Wall Street set to open higher on surprise drop in unemployment rate

(Reuters) – The S&P 500 and Dow Jones indexes were set to jump at the open on Friday after a closely watched report showed a surprise drop in the U.S. unemployment rate, lending weight to hopes of a faster economic rebound from a coronavirus-driven slump.

The unemployment rate unexpectedly fell to 13.3% in May from 14.7% in April and layoffs abated, the Labor Department said on Friday. Economists polled by Reuters had forecast the jobless rate jumping to 19.8%.

Interest-rate sensitive stocks including Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co jumped between 3.8% and 8.8% as U.S. Treasury yields rose after the data. [US/]

“This is completely out of expectations,” said Subadra Rajappa, head of U.S. rates strategy in Societe Generale, New York.

“This is a tremendously positive step in the right direction, and probably points to a faster recovery, at least in the jobs market, than people had expected.”

Wall Street has rebounded sharply from a coronavirus-driven crash in March as investors bet on a revival in business activity following the easing of a nationwide lockdown.

The Nasdaq Composite, S&P 500 and Dow Jones indexes are now down about 2%, 8%, and 11% from their respective all-time highs.

At 8:56 a.m. ET, Dow e-minis were up 630 points, or 2.4%, S&P 500 e-minis were up 47.25 points, or 1.52% and Nasdaq 100 e-minis were up 4.75 points, or 0.05%.

Boeing Co gained 8.0% premarket on hopes of a pickup in air travel a day after American Airlines Group Inc and United Airlines said they would boost their U.S. flight schedule next month. American Airlines surged 27.3% and United Airlines jumped 20.6%.

Fears of more disruptions from social unrest have also eased in the past two days, with the largely peaceful protests against the killing of a black man in police custody waning into Friday morning and emergency curfews in many cities being lifted.

Vaccine maker Novavax Inc jumped 10% after saying it would receive up to $60 million from the U.S. Department of Defense to fund manufacturing of its COVID-19 vaccine candidate.

Apparel retailer Gap Inc gained 2.1% even as it reported a quarterly loss of nearly $1 billion due to coronavirus-induced store closures.

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Coronavirus: JLR Midlands plant to stay shut until August

One of Jaguar Land Rover’s key British plants will remain closed until at least mid-August as the industry grapples with sluggish demand amid the COVID-19 crisis.

Sky News understands that JLR, Britain’s biggest carmaker, has informed suppliers that its Castle Bromwich site in the Midlands will not resume production until 10 August at the earliest.

The extended shutdown at the plant, which produces Jaguar XE, XF and F-Type Jaguars, reflects torrid conditions across the sector, with Bentley Motors becoming the latest manufacturer to confirm permanent job losses on Friday.

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WeWork Global to invest $100 million in India business

BENGALURU (Reuters) – WeWork will invest $100 million in its Indian business as the office-sharing startup looks to work its way through the ongoing coronavirus crisis, which has hit its business and kept people indoors for months.

WeWork’s India franchise in May laid off 100 employees or 20% of its workforce, joining a slew of firms that are cutting costs. [nL4N2D11UO]

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Futures gain as recovery optimism lingers ahead of May jobs data

(Reuters) – U.S. stock index futures rose on Friday with S&P 500 futures hitting a three-month high, as investors focused on tentative signs of a post-coronavirus economic rebound ahead of another expected plunge in U.S. employment data.

Friday’s report from the Labor Department is likely to show the U.S. unemployment rate shooting up to almost 20% in May, a new post-World War Two record, but investors have so far shrugged off dire data on hopes that an easing of coronavirus-led lockdowns would revive business activity.

The Nasdaq 100 .NDX became the first U.S. equity index on Thursday to reclaim its all-time high, with the rebound driven partly by tech-related firms including Amazon.com Inc (AMZN.O) and Netflix Inc (NFLX.O).

The Nasdaq Composite .IXIC, which is more closely watched than the Nasdaq 100, is just about 2% below its own record high, while the S&P 500 .SPX and Dow Jones .DJI indexes are 8% and 11% below their respective all-time highs.

Fears of more disruptions from social unrest have also reduced in the past two days, with the largely peaceful protests against the killing of a black man in police custody waning into Friday morning and emergency curfews in many cities being lifted.

At 6:11 a.m. ET, Dow e-minis 1YMcv1 were up 270 points, or 1.03%, S&P 500 e-minis EScv1 were up 20.25 points, or 0.65% and Nasdaq 100 e-minis NQcv1 were up 25.5 points, or 0.26%.

Boeing Co (BA.N) gained 4% premarket on continued optimism about a pickup in air travel a day after American Airlines Group Inc (AAL.O) said it would boost its U.S. flight schedule next month.

Vaccine maker Novavax Inc (NVAX.O) jumped 14.9% after saying it would receive up to $60 million from the U.S. Department of Defense to fund manufacturing of its COVID-19 vaccine candidate.

However, apparel retailer Gap Inc (GPS.N) fell 2.4% as it reported a quarterly loss of nearly $1 billion due to coronavirus-induced store closures.

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Pompeo calls Nasdaq's strict rules a model to guard against fraudulent Chinese companies

WASHINGTON (Reuters) – U.S. Secretary of State Mike Pompeo on Thursday warned American investors against fraudulent accounting practices at China-based companies and said the Nasdaq’s recent decision to tighten listing rules for such players should be “a model” for all other exchanges around the world.

His remarks on the issue, reported first by Reuters before being delivered via a statement, illustrate the Trump administration’s desire to make it harder for some Chinese companies to trade on exchanges outside of China. It also adds to the growing list of flashpoints for two countries already at odds over issues such as trade, COVID-19 and Hong Kong.

President Donald Trump issued a memorandum on Thursday calling for recommendations to be issued within 60 days to protect U.S. investors from what he said was China’s failure to allow audits of U.S.-listed Chinese companies.

“American investors should not be subjected to hidden and undue risks associated with companies that do not abide by the same rules as U.S. firms,” Pompeo said in his statement. “Nasdaq’s action should serve as a model for other exchanges in the United States, and around the world.”

“I applaud Nasdaq for requiring auditing firms to ensure all listed companies comply with international reporting and inspection standards,” Pompeo added, referring to the U.S. bourse’s decision to tighten listing rules in a bid to curb initial public offerings of Chinese companies closely held by insiders and with opaque accounting.

Nasdaq Chief Executive Adena Friedman said on Thursday addressing the overseas accounting issues is a matter for the U.S. Securities and Exchange Commission (SEC).

The exchange’s action came after Chinese coffeehouse chain Luckin Coffee Inc (LK.O), which had a U.S. IPO in early 2019, announced that an internal investigation showed its chief operating officer and other employees fabricated sales deals.

Chinese foreign ministry spokesman Geng Shuang said the United States was making hasty generalisations about Chinese firms’ accounting practices.

“Forcing Chinese companies to retreat from the U.S. will severely damage the interest and rights of U.S. investors,” he said.

Trump said last week his administration would begin the process of eliminating special U.S. treatment for Hong Kong to punish China, saying Beijing’s move to impose new national security legislation meant the territory no longer warranted U.S. economic privileges.

He also said he was instructing a presidential working group to study the differing practices of Chinese companies listed on the U.S. financial markets, with the goal of protecting American investors.

“The real issue is the lack of transparency and the lack of disclosure to the American investors,” Keith Krach, undersecretary for economic growth, energy and the environment at the U.S. State Department, told Reuters on Wednesday.

“No country should be allowed to lie to the American investors to create an unfair advantage, especially when operating in American markets,” Krach said.

Many U.S.-listed Chinese firms will likely list on the Hong Kong exchange this year, in part because of U.S. political pressure, the head of the exchange said Thursday.

The SEC has been locked in a decade-long struggle with the Chinese government to inspect audits of U.S.-listed Chinese companies. In April, SEC chief Jay Clayton warned investors about disclosure problems with Chinese companies.

A senior U.S. official said he hoped the SEC would review a memorandum of understanding signed with China in 2013, allowing Chinese companies to withhold information if their local laws forbid them from sharing it.

“That waiver should probably be reviewed at this point in time as to whether it is still appropriate and if not be rescinded,” he said, adding that the decision was up to the SEC.

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Virtual certainty? Bankers ask if success of remote roadshows will last

HONG KONG/NEW YORK (Reuters) – Who needs expensive lunches at glitzy hotels and fancy restaurants to court investors for bond deals or the sale of new shares on the stock exchange?

In a world governed by quarantine and social distancing rules, even lead managers on multi-billion dollar deals have had to curtail travel and drop the personal touch in favour of video conferences and phone calls to woo potential investors.

Warner Music Group is one of more than a dozen companies that launched an initial public offering (IPO) in the aftermath of the COVID-19 pandemic and saw their shares soar on the first day trading.

“The wear from a virtual roadshow is much less than the wear and tear on the old normal roadshow. I was pleasantly surprised,” Warner Music Group chief executive Stephen Cooper said in an interview following this company’s IPO this week.

Some investors were also happy with the switch, because they saved time travelling to meetings with companies and their IPO advisers.

“When you meet face-to-face, you have to get everyone together into the lift, some people need to get their Starbucks… that one hour turns into one-and-a-half hours,” said Khiem Do, head of Greater China investments at Barings in Hong Kong.

All over the world, companies and their advisers have given up on the traditional multi-city investor roadshow – lasting up to two weeks – in favour of virtual sessions e investors that only last a few days.

So far the change has worked. U.S. IPOs excluding those of special purpose acquisition companies have yielded average gains of 35%, according to data firm IPOScoop. The S&P 500 Index has risen only around 6.6% in that period.

“In New York City you would normally do six or seven one-on-one meetings plus a group event. Boston is about the same. Now you can do at least nine in a day with no travel time,” said Taylor Wright, co-head of U.S. equity capital markets at Barclays Plc.

However, Wright and other bankers interviewed by Reuters questioned whether virtual roadshows will completely replace physical gatherings when the pandemic subsides. They said that many companies behind the IPOs of the last few weeks had warmed up investors in person before the pandemic, and younger companies may not be able to court investors only virtually.

For example, coffee producer JDE Peet’s raised 2.25 billion euros ($2.50 billion) in Amsterdam last week, in Europe’s biggest IPO of the year with a virtual roadshow that lasted just three days. It only managed to do so because the company and its advisers had already met in person with many potential investors, bankers on the deal said. [nL8N2DE0L9]

JDE Peet’s did not immediately respond to a request for comment outside business hours.

“If roadshows cannot carry on, I feel some investors won’t be willing to invest as happily,” said Zhenro Properties chief financial officer Kenny Chan, speaking in mid-May as the company raised $200 million via online roadshows in Asia’s first junk-rated bond for almost two months.

Many bankers and executives said they missed the social interaction, as well as the ability to ask questions quietly after in-person meetings.

Moreover, many of the IPOs that were successful in the last few weeks, including business intelligence platform ZoomInfo Technologies Inc and insurance policy comparison website SelectQuote Inc, were of well-established companies. Some IPO advisers cautioned that some startups and young less-known companies will struggle to pique investors’ interest without wooing them in person.

“Gathering in a hotel ballroom and listening to a roadshow presentation is just a different dynamic and vibrancy,” said Jocelyn Arel, a partner at law firm Goodwin Procter’s corporate and technology companies group

“I think it’s harder for startups, as they’re still trying to network remotely through video.”

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Goldman Sachs executive's email making plea for racial equality goes viral at firm

(Reuters) – An email by a Goldman Sachs Group Inc (GS.N) employee about his experiences of racial injustice and criticizing managers at the Wall Street bank for not supporting junior bankers from diverse backgrounds went viral at the firm this week.

The email by Frederick Baba, a managing director at the bank who is black, coincides with other Wall Street executives and companies speaking out against racial inequality after the death of an African American man, George Floyd, during an arrest by a white police officer who held a knee on his neck in Minneapolis on May 25.

On Tuesday, Bank of America Corp (BAC.N) pledged $1 billion to help communities address economic and racial inequality. Goldman Sachs on Wednesday created a $10 million fund for racial equity. The CEOs of JPMorgan Chase & Co (JPM.N), Citigroup (C.N) and Wells Fargo & Co (WFC.N) have also made statements denouncing racism and discrimination.

Baba, who works in Goldman’s electronic trading business, according to his LinkedIn, initially sent the email with the subject line “How it’s going…” to a group of bankers he works with on June 2 after Floyd’s death led to sometimes violent protests across the United States.

But the letter ended up being so widely forwarded that it was seen by almost everyone at the bank – which employs around 38,000 people globally – including CEO David Solomon, according to a source familiar with the matter.

Solomon emailed Baba with a personal note in response, the person said without elaborating on what Solomon wrote. The letter has been posted on Goldman’s internal website, the person said.

“To everyone who’s asked me some variant of “how’s it going?” over the past month, I’ve probably lied. Or lacked the words to articulate it fully, but I’m giving it a shot,” Baba wrote in the email seen by Reuters.

“…the past few months have been demoralizing, and family/friends/colleagues I’ve spoken with and listened to across the firm and country seem to share this feeling,” he wrote, going on to mention minorities hard hit by the coronavirus pandemic.

Baba goes on to draw a detailed account of his experiences witnessing and being subjected to racial discrimination and aggression, including a 2011 encounter with Chicago police. Baba said the Chicago police slammed him against the hood of a cruiser because he matched the generic description of a black man wearing a t-shirt and shorts.

“I went home and I cried for the first time in years,” he wrote.

At the end of the letter, Baba calls on his colleagues to take action to counter racial inequality, including at work.

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  • 'How it's going …' Goldman executive's email on racial inequality in America

“A common bit of feedback from our junior colleagues is that while our firm expresses a commitment to equality and social justice up top, they don’t necessarily see commitment and support from their direct managers … I’ll be okay; look after them,” he wrote.

Reuters contacted Baba and Goldman Sachs on Thursday to verify the contents of the email. Baba referred Reuters to a spokesman for the bank because he is not authorized to speak to the press.

“Thanks for reaching out and creating a forum to discuss these critical issues,” he added.

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ECB sends euro higher, stocks pause after week-long rally

NEW YORK (Reuters) – The euro jumped to a 12-week high against the dollar on Thursday after another shot of European Central Bank stimulus to help economies slammed by the coronavirus pandemic, but world equity markets pulled in the reins after a strong seven-day run.

The euro rallied for an eighth straight session after the ECB said it would increase the size of emergency bond purchases by 600 billion euros ($674 billion) to 1.35 trillion euros, more than the 500 billion-euro increase analysts had expected.

A huge domestic support package from Germany also lifted the euro and briefly pushed European equities higher..

The single currency rose 0.83% to $1.1325 as the dollar index fell 0.516%. The euro has gained almost 4% as it advanced the past eight days.

Italy led a rally in southern European bond markets, with 10-year yields tumbling more than 15 basis points to 1.38% – their lowest since late March.

Spanish, Portuguese and Greek yields also fell, with the gap between 10-year Italian and benchmark German bond yields at its tightest since late March at around 170 bps.

ECB policymakers debated expanding their emergency bond purchases by between 500 billion euros and 750 billion euros before settling for a compromise figure, three sources told Reuters.

Euro zone bank stocks surged on the European stimulus, but equity markets slid as investors deemed recent optimism over an economic recovery – which drove the Nasdaq 100 to become the first U.S. equity index to reclaim its intraday record high set in February – as too much in too little time.

Money has been moving out of growth stocks into cyclicals, the economically sensitive companies that have been badly beaten up, such as airlines, hotels, casinos and financials, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

The rally had been driven by hopes the economy will rebound as businesses reopen, which it will, but at different speeds for different industries, he said.

“There’s excessive optimism that everything is going to open up right way and it’s going to be fabulous. There’s some trepidation about that,” Ghriskey said.

A reminder of the economic travails will come on Friday with the Labor Department’s jobs report, which is expected to show the U.S. unemployment rate sky-rocketing to a historic 19.7%.

MSCI’s gauge of stocks across the globe shed 0.21% to snap a seven-day winning streak and the pan-European STOXX 600 index closed down 0.72%.

On Wall Street, the Dow Jones Industrial Average rose 11.93 points, or 0.05%, to 26,281.82. The S&P 500 lost 10.52 points, or 0.34%, to 3,112.35 and the Nasdaq Composite dropped 67.10 points, or 0.69%, to 9,615.81.

U.S. data also weighed on equities as exports dropped by a record 20.5% in April to a 10-year low.

Goods exports plunged 25.2% to $95.5 billion, the lowest since September 2009. Exports of motor vehicles and parts fell to $3.8 billion, the lowest since March 1992. Shipments of consumer goods dropped to $10.4 billion, the lowest since April 2006.

Market optimism about the post-pandemic recovery has reduced the dollar’s safe-haven appeal, as have widespread protests in the U.S. following the death of a black man in police custody.

The U.S. currency had began strengthening in overnight trading, pushing the Japanese yen to a two-month low of 109.150.

The Australian dollar dropped as much as 0.5% to $0.6884 after retail sales there plunged, although the country’s fourth stimulus package had helped shares gain.

The yield on benchmark 10-year Treasury notes rose 5.3 basis points 0.8135%.

Oil prices were little changed in choppy trade as investors awaited a decision from top crude producers on whether to extend record output cuts.

U.S. crude rose 12 cents to settle at $37.41 a barrel while Brent added 20 cents to settle at $39.99 a barrel.

U.S. gold futures settled up 1.3% at $1,727.40 an ounce.

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Exclusive: Pompeo to urge stock exchanges globally to tighten rules for Chinese companies

WASHINGTON (Reuters) – U.S. Secretary of State Mike Pompeo is set warn American investors on Thursday against ‘fraudulent’ accounting practices of China-based companies, and suggest the Nasdaq’s recent decision to tighten listing rules for such players should be a model for all other exchanges around the world.

His remarks on the issue, expected to be delivered at a press briefing later on Thursday and reviewed by Reuters, illustrate the Trump administration’s desire to make it harder for some Chinese companies to trade on exchanges outside of China.

It also represents the latest flashpoint in the relationship between Washington and Beijing at a time of escalating tensions between the world’s two largest economies over trade, the handling of the coronavirus pandemic as well as a spat over Hong Kong.

President Donald Trump on Friday said his administration would begin the process of eliminating special U.S. treatment for Hong Kong to punish China, saying Beijing’s move to impose new national security legislation meant the territory no longer warranted U.S. economic privileges.

Nasdaq Inc (NDAQ.O) took action last month and tightened listing rules, in a bid to curb initial public offerings of Chinese companies closely held by insiders and with opaque accounting.

The tightening of the listing standards also came after Chinese coffeehouse chain Luckin Coffee Inc (LK.O), which had a U.S. IPO in early 2019, announced that an internal investigation had shown its chief operating officer and other employees fabricated sales deals.

“The real issue is the lack of transparency and the lack of disclosure to the American investors,” Keith Krach, Undersecretary for economic growth, energy and the environment at the U.S. State Department told Reuters on Wednesday.

“No country should be allowed to lie to the American investors to create an unfair advantage especially when operating in American markets,” Krach said, adding that there was a push within the administration to make U.S. investor community more aware about China’s opaque accounting practices.

The U.S. Securities and Exchange Commission has been locked in a decade-long struggle with the Chinese government to inspect audits of U.S.-listed Chinese companies. The regulator’s accounting oversight arm, the Public Company Accounting Oversight Board (PCAOB), is still unable to access those critical records, it has said.

In April, the head of SEC Jay Clayton warned investors against putting money into Chinese companies due to ongoing problems with those companies’ disclosures.

A senior U.S. official said he hoped the SEC would review a 2013 memorandum of understanding signed with China to allow Chinese companies to not share information if their local laws forbid them from doing so.

“That waiver should probably be reviewed at this point in time as to whether it is still appropriate and if not be rescinded,” he said, adding that the decision was up to the SEC.

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U.S. new weekly jobless claims drop below 2 million

WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits dropped below 2 million last week for the first time since mid-March, but remains astonishingly high as companies adjust to an environment that has been significantly changed by COVID-19.

New claims for state unemployment benefits totaled a seasonally adjusted 1.877 million for the week ended May 30, down from 2.126 million the prior week, the Labor Department reported on Thursday. Economists polled by Reuters had forecast 1.8 million initial claims in the latest week.

New jobless claims have declined since hitting a record 6.867 million in late March. Despite the still elevated reading, the most recent data suggested the worst is over for the labor market, combined with data on Wednesday that showed a smaller-than-expected drop in private payrolls in May.

Surveys have also shown consumer confidence, manufacturing and services industries stabilizing albeit at low levels in May, indicating the downturn triggered by a near shutdown of the country in mid-March to control the spread of COVID-19 was bottoming. Many businesses had reopened by mid-May.

Economists said the stubbornly high number of unemployment claims comes from a second wave of layoffs as businesses navigate weak demand, as well as some lingering backlogs at state unemployment offices overwhelmed by the flood of applications early in the shutdown.

“Many of the new claims reflect current layoffs, as the corporate sector more broadly begins to adjust to the altered outlook for the year ahead,” said Lou Crandall, chief economist of Wrightson ICAP LLC in Jersey City, New Jersey. “Even as the economy begins to reopen, new job losses continue to pile up.”

Boeing (BA.N) and pipeline operator Energy Transfer (ET.N) have announced layoffs, while some big retailers like JC Penney and high-end chain Neiman Marcus have filed for bankruptcy. States and local governments, whose budgets have been decimated by the COVID-19 fight, are also cutting jobs.

The government’s closely watched employment report for May, scheduled for release on Friday, is likely to show nonfarm payrolls falling by 8 million in May after a record 20.537 million plunge in April, according to a Reuters survey of economists. The unemployment rate is forecast rocketing to 19.8%, a post World War Two record, from 14.7% in April.

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