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GM's China sales drop 5% in second quarter, underperforms industry recovery

BEIJING (Reuters) – General Motors Co’s (GM.N) vehicle sales in China dropped 5.3% between April and June from the corresponding period last year, underperforming the industry average amid a recovery from the coronavirus fallout on the world’s biggest auto market.

China’s overall figure, which includes passenger and commercial vehicles, rose 4.4% in April and 14.5% in May, said the China Association of Automobile Manufacturers (CAAM), adding that it expected auto sales to grow 11% in June.

GM, China’s second-biggest foreign automaker after Volkswagen AG (VOWG_p.DE), delivered 713,600 vehicles in the country in the second quarter, the company said in a statement, after reporting a drop of 43% in sales in the first quarter, due to the pandemic.

GM has a Shanghai-based joint venture in China with SAIC Motor Corp (600104.SS) which makes Buick, Chevrolet and Cadillac vehicles. It has another venture, SGMW, with SAIC and Guangxi Automobile Group that produces no-frills minivans and has started making higher-end cars.

Sales of GM’s mass-market brand Buick rose 7.8% while Chevrolet dropped 27.7% for the latest quarter. Sales of premium brand Cadillac fell 12%, GM said in a statement on Friday.

Sales of the no-frills brand Wuling grew 9.7%, but those of Baojun tumbled 30.7%.

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Oil falls as virus resurgence fears weigh on fuel demand recovery

SEOUL (Reuters) – Oil prices eased on Friday, reversing earlier gains, as the resurgence of the coronavirus globally and in the United States, the world’s largest oil consumer, stoked worries that a fuel demand recovery could stall.

Brent crude LCOc1 futures were down 29 cents, or 0.7%, at $42.85 a barrel as of 0339 GMT, and U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 31 cents, or 0.8%, to $40.34 a barrel.

Both benchmarks rose more than 2% on Thursday, buoyed by stronger-than-expected U.S. jobs data and a fall in U.S. crude inventories. For the week, Brent is up 4.4% and WTI is up 4.8%.

Increases in the daily cases of the coronavirus, however, globally and in the United States pressured prices. New U.S. COVID-19 cases rose by more than 50,000 on Thursday, setting a record for a third consecutive day, according to a Reuters tally.

“Crude oil prices are notoriously fickle when it comes to oscillations in global sentiment,” said Dimitri Zabelin, analyst at DailyFX.

Should the number of coronavirus cases continue to grow and increase the need to take stronger measures to stem the spread of the virus, the weakened growth implications of such policies could weigh on crude oil prices, Zabelin said.

“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.

Gasoline demand will be closely watched as the United States heads into its July 4 holiday weekend when many Americans are expected to hit the road

“The recovery in gasoline demand will plateau until the U.S. economy improves,” ANZ Research added.

U.S. gasoline stocks USOILG=ECK rose by 1.2 million barrels in the week to June 26, according to data from the Energy Information Administration released on Wednesday.

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Delta amends credit facility to include stricter covenants

(Reuters) – Delta Air Lines Inc (DAL.N) said on Thursday it has amended its $2.65 billion credit facility agreement with covenants, which include restricting the U.S. airline’s ability to pay dividends or repurchase stock before Sept. 30, 2021.

The amendment also requires the company to maintain a minimum liquidity of $2 billion.

The amended facility includes a $1.33 billion three-year facility, $1.25 billion of which has been extended for an additional year to April 2022, and a new $216 million standby letter of credit facility, which matures in April 2022.

The airline industry was especially hard hit as the COVID-19 pandemic led to countries around the world imposing travel restrictions, resulting in airlines slimming down their workforce and bolstering their balance sheet.

Last month, Delta Air Lines forecast a 90% plunge in second-quarter revenue and warned it would need to renegotiate its debt agreements to avoid a default next year.

The company now has the option of pledging aircraft, among other assets, as additional collateral, Delta Air Lines said in a filing. (bit.ly/3izyR4C)

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Asian stocks set to follow U.S. jobs rally, China in focus

NEW YORK (Reuters) – Asian stocks were likely to track a firmer Wall Street session on Friday after strong U.S. jobs data although growing Sino-U.S. tensions and a worrying surge in coronavirus cases is likely to cap gains.

Japan’s Nikkei 225 futures rose 0.45% and Australia’s S&P/ASX 200 futures climbed 0.58%.

E-mini futures for the S&P 500 rose 0.14%.

“While June data reflected a big improvement in the U.S. labor market, the recent sharp acceleration in new virus cases plus the prospect of an end to unemployment benefits by the end of July are two big layers of uncertainty,” said NAB Markets analyst Rodrigo Catril, adding that the uptick in U.S. cases could mean extended headwinds for the labor market.

Wall Street ended Thursday higher following a record increase in payrolls and a decline in unemployment. U.S. markets are closed on Friday in observance of Independence Day.

However, investor focus is shifting to worsening strains between China and the United States.

More than 75 U.S. members of congress sent a letter to the President Donald Trump urging him to take make a formal determination on whether China’s treatment of Muslim Uighurs and other groups constitutes an atrocity.

The U.S. State Department also warned American companies including Amazon.com Inc, Walmart Inc and Apple Inc to check their supply chains and ensure they are not doing business with entities linked to alleged human rights abuses against Uighurs in China’s Xinjiang province.

Separately, Congress passed legislation seeking to punish banks that do business with Chinese officials who implement Beijing’s draconian new national security law on Hong Kong.

MSCI’s gauge of stocks across the globe gained 0.92%. The Dow Jones Industrial Average rose 0.36%, the S&P 500 gained 0.45% and the Nasdaq Composite added 0.52%.

The positive economic data also pushed oil prices higher.

Brent crude futures settled at $43.14 a barrel, rising $1.11, or 2.6%. U.S. West Texas Intermediate (WTI) crude futures settled at $40.65 a barrel, up 83 cents, or 2.1%.

Investors still embraced the safe-haven dollar and gold, which usually rise when risk appetite declines, as an acceleration in new COVID-19 cases across the country prompted fresh restrictions.

The dollar index rose 0.058%, with the euro up 0.01% to $1.1239.

The Japanese yen weakened 0.02% versus the greenback at 107.53 per dollar, while sterling last traded at $1.2468, up 0.02% on the day.

Spot gold rose 0.4% to $1,777.04 per ounce

U.S. Treasury yields ended the day lower ahead of the July 4 long weekend, with the benchmark 10-year yield fell 1.1 basis points at 0.6709%.

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Oil falls as growing coronavirus cases stoke fuel demand worries

SEOUL (Reuters) – Crude prices fell on Friday as the resurgence of the coronavirus globally and in the United States, the world’s largest oil consumer, dimmed the prospects of fuel demand recovery.

Brent crude LCOc1 futures were down 37 cents, or 0.9%, at $42.77 a barrel as of 0042 GMT, and U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 34 cents, or 0.8%, to $40.31 a barrel.

Both benchmarks rose more than 2% on Thursday, buoyed by stronger-than-expected U.S. jobs data and a fall in U.S. crude inventories. For the week, Brent is up 4.3% and WTI is up 5.6%.

Increases in the daily cases of the coronavirus, however, globally and in the United States pressured prices. New U.S. COVID-19 cases rose by more than 50,000 on Thursday, setting a record for a third consecutive day, according to a Reuters tally.

“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.

“The recovery in gasoline demand will plateau until the U.S. economy improves,” it said.

Gasoline demand will be closely watched as the United States heads into its July 4 holiday weekend as many Americans are expected to hit the road.

U.S. gasoline stocks USOILG=ECK rose by 1.2 million barrels in the week to June 26, according to data from the Energy Information Administration released on Wednesday. [EIA/S]

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Dominican Republic eyes opportunities as U.S. firms adjust supply chains

WASHINGTON (Reuters) – U.S. companies are expanding and opening new plants in the Dominican Republic as they diversify their supply chains, moves that will help offset the economic impact of the new coronavirus pandemic, the Dominican economy minister said.

Juan Ariel Jimenez told Reuters he expected the Caribbean island nation to boost exports by 5 to 10% in 2021, aided in part by a rise in gold prices, as well as increased production of medical devices and equipment, a key growth sector.

Exports of medical and pharmaceutical products from Dominican free trade zones expanded nearly 4% from January to May, Dominican customs data show, and could expand by up to 10%, according to a survey of 34 companies active in the sector.

Two medical equipment makers, Florida-based Jabil (JBL.N) and the U.S. unit of Italy’s privately-held COSMED, began operations in the Dominican Republic in recent months, said Silvia Cochon of the Dominican National Free Zones Council.

Six others, including Medtronic (MDT.N), are expanding existing operations and adding new lines of business to their work in the Dominican Republic, she told Reuters.

Economy minister Jimenez said he is in talks with two to three additional large U.S. firms in the medical sector about new production facilities, but declined to name them. Positive decisions would add hundreds of millions of dollars to the current foreign direct investment level of over $5 billion, he said.

“We are seeing a lot of interest,” Jimenez said. He said the Dominican Republic was poised to benefit from a global shift to more regional supply chains, given its low labor costs, stable political situation, strong economic fundamentals, good transportation and logistics, and close proximity to the United States.

Many companies in the Dominican Republic, including apparel makers, have shifted gears to produce more N95 face masks and respond to a surge in demand.

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Dollar in narrow range as U.S. virus cases grow

TOKYO (Reuters) – The dollar was hemmed into a narrow range on Friday, supported by safe-haven flows as a resurgence of the coronavirus in the United States discouraged some investors from taking on excessive risk.

The yuan was stable in offshore trade before data on China’s services sector, but investors may avoid taking big positions due to worries about diplomatic friction between Washington and Beijing over civil liberties in Hong Kong.

The U.S. economy added more jobs than expected in June, data showed on Thursday, but reaction in the currency market has been muted because another spike in coronavirus infections threatens to once again put the breaks of economic activity.

“New infections in the United States have been on an uptrend since June,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“The market is leaning more toward buying the dollar, particularly against emerging market currencies, because the dollar is considered the safest asset around.”

Against the euro EUR=D3, the dollar was quoted at $1.2395 on Friday in Asia.

The dollar held steady at 0.9469 Swiss franc CHF=D3 on Friday after three straight days of gains.

The British pound GBP=D3 traded hands at $1.2471.

The dollar was little changed at 107.50 yen JPY=EBS.

A wave of coronavirus infections has prompted the halting of or back-pedalling on plans to reopen economic activity in several U.S. states after months of strict lockdowns.

Officials are also taking steps to curtail activity during the extended Independence Day holiday weekend starting on Friday.

Trading in currency markets on Friday may be subdued before the U.S. holiday, but analysts say sentiment favours more gains in the dollar as investors turn cautious.

Relations between the United States and China are also in focus.

The U.S. Senate unanimously approved legislation on Thursday to penalize banks doing business with Chinese officials who implement Beijing’s new national security law for Hong Kong, raising the chances of further friction between the world’s two- largest economies.

In the offshore market, the yuan CNH=D3 was little changed at 7.0732 per dollar.

The Australian dollar AUD=D3 held steady at $0.6917 on Friday before data expected to show a sharp rebound in retail sales in May.

Across the Tasman Sea, the New Zealand dollar NZD=D3 traded at $0.6509.

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Investors rethink yield curve control horizon as Fed raises doubts

NEW YORK (Reuters) – Investors are dialing back expectations that the U.S. Federal Reserve may soon move to implement yield curve control, with some of them welcoming skepticism from the central bank in considering such a move.

Federal Reserve minutes released on Wednesday showed serious questions were raised about the strategy. Some bond market players had become increasingly convinced that one of the Fed’s next moves would be to cap yields at a specific point on the curve, by buying 2- or 3-year maturities for example.

“The simple reason the Fed will be skeptical is that you are asking a central bank to embark on a very risky change in policy, and it’s not clear that where it has been attempted,┬áit actually works,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.

The Fed’s discussion has centered on whether to import the sort of long-term interest rate targeting currently used by the Bank of Japan (BOJ) and the Reserve Bank of Australia (RBA).

Various Fed members have talked about yield curve control the past couple of months. In May, Fed Vice Chair Richard Clarida and New York Federal Reserve Bank President John Williams said yield curve control could be a tool to complement forward guidance.

Yields on two-year, three-year, five-year and seven-year issues have fallen since the March stock market sell-off and since Fed officials started talking about yield curve control.

For a graphic on Yield control by stealth:

here

“I think there was a subset of market participants that saw (yield curve control) by September as a foregone conclusion,” said John Roberts at NatWest Markets, who added that the front-end of the U.S. Treasury curve “cheapened a bit following the release of the minutes, so it’s possible some were unwinding YCC trades”.

Analysts at Goldman Sachs said in a research note Wednesday that they no longer expect yield curve control to be introduced at the Fed’s September meeting, although they still expect the committee to recognize the policy as an option for the future in its framework review.

Fed officials did appear to favor crafting some promises about the future – in effect making a pledge not to raise rates until some goal is met.

“What they made very clear is (yield curve control) is not their first tool of choice, it is ahead of negative interest rates but behind explicit outcome-based forward guidance,” said Jason Ware, chief investment officer at Albion Financial Group.

Controlling bond yields by purchasing certain maturities of U.S. Treasuries would keep yields where the Fed desires and help keep credit and business lending rates low.

The expectation for yield curve control has come as the U.S. Treasury has greatly increased borrowing. It announced in May plans to borrow nearly $3 trillion in the second quarter, more than five times larger than the previous record, while the July-September quarter would see borrowing of $677 billion.

For a graphic on Monthly U.S. Treasury issuance by tenor:

here

Marvin Loh, senior global macro strategist at State Street Global Markets in Boston, said he would take yield curve control “off my plate for 2020 unless we really see yields rise,” adding that if yields in the 3-7-year part of the curve were to get “out of control, particularly given how much issuance the U.S. Treasury has been doing, then the market would wind up more concerned.”

Still, the focus on yield curve control has “basically meant that the Fed has already accidentally implemented it,” said Jon Hill, U.S. rates strategist at BMO Capital Markets, citing five-years yields hitting all-time lows on Tuesday.

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U.S. job growth roars back, but COVID-19 resurgence threatens recovery

WASHINGTON (Reuters) – The U.S. economy created jobs at a record clip in June as more restaurants and bars reopened, but 31.5 million Americans were collecting unemployment checks in the middle of the month, and a resurgence in COVID-19 cases suggested the labor market could suffer a setback in July.

Record spikes in new coronavirus infections in large parts of the country, including Arizona and the highly-populated states of California, Florida and Texas, have forced several jurisdictions to scale back or pause reopenings, and send some workers back home.

The flare-up in the respiratory illness, which started in late June and hit bars and restaurants hard, was not captured in the Labor Department’s closely watched monthly employment report published on Thursday because the government surveyed businesses in the middle of the month.

“June may be the calm before the storm,” said Chris Rupkey, chief economist at MUFG in New York. “We cannot be sure the labor market recovery will continue at a speed that is sufficient to put the millions and millions of Americans made jobless in this recession back to work.”

Nonfarm payrolls surged by 4.8 million jobs in June, the most since the government started keeping records in 1939. Payrolls rebounded 2.699 million in May after a historic plunge of 20.787 million in April.

Economists polled by Reuters had forecast payrolls would increase by 3 million jobs in June. Still, employment is 14.7 million jobs below its pre-pandemic level. The jobs recouped are for workers who were temporarily unemployed.

President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice four months before the Nov. 3 election, hailed the job gains as proof “our economy is roaring back.”

Though the second straight month of strong hiring added to a stream of data, including consumer spending, in suggesting that the recession which started in February was likely over, that is all history as the coronavirus rages.

Federal Reserve Chair Jerome Powell this week said the economic outlook “is extraordinarily uncertain” and would depend on “our success in containing the virus.”

Hiring last month was boosted by the typically low-paying leisure and hospitality industry, which brought back 2.1 million jobs, accounting for about two-fifths of the rise in payrolls.

The return of these workers pushed down average wages 1.2%. Companies are cutting wages and hours. The average workweek dropped to 34.5 hours from 34.7 hours in May.

The measurement of the unemployment rate continued to be biased downward by people misclassifying themselves as being “employed but absent from work” last month. The jobless rate fell to 11.1% from 13.3% in May.

Without the misclassification, it would have been 12.3%. The unemployment rate is 7.6 percentage points above its February level. Unemployment dropped for all gender and demographic groups, though joblessness stayed disproportionately high among Blacks and Hispanics. The number of people who have permanently lost their job increased 588,000 to 2.9 million.

Related Coverage

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“These workers will likely struggle to regain employment in an economy facing suppressed demand,” said Beth Akers, senior fellow at the Manhattan Institute.

Stocks on Wall Street rallied, with the Nasdaq hitting an all-time high. The dollar .DXY edged up against a basket of currencies. U.S. Treasury prices were trading higher.

For a graphic on Rebounding from the COVID-19 crunch:

here

BROAD GAINS

Jobs also returned in the retail, education and health, manufacturing, construction, professional and business services sectors, transportation and warehousing, wholesale trade and financial activities sectors.

Local governments hired teachers and support staff. But state governments, confronting reduced revenues and stressed budgets caused by the pandemic, laid off more workers. There were further job losses in mining.

Hiring has been boosted by the government’s Paycheck Protection Program, which gives businesses loans that can be partially forgiven if used for wages. Those funds are drying up and many companies, including some not initially impacted by lockdown measures, are struggling with weak demand, forcing them to lay off workers.

That has triggered a second wave of layoffs, keeping weekly new applications for unemployment benefits extraordinarily high.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits fell 55,000 to a seasonally adjusted 1.427 million for the week ended June 27.

The claims report is the most timely data on the economy’s health. Including a program funded by the government, 2.3 million people filed claims last week.

The number of people receiving benefits after an initial week of aid rose 59,000 to 19.290 million in the week ending June 20. There were 31.5 million people receiving unemployment checks in mid-June, up 916,722 from the first week of the month.

With roughly a fifth of the workforce on jobless rolls, economists say the government should extend the extra $600 it pays per week in unemployment compensation when that benefit expires on July 31.

“Failure to take action would severely dent the chances of a rapid recovery,” said James Knightley, chief international economist at ING in New York.

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Wall Street jumps on record payrolls surge

NEW YORK (Reuters) – Wall Street advanced on Thursday as investors headed into their long holiday weekend buoyed by a record payrolls jump, which provided assurance that the U.S. economic recovery was well under way.

All three major U.S. stock averages were more than 1% higher, with the S&P 500 set to post its fourth straight daily advance and the Nasdaq on course to reach a second straight all-time closing high.

Massive stimulus and hopes for a speedy economic rebound have returned the S&P 500 and the Nasdaq to about 7% and 12% below their record highs reached in February.

The indexes are all on track for solid weekly percentage gains.

The U.S. economy added 4.8 million jobs in June according to the Labor Department, 1.8 million more than analysts expected, setting a second consecutive record.

Massive rehiring sent the unemployment rate down to 11.1%.

“A lot of these numbers when you dig into the report – average weekly hours people are working, average hourly earnings … those things are just showing that we are getting back to work,” said Justin Hoogendoorn, head of Fixed Income Strategic Analytics at Piper Sandler in Chicago. “And that’s what’s going to allow the stock market to continue to perform well.”

Even with May and June’s consecutive record payroll gains, the labor market has still recovered only a fraction of the 22 million jobs lost in the March-April plunge.

The recovery of the U.S. economy, now in its sixth month of recession, could stall as new cases of COVID-19 hit record levels and several states hit hardest by the resurgence halted or reversed plans to reopen their economies.

On Thursday, Florida reported a record-shattering 10,000 new cases of the disease, worse than any European country reported at the peak of their outbreaks.

In the coming weeks, market participants will train their focus on second-quarter reporting season. In aggregate, analysts now expect S&P earnings to have dropped by 43.1% as companies grappled with plunging demand and disrupted supply chains.

The Dow Jones Industrial Average rose 298.31 points, or 1.16%, to 26,033.28, the S&P 500 gained 36.36 points, or 1.17%, to 3,152.22 and the Nasdaq Composite added 120.31 points, or 1.18%, to 10,274.94.

All 11 major sectors in the S&P 500 were trading in the black, with energy shares enjoying the largest percentage gain.

Microsoft Corp provided the biggest boost to the S&P 500 and the Nasdaq, and in June retained its top spot as the most globally invested stock, according to data from trading platform eToro.

Airlines, battered by pandemic-related travel restrictions, gained altitude. The S&P 1500 Airlines index was up 1.2%

Tesla Inc jumped 7.8% after the electric car maker’s second-quarter vehicle deliveries beat Wall Street estimates.

Advancing issues outnumbered declining ones on the NYSE by a 2.98-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored advancers.

The S&P 500 posted 35 new 52-week highs and no new lows; the Nasdaq Composite recorded 115 new highs and 10 new lows.

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