Plus, the OECD warned that the coronavirus has caused the worst recession outside wartime in 100 years, Starbucks expects to lose $3.2 billion in revenue in its fiscal third quarter, and Taubman shares are down more than -20% after Simon Property Group said it is terminating its deal to acquire the luxury mall owner.
Stocks were mixed to start Wednesday with the Dow dropping 200 points, or 0.7%, while the S&P 500 fell 0.3%. The Nasdaq continued its march higher, rising more than 0.4% to a fresh record high.
The OECD warned that the coronavirus pandemic is splintering the world economy and is on-track to cause the worst recession outside wartime in 100 years. It also forecast a global slump of 6% this year, or 7.6% if a second wave of the deadly virus results in more strict lockdowns and travel restrictions, and warned policy makers not to risk a premature withdrawal of lifelines to businesses and the most vulnerable people. “Economic impacts are dire everywhere,” the OECD said in its Economic Outlook published today. “The recovery will be slow and the crisis will have long-lasting effects, disproportionately affecting the most vulnerable people.” Laurence Boone, chief economist at the OECD, said that “it’s really important we don’t repeat the mistake of the financial crisis and that we do support this transition until growth and employment growth regains momentum. We’re never seen such uncertainty. That’s the most difficult thing in this crisis – things have to evolve week by week because the situation may change so dramatically.”
The Federal Open Markets Committee will release its first quarterly forecasts since December alongside its latest monetary policy decision this afternoon. The Fed is expected to keep interest rates unchanged at between 0% and 0.25%, as well as signal that it is not ready to exit emergency policies introduced to keep credit flowing amid the coronavirus pandemic. Even with last week’s surprisingly positive jobs figure, the Fed is unlikely to change its outlook and economists polled by Bloomberg don’t expect a rate hike until 2022. “I don’t think the Fed is going to back off at all here,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. “This is a longer-term endeavor. We think rates are going to be on hold here for a long period of time. And, when you look at some of their programs, they’re just getting these lending facilities up and running.”
Starbucks shares are down more than -4% this morning said it expects to report a loss of as much as $3.2 billion in revenue in its fiscal third quarter due to the coronavirus. The coffee giant is expecting a net loss of $0.64 to $0.79 per share and adjusted losses per share of $0.55 to $0.70 for the quarter ending June 28, though said it expects its earnings will improve in its fiscal fourth quarter. “With each passing week, we are seeing clear evidence of business recovery, with sequential improvements in comparable store sales performance,” CEO Kevin Johnson and CFO Pat Grismer wrote in a letter to shareholders. “The Starbucks brand is resilient, customer affinity is strong and we believe the most difficult period is now behind us.” Starbucks also said it plans to accelerate the rollout of its “pickup” store concept, with smaller-format locations that don’t have customer seating. “While we had originally planned to execute this strategy over a three- to five-year timeframe, rapidly evolving customer preferences hasten the need for this concept,” the company said.
Uber shares are also down following reports that it is likely to pull out of its merger talks with Grubhub over antitrust concerns raised by the potential deal. Instead, Grubhub is likely to merge with a European rival, according to CNBC’s David Faber. The news comes after several Democratic lawmakers expressed concerns over the possible deal, which would have created a new market leader in the U.S. online restaurant delivery space over rival DoorDash. But that’s not the only deal that’s no longer happening. Simon Property Group said this morning that it has exercised its contractual rights to terminate its deal to acquire the high-end mall owner Taubman Centers. “Taubman’s significant proportion of enclosed retail properties located in densely populated major metropolitan areas, dependence on both domestic and international tourism at many of its properties, and its focus on high-end shopping have combined to impact Taubman’s business disproportionately due to the COVID-19 pandemic when compared to the rest of the retail real estate industry,” Simon Property Group said. Taubman shares are currently down more than -22% on the news.
And AMC Entertainment shares are up nearly 12% after it said it expects to reopen theaters globally in July after shutting them down in March due to the coronavirus pandemic. In its earnings call yesterday, the world’s largest movie theater operator said it plans to reopen nearly all of its locations in the U.S. and U.K. in time to showcase Christopher Nolan’s “Tenet,” which is slated for release on July 17, and Disney’s “Mulan” on July 24. “We remain cautious on the company’s outlook as well as that of the industry ahead of theater re-openings in the coming weeks,” said Eric Wold, analyst at B. Riley FBR Research, in a research note, “with continued focus on how receptive consumers are to returning to theaters, how robust the film slate remains, and the level of impact from attendance restrictions.”
Stocks We’re Watching
Immuron Ltd (NASDAQ: IMRN): Immuron shares skyrocketed as much as 1,280% yesterday after the biopharma stock announced that collaborator the Naval Medical Research Center (NMRC) has requested a pre-IND meeting with the FDA regarding an IND for a new oral therapeutic to treat Campylobacter (campylobacteriosis) and E. Coli infections. “The Australian Importation permit required to ship the vaccines from the NMRC was approved by Biosecurity Australia and the NMRC vaccines were shipped to our contract research partner to commence the project,” said Immuron Chief Executive Jerry Kanellos. “The plan is to have the product completed by the end of this year and have it ready for clinical evaluation next year.”