outbreak on China’s leadership as part of their re-election strategy. On Thursday, when China’s plans for Hong Kong were announced, a number of U.S. senators proposed sanctions on Chinese officials.
After recovering from an early drop, the S&P 500 was slightly higher by the end of the day.
Other markets also leveled off. West Texas intermediate crude, for example, was down just 2 percent after earlier having fallen as much as 6 percent. The drop in oil futures came after they rose a total of 26 percent over six straight days.
It’s been a turbulent week for markets, with shares alternating between gains and losses as investors assessed new economic developments and the prospect of businesses reopening.
Thanks mostly to a big rally on Monday, the S&P 500 ended the week with a gain of more than 3 percent.
Catch up: Here’s what else is happening.
General Motors said on Friday that it was delaying plans to add second shifts next week at three pickup truck plants — in Flint, Mich., Ft. Wayne, Ind., and Silao, Mexico — because production in Mexico was resuming at a slower pace than in the United States. The company restarted its U.S. plants on Monday, and is still planning to add a second shift at a sport-utility vehicle plant near Lansing, Mich. next week as scheduled. It restarted engine and transmission plants in Mexico on Thursday evening, and vehicle assembly plants in Mexico on Friday.
Reporting was contributed by Julie Creswell, David Yaffe-Bellany, Stanley Kramer, Neal E. Boudette, Karen Weise, Niraj Chokshi, Raymond Zhong, David Segal, Mary Williams Walsh, Paul Mozur, Jason Karaian, Mohammed Hadi, Kate Conger, Sapna Maheshwari, Carlos Tejada, Daniel Victor and Kevin Granville.