Economy

Five Things You Need to Know to Start Your Day

(Bloomberg) — Oil prices take an unprecedented plunge below zero. Deaths in New York from the coronavirus are slowing. And as his Virgin-branded businesses get battered by the pandemic, billionaire Richard Branson is planning on selling his Caribbean Island. Here are some of the things people in markets are talking about today.

Bottom Of The Barrel

In perhaps the most jaw-dropping financial-market swing of the coronavirus pandemic, the price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory — as low as minus $37.63 a barrel. The reason: with the economy at a near standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due. Underscoring just how acute the concern is over the lack of immediate storage space, the price on the futures contract due a month later settled at $20.43 per barrel. That gap between the two contracts is by far the biggest ever. And the historic turmoil in the oil market is proving painful for investors who just piled into a $4.3 billion energy ETF. The United States Oil Fund LP, or USO, plunged as much as 12% to hit the lowest since its 2006 inception amid a staggering sell-off in crude. The slide came after investors plowed $1.6 billion into the exchange-traded fund last week — the best on record. USO said Monday it plans to sell an additional 4 billion of new shares as the ETF approaches its shares outstanding limit.

Markets Sink

Asian stocks looked set to follow their U.S. counterparts lower, with investors on edge as oil futures plunged and earnings season continued. Futures declined in Japan, Australia and Hong Kong after U.S. stocks fell from six-week highs. Treasuries gained, with 10-year yields dipping more than three basis points to below 0.61%. The dollar strengthened and gold pushed higher. Meanwhile, the pace of earnings season is about to pick up, with almost one-fifth of S&P 500 companies reporting this week. After the close of U.S. trading, IBM reported a drop in first-quarter revenue and pulled its profit forecast for the year.

New York Eases

New York state reported 478 coronavirus deaths over the past 24 hours, the lowest total since the start of the month and the sixth straight drop. Governors in Georgia and South Carolina took steps toward reopening their economies. Still, Anthony Fauci, the U.S.’s top infectious disease expert, warned those protesting lockdowns that reopening too soon could cause even more harm. Germany eased some curbs, even as Chancellor Angela Merkel sounded a note of caution. In fact, governments across Europe are trying to find ways to reopen shuttered economies, with Austria became one of the first European countries to ease lockdown measures last week. In Britain, Boris Johnson’s government issued a defense of his handling of the crisis and is resisting pressure to ease restrictions. Deaths and new cases slowed in the U.K. and Italy. Cases have now topped 2.4 million around the world, and deaths stand at 168,900. Meanwhile, until a vaccine comes out, antibody treatments may be our best hope against the virus.

Island Business

Necker Island has been Richard Branson’s personal fiefdom for 40 years. But as his Virgin-branded businesses are battered by the coronavirus crisis, the billionaire is putting his Caribbean hideaway on the line for cash. Branson wrote to staff Monday saying he plans to “raise as much money against the island as possible”. But while it’s true that Branson has been hit hard by the economic fallout from Covid-19, the move is also a result of the lukewarm response to his pleas for government bailouts of Virgin Atlantic Airways and Virgin Australia. Coloring that reluctance is Necker Island itself, with the British Virgin Islands retreat portrayed as nothing more than a tax haven by some U.K. politicians and newspapers. Though a variety of assets have been collateralized to raise funds during the pandemic, including art, diamonds and London homes, mortgaging a private island would be particularly unusual. Virgin Australia’s position is more acute after the government in Canberra resolved Monday to provide no further financial help, according to the Australian Financial Review. The board of the carrier, in which Virgin Group has a 10% stake, is likely to hand it over to administrators, the newspaper said.

Do-Gooder Debt

The pandemic fight may drive demand for “social bonds” — securities tied to helping society. Issuance is already taking off in the Asia-Pacific region, reaching $5.2 billion so far this year, or nearly 90% of the total in 2019, according to BloombergNEF data. Several Asian issuers have sold bonds that are at least nominally aimed at battling the virus, and expectations are that more are coming. “We estimate that investors will flock more toward issuers who would like to finance hospital expansions, research and development for vaccines,” said Dominique Duval, head of sustainable banking at Credit Agricole in Hong Kong. “Social bonds will get a head start.” While sales of do-good debt including social bonds have been climbing in Asia, issuance is still much less than in other regions, and the coronavirus fight could provide one impetus for it to catch up. They’ve been one of the few actively-issued securities in recent months as market turmoil puts the brakes on other types of debt deals.