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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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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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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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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Philippines suspends scrapping of troop agreement with U.S.: minister

(Reuters) – The Philippines has suspended its decision to scrap a two-decade-old Visiting Forces Agreement (VFA) with the United States, its foreign minister said on Tuesday.

“The abrogation of the Visiting Forces Agreement has been suspended upon the President’s instruction,” Foreign Secretary Teodoro Locsin said on Twitter.

The official notice of the suspension, which Locsin posted, said the decision was taken “in light of political and other developments in the region”.

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U.S. companies issue shares at fastest rate ever, selling the rally

NEW YORK (Reuters) – U.S. public companies sold more than $60 billion in shares in May, the biggest monthly haul ever, as they capitalized on a stock market rally fueled by hopes that the COVID-19 pandemic is subsiding.

The benchmark S&P 500 Index .SPX has risen around 40% off of recent lows, hit in late-March at the height of market panic during the coronavirus outbreak, and is now roughly 10% shy of all-time highs hit in February.

The whipsawing markets stunted companies’ ability to issue new shares and raise cash, with just $4.8 billion sold in March, the lowest monthly total since December 2018, Refinitiv data showed.

The market has rocketed back with $22.3 billion sold in April and $65.3 billion in May, the highest on record.

(GRAPHIC – U.S. public companies sell the rally: here)

The likes of Southwest Airlines Co (LUV.N) and cruise operator Carnival Corp (CCL.N) have issued new stock to raise money. Major shareholders in companies such as BlackRock Inc (BLK.N) and U.S. drugmaker Regeneron Pharmaceuticals Inc (REGN.O) have cashed out their stock, with the market rebound far from certain to last.

“We’re talking to a lot of companies around the fact that the market is here, you don’t know what lies in the economy to come,” said Ryan Parrish, head of Americas equity capital markets syndicate at Bank of America (BAC.N). “If you even remotely have a need you should get it done now.”

The share sales echo a similar trend in U.S. debt markets, where companies have raised more than $1 trillion so far in 2020.

As in debt markets, the balance of companies selling new shares has shifted from those facing an imminent cash crunch to those stocking up on rainy day funds.

“There are a whole host of companies that have been hugely impacted by COVID-19 and have had to recapitalize,” said Santosh Sreenivasan, head of equity-linked capital markets for the Americas at JPMorgan Chase & Co.

“Issuers that have seen their stock prices recover are now also taking the perspective that they don’t want to miss this window in case this rebound is short-lived,” Sreenivasan said.

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Wall St. rises as recovery hopes offset U.S. protests, China tensions

(Reuters) – U.S. stocks edged higher on Monday on prospects of a post-pandemic economic recovery, but the sentiment remained fragile amid protests across the country over race and an ongoing standoff between Washington and Beijing.

U.S. manufacturing activity eased off an 11-year low in May, an Institute for Supply Management (ISM) survey showed, the strongest sign yet that the worst of the economic downturn was behind as businesses reopen.

“With the economic data beginning to ease off from their dire position two months ago, there is further upside as we head into the summer, which is normally a fairly difficult period for markets,” said Chris Beauchamp, chief market analyst at IG.

The three main indexes had opened lower as National Guard troops were deployed over the weekend in 15 states and Washington, D.C. in an attempt to quell a sixth night of violence that began with peaceful protests over the death of a black man, George Floyd, in police custody.

Target Corp and Walmart Inc closed stores during the unrest that included looting in many cities. Target and Walmart shares fell 1.9% and 0.9%, respectively.

Further denting the sentiment, reports said China had told state-owned firms to halt agricultural purchases from the United States, after Washington said it would eliminate special treatment for Hong Kong to punish Beijing.

“The tensions between the United States and China and the U.S. protests are beginning to make investors a little bit nervous,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The escalation in Sino-U.S. tensions poses a major threat to the stock market’s rebound since late March that was powered by expectations of a recovery from the coronavirus-led downturn.

U.S. stocks had rebounded late in Friday’s session, with the S&P 500 logging its biggest two-month percentage gain since 2009, after President Donald Trump’s measures against China did not include a breakdown of the trade deal like many had feared.

At 10:16 a.m. ET, the Dow Jones Industrial Average was up 30.31 points, or 0.12%, at 25,413.42, the S&P 500 was up 3.03 points, or 0.10%, at 3,047.34. The Nasdaq Composite was up 31.53 points, or 0.33%, at 9,521.40.

Healthcare stocks shed 1.2%, weighing the most on the benchmark index.

Pfizer Inc fell 7.6% after the drugmaker said the late stage trial of its breast cancer drug Ibrance was unlikely to meet the main goal of study.

Gilead Sciences Inc fell 3.8% after its antiviral drug remdesivir had mixed results in a late stage study of people with moderate COVID-19, as patients given a five-day course of the treatment showed statistically significant improvement, while those given it for 10-days did not.

Coty Inc jumped 19.8% after the cosmetics company appointed Chairman Peter Harf as its new chief executive officer.

Advancing issues outnumbered decliners by a 2.60-to-1 ratio on the NYSE and by a 1.87-to-1 ratio on the Nasdaq.

The S&P index recorded 14 new 52-week highs and no new lows, while the Nasdaq recorded 52 new highs and six new lows.

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U.S. judge weighing fight over Trump ex-adviser Flynn to respond on case

WASHINGTON (Reuters) – The U.S. judge weighing whether to drop a criminal case against President Donald Trump’s former adviser Michael Flynn faces a Monday deadline to respond to the Justice Department’s bombshell request to drop a charge to which Flynn has pleaded guilty.

The U.S. Court of Appeals for the District of Columbia Circuit ordered Judge Emmet Sullivan to respond by June 1 after Flynn, who briefly served as Trump’s national security adviser, filed an emergency petition in line with the Justice Department’s request.

Sullivan has tapped attorney Beth Wilkinson, one of the former top prosecutors on the Oklahoma City bombing case, to represent him in the appellate court case.

Sullivan has not yet ruled on the May 7 request by Attorney General William Barr’s Justice Department to drop the false-statement charge against Flynn.

Critics have accused the Justice Department of acting to advance Trump’s personal interests, including by seeking a lighter sentence for Trump ally Roger Stone.

Flynn, a retired Army lieutenant general, pleaded guilty twice to lying to the FBI about his conversations with former Russian ambassador Sergey Kislyak.

Flynn initially agreed to cooperate, but he later changed legal tactics and pursued a scorched-earth approach that included accusing the FBI of a secret plot to entrap him.

Barr this year tapped Jeff Jensen, a federal prosecutor in St. Louis, to review the case. Jensen later urged Barr to drop it on the grounds the investigation lacked a proper legal basis.

That led the lead prosecutor on the Flynn case to withdraw.

Sullivan tapped retired judge John Gleeson to serve as a “friend of the court” and instructed him to present arguments against the department – including whether he should hold Flynn in contempt for perjury.

Gleeson’s legal brief is due June 10.

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