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What investors can learn from bank earnings

The temporary shutdown of a major pork plant due to coronavirus has amplified concerns over the US food supply, but experts say it's not time to panic. CNN's Dianne Gallagher reports.

Posted: Apr 14, 2020 10:20 AM
Updated: Apr 14, 2020 10:20 AM

Earnings season kicks off this week with reports from big US banks. JPMorgan Chase and Wells Fargo are up first on Tuesday, with Bank of America, Citigroup, and Goldman Sachs following on Wednesday.

Safe to say, this promises to be a highly unusual round of corporate updates. The coronavirus pandemic has forced hundreds of companies to slash or suspend dividends, and many more have withdrawn their financial outlooks for the year — an acknowledgment that they're flying blind.

The results that will be published this week relate to the previous three month period, and so earnings are unlikely to fully reflect the economic trauma now being caused by efforts to contain the coronavirus.

What matters more is what big bank executives say about the current state of the US economy and credit markets, and the prospects for recovery.

"Banks see much of the economic activity of the country ... and hence have a better idea of the size of the economic shock," Sebastien Galy, a senior macro strategist at Nordea Asset Management, said in a research note.

Investors may not like what they hear about the state of the economy from the banks. Pretty much everywhere you look, from unemployment data to corporate profit warnings, pain is on display.

Take SoftBank, which has warned that it expects to post its first operating loss in 15 years because of a collapse in the value of its tech investments.

The Japanese company is forecasting an operating loss of 1.35 trillion yen ($12.5 billion) in its fiscal year through March 31, 2020. That compares with an operating profit of more than 2 trillion yen the previous year.

The $100 billion Vision Fund, which houses many of its tech investments, is expected to report losses of 1.8 trillion yen ($16.7 billion) due to "the deteriorating market environment," the company said in a statement.

SoftBank did not disclose which Vision Fund investments would be written down, but its warning stands out because "nobody forecasts writedowns," according to Dan Baker, an analyst with research firm Morningstar.

The big question: Have economists and investors misjudged the trauma caused by efforts to contain the coronavirus pandemic? Mohamed El-Erian, the chief economic adviser to Allianz, argues the answer is yes.

Economic forecasts and financial markets are not taking "sufficient account of a whole host of risks including a more difficult earnings outlook, higher levels of indebtedness, a much bigger dispersion between winners and losers, the growing entanglement of government in private sector activities, lasting risk aversion in the real economy and, most importantly, a huge amount of bankruptcies," he wrote in the Financial Times on Tuesday.

China is giving cash to car buyers

In a normal year, China would have sold more than 6 million new cars by now. This year, the number is closer to 3.7 million, and now the government is handing out cash to help the world's biggest auto market get back on its feet after the coronavirus pandemic.

The context: Car sales declined 42% in the first quarter of 2020 compared to last year, according to data released late last week. While that is largely because of a whopping 79% plunge in February — when the country of 1.4 billion people recorded just 310,000 sales — the market remains very weak.

Only 1.43 million vehicles were sold in China last month, a 43% decline over March 2019, my colleague Laura He reports from Hong Kong.

Car production, at least, has started to resume: Even Wuhan, the original epicenter of the virus and a major hub for the global auto industry, ended its 76-day lockdown last week.

But getting consumers to buy new cars again is harder, and made even more challenging by the fact that demand was already slowing significantly before the virus hit.

The plan: China is taking steps to try to shore up sales. Beijing last month announced that it would extend subsidies and tax breaks for new energy vehicles, such as electric or plug-in hybrid cars, for another two years.

Local governments are also stepping in. At least a dozen cities or provinces have encouraged people to buy cars, mainly by offering cash subsidies of as much as $1,400 per vehicle.

Will the strategy work? Getting the car market back online quickly is a big deal for China's manufacturing industry, as well as the foreign carmakers who do big business there. How it's done could provide a blueprint for other countries when they are ready to lift lockdowns.

Please don't use our product, says Uber

Uber and Fiat Chrysler are taking an unusual tack in their ads during the coronavirus — urging people not to use their products, reports my colleague Chris Isidore.

The scene: A recent 60-second television ad from Uber shows a montage of people quarantining at home. "Stay home for everyone who can't," the commercial says at the end. "Thank you for not riding with Uber."

Thomas Ranese, Uber's vice president of marketing, said the company will run the ad for the next two weeks to stress the importance of staying at home. The public service announcement is "a company that is synonymous with movement, thanking you for not moving, because right now that helps save lives," he said in a statement

The angle: It's not uncommon for companies to run ads that try to tap into a national mood during a time of crisis and tragedy, said Joseph Turow, professor at Annenberg School for Communication at University of Pennsylvania. But he said the Uber ad is unique in that it actually urges people not to use the product

"Rhetorically speaking they're aligning themselves with goals of the nation, all the things that make up the definition of America," Turow said. "It's saying 'We're part of this, think of us well.'"

Up next

JPMorgan Chase and Wells Fargo report earnings before the opening bell.

Also today:

  • Earnings from Infosys and Johnson & Johnson

Coming tomorrow: UnitedHealth, Bank of America, Citigroup and Goldman Sachs earnings

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 589527

Reported Deaths: 7333
CountyCasesDeaths
Hennepin1221311726
Ramsey51028871
Dakota45667448
Anoka41421437
Washington26724281
Stearns22139221
St. Louis17682302
Scott17201124
Wright15943139
Olmsted1319098
Sherburne1160286
Carver1044945
Clay812792
Rice8014106
Blue Earth746141
Crow Wing660988
Kandiyohi652083
Chisago592551
Otter Tail572978
Benton565997
Goodhue475772
Douglas464674
Mower464032
Winona452950
Itasca432254
McLeod421658
Isanti417364
Morrison417360
Nobles407248
Beltrami392458
Steele384915
Polk382468
Becker378850
Lyon359850
Carlton344153
Freeborn341129
Pine326722
Nicollet323843
Brown304640
Mille Lacs302452
Le Sueur289222
Todd280632
Cass269628
Meeker254340
Waseca236522
Martin229831
Roseau207919
Wabasha20483
Hubbard187141
Dodge18373
Renville178943
Redwood172936
Houston171515
Cottonwood164321
Fillmore155510
Wadena155122
Pennington153619
Chippewa151838
Faribault151319
Kanabec143424
Sibley142510
Aitkin134236
Watonwan13219
Rock128019
Jackson121711
Pipestone115126
Yellow Medicine113820
Pope10956
Murray10609
Swift104918
Stevens90211
Marshall88017
Clearwater86416
Koochiching81715
Lake80819
Wilkin80712
Lac qui Parle75022
Big Stone5984
Lincoln5773
Grant5678
Mahnomen5459
Norman5399
Unassigned48793
Kittson48522
Red Lake3957
Traverse3685
Lake of the Woods3223
Cook1610

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 366197

Reported Deaths: 5929
CountyCasesDeaths
Polk57488623
Linn20814334
Scott19960240
Black Hawk15785308
Woodbury15121228
Johnson1445783
Dubuque13355209
Dallas1116198
Pottawattamie11091168
Story1059248
Warren575888
Clinton554393
Cerro Gordo538089
Sioux513874
Webster512193
Marshall482175
Muscatine477499
Des Moines454366
Wapello4297122
Buena Vista424540
Jasper418672
Plymouth400680
Lee375055
Marion361775
Jones298157
Henry291137
Carroll285452
Bremer283960
Crawford265840
Boone263934
Benton256055
Washington253950
Dickinson247843
Mahaska229951
Jackson221242
Clay215325
Kossuth215264
Delaware209240
Tama209271
Winneshiek196934
Page192622
Buchanan190731
Cedar189423
Hardin184943
Fayette184841
Wright184336
Hamilton179449
Harrison179373
Clayton169256
Butler164634
Mills161722
Madison161519
Floyd160342
Cherokee158738
Lyon157741
Poweshiek154733
Allamakee151151
Iowa148324
Hancock147634
Winnebago141731
Calhoun138113
Cass137954
Grundy136233
Emmet134040
Jefferson132435
Shelby130737
Sac130119
Union128133
Appanoose128049
Louisa127849
Mitchell126042
Chickasaw123915
Guthrie121030
Franklin119321
Humboldt118826
Palo Alto112523
Howard104522
Montgomery103338
Clarke99924
Unassigned9770
Keokuk95631
Monroe95129
Ida90334
Adair86432
Pocahontas85322
Davis82824
Monona82830
Osceola78516
Greene77610
Lucas77123
Worth7438
Taylor65712
Fremont6229
Decatur6089
Van Buren55618
Ringgold55524
Wayne53723
Audubon50810
Adams3384
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