fortune--2020-07-23--Tensions between China and the West won’t ease anytime soon

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Good morning. David Meyer here in Berlin, filling in for Alan.
Where next for relations between China and the West? Right now, it seems tensions are just going to keep on escalating.
The U.S. targeted China twice over this week: firstly by indicting two Chinese hackers over the alleged theft of foreign military secrets (as well as criminal hacking for personal profit); and then by abruptly ordering the closure of China’s Houston consulate.
Not long before, China slapped symbolic sanctions on U.S. senators Marco Rubio and Ted Cruz, in retaliation for sanctions the U.S. applied to Chinese officials who were apparently involved in the repression of the Uighur minority.
Now we have to wait and see what China will do in retaliation for the consulate move–its foreign ministry has promised “firm countermeasures.”
Meanwhile, after the U.K. last week banned Huawei from its 5G networks, Beijing hit back by targeting one of the most British of exports: football. Chinese state television reportedly did not show yesterday’s match between Liverpool and Chelsea, and its schedule no longer includes this weekend’s Premier League matches.
Petty? Sure. But it’s not hard to see how these tit-for-tat moves might ratchet up in future.
Even if President Trump loses November’s U.S. election, the Democrats are still hawkish on China–just look at the report issued this week by the Senate Foreign Relations Committee’s highest ranking Democrat, Robert Menendez, in which China is accused of exporting its mania for surveillance and online censorship around the world.
There’s even potential fallout for China from last week’s bombshell data-protection ruling in the European Union’s highest court. While that ruling mostly involved the U.S.—ending the Privacy Shield mechanism for sending Europeans’ data to U.S. servers—it also paved the way for the suspension of data flows to any country that has insufficient safeguards attached to government surveillance.
That means, if somebody in the EU asks their local privacy regulator to look into what happens to their TikTok or WeChat data, there’s a possibility of those companies becoming unable to legally serve European users. Retaliation would surely follow.
Does this make for a new cold war, as many suggest? Some hope that U.S. Defense Secretary Mark Esper’s proposed visit to Beijing this year could help smooth tensions. But saber-rattling in the U.S. is hardly likely to die down in an election year where nobody wants to appear soft on China.
The U.K. also appears to have accepted the route of confrontation in its banning of Huawei, even though its reasons for that ban (U.S. sanctions on Huawei will probably make its products less secure and reliable) are quite, well, reasonable. And then of course there’s the question of how draconian China’s national security law will be in practice, when applied in Hong Kong. The imposition of that law led the U.K. to suspend its extradition treaty with Hong Kong this week, and the EU is also planning some sort of “comprehensive and coordinated” response.
Interesting times ahead. And more news below.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Uighur exploitation
Activist groups including Anti-Slavery International and AFL-CIO are urging brands such as Apple and Nike to cut ties with suppliers that allegedly use "forced labor" in China's Xinjiang province, home to the persecuted Uighur Muslim minority. The province produces around 80% of China's cotton, and China supplies around 20% of the world's cotton. Nike says it has made one supplier stop recruiting employees from Xinjiang. Gap says it's examining how its supply chain might use Xinjiang cotton. Apple denies any issues in its supply chain. BBC
Tesla profit
Tesla is about to join the S&P 500, after posting its fourth straight quarterly profit. In Q2, Elon Musk's electric-vehicle firm made $104 million in net income on over $6 billion in revenues. Analysts had expected a $250 million loss on revenues of $5.4 billion. Tesla's value has nearly quadrupled this year, with a current market cap around the $300 billion mark. Tesla
Dollar status
Former Morgan Stanley Asia chief Stephen Roach says the U.S. dollar is under pressure from both a decline in domestic saving and the U.S.'s "squandered global leadership." Roach told Fortune that the dollar's status as the world's dominant reserve currency could be ceded to the euro or perhaps even the Chinese yuan. Fortune
Unilever results
Unilever just experienced its first quarterly sales drop (-0.3%) in 14 years. Nonetheless, it handily beat the forecasts of analysts who expected to see a 4.3% drop, and its shares popped 8% as a result. And why were its sales better than expected? Unilever's hygiene products did a roaring trade, as people bought more soap and hand sanitizer to combat COVID-19. Financial Times
AROUND THE WATER COOLER
Faster tests
Virginia Tech researchers say they've come up with a COVID-19 test that produces results in minutes. The test uses nanotechnology and laser beams to analyze liquid droplet samples, rather than RNA as is the case in the most widely-used tests right now. The researchers claim their test is more accurate and can identify the coronavirus even if the patient has only had it for a very short period of time. Fortune
Slack vs. Microsoft
Slack has lobbed an antitrust complaint at Microsoft in the EU, over Microsoft's bundling of its Teams enterprise communications service with its Office suite. Teams has been frantically growing its user base during the pandemic; Slack says this is because Microsoft is abusing Office's market-dominant position, but Microsoft says this is because people like Teams' video-conferencing capabilities, which Slack does not have. Fortune
"Trump troops"
Fortune's Jeff John Roberts took a look at what the law has to say about the "Trump troops"–a.k.a the new breed of federal law enforcement wearing Army-style garb–that have been snatching citizens off the street in Portland and driving them away in unmarked vans. In short, it's hard to say if what the troops are doing is legal, but they aren't obliged to identify themselves. Fortune
Gates conspiracy
Bill Gates has denied the conspiracy theory that holds he wants to use coronavirus vaccines as a way to implant tracking chips into people. "We need to get the truth out there," said the Microsoft co-founder. "I hope it'll die down as people get the facts." Good luck with that; more than a quarter of American adults apparently believe the conspiracy theory. CNBC
This edition of CEO Daily was edited by David Meyer.


fortune--2020-07-23--This little-noticed rule on how banks account for bad loans is a ‘game changer’

China ’ s Star market has outperformed nearly every global exchange—but will it last ?

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On Jan. 1, 2020, the Financial Accounting Standards Board quietly imposed new guidelines for taking provisions for anticipated future loan losses called the Current Expected Credit Losses rule, or CECL. Now, as the effects of the pandemic on consumers’ wallets begin to emerge, that rule has taken on new importance. The reason: The new regime requires lenders to look far into the future and book all the losses they expect on credit cards and other borrowings—over the entire life of the loans—right now. That new practice should give investors a much clearer window into where the consumer is headed than the old regime, which mandated estimating defaults only for borrowers who had ceased paying interest, and hence furnished only a short-term picture. Giving a more comprehensive view of losses to come also provides one of the best road maps for where the overall economy is headed.
Here’s the background. Bank loans can be divided into two general categories for accounting treatment: the first for credit cards, and the second for other consumer credit such as mortgages, and for business loans. Before CECL, the banks took provisions based mainly on the volume of loans in their portfolios that became “noncurrent,” meaning borrowers had ceased paying interest. Those problem credits were labeled as “nonaccrual,” meaning that the bank had stopped recognizing revenue from the interest it was billing the borrower, but the borrower wasn’t paying. That traditional system was called the “incurred loss model,” meaning that banks started taking provisions on loans mainly when borrowers stopped making payments.
For non-card loans, if a customer hadn’t paid interest, typically for 90 days or more, the bank classified the account as “nonperforming.” Many of those credits were secured—think home and car loans—so bankers would estimate the amounts they would likely recover by selling the houses, buildings, or other assets provided as collateral, and eventually book the shortfall by adding to that quarter’s provisions for loan losses that are a direct hit to pretax income. The provisions added to “reserves” or “allowances” for credit losses on the balance sheet. When it became clear the loan would never be repaid, the remaining principal amount went to “charge-offs,” or what’s called “loan losses” in the industry, that are subtracted from reserves. Put simply, it’s provisions for future losses that increase reserves, and charge-offs that lower them.
For cards, the approach was different. The provisions depended on the “roll rate” of the portfolio. As different borrowers went from 30 to 60 to 90 or more days delinquent, their loans descended from one credit bucket to the next. The bank booked provisions based on its estimates of which noncurrent loans in each bucket would never be repaid. The longer the loan remained delinquent, the larger the portion of the principal amount that the bank estimated wouldn’t be repaid, and the larger the provision on that loan became.
A credit card loan that was delinquent for, say, 90 days, was also tagged as “nonperforming” like a mortgage or corporate loan. But once the credit became 180 days delinquent, it went to charge-off status and was written off as a 100% loss. That loss was then deducted from reserves. “Credit card loans are unsecured consumer lending,” says David Fanger, an analyst with Moody’s Investor Service. “They’re the riskiest form of borrowing. The lender has no collateral. They’re depending on the borrowers’ savings and income.”
The test for booking provisions, Fanger explains, was based primarily on assessing future losses on noncurrent loans, the credits that weren’t paying interest. The lender did have some obligation to look to the future. The requirement was to assess the outlook for the next 12 months and determine whether, say, a looming recession was likely to cause losses on loans that were still current, but shaky. The banks would then add those still paying but probable bad credits to their provisions. Still, the rules didn’t require estimating losses on current but endangered loans, those regularly paying interest, beyond a year ahead.
CECL transformed that methodology. Suddenly banks were mandated to forecast potential losses for the entire life of the loan. “Now they’re provisioning not just for the loans that have gone delinquent, but the ones that are current and may go bad at any time in the future,” says Fanger. For example, if a card loan is now current but BofA projects a high probability that it will default in 18 months, BofA is required to book a loss now, whereas under the “incurred” model, it would have booked the provision a few quarters hence, when the borrower actually stops paying interest. The idea is to front-load all of the provisions based on the best estimate of all losses to come for current and delinquent loans alike.
CECL is a game changer. Under the old rule based on the accrual model, provisions tended to build gradually as a deepening recession caused more and more defaults. “But the new regime means that banks are taking much larger provisions based on their best guess at the moment of what total losses will be on still-current loans,” says Bain Rumohr, senior director of North American banks at Fitch Ratings. CECL’s arrival coincided with the COVID-19 crisis, and the combination is forcing banks to take the entire hit, right now, for all estimated future losses, on all their loans, caused by the crisis.
The new rule is designed to give investors and regulators a much more accurate picture, far sooner, of how bad things will get in a recession. In Q2, BofA and the other big banks supplied their best estimate for all of the damage they expect the pandemic to inflict going forward. If BofA is correct, it has already charged earnings for the bad stuff to come from the COVID-19 crisis. The problem is we’ve never seen a hurricane like COVID-19. If it rages far longer than BofA projects, even its conservative assumptions may get swamped by losses on consumer credit that even its most sophisticated models and the seasoned experts could never foresee.


fortune--2020-07-23--Researchers develop a new testing method that could give COVID-19 results in ‘minutes’

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Researchers at Virginia Tech have developed a technique that could provide COVID-19 test results within minutes.
According to a university release, Jiangtao Cheng and Wei Zhou, both engineering professors at Virginia Tech, headed a team that developed a “droplet biosensing” method that uses nanotechnology and laser beams to detect the contents of a liquid droplet sample. Their research was published in the peer-reviewed scientific journal ACS Nano last month.
Cheng and Zhou’s method would cut down test verification time, which often takes several hours, to “minutes,” and would reduce the error margin and the chance of false-negatives, the release said.
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Currently, the most widespread and reliable coronavirus test uses a technique called polymerase chain reaction (PCR), in which RNA is extracted from a person’s saliva sample and then copied billions of times so that there’s a large enough sample of the molecule to detect the presence of the virus.
Other tests on the market, like the ones for sale online that people can take at home, are faster and easier to conduct, but less reliable. The U.S. Food and Drug Administration (FDA) approved an at-home test kit in April, but only health care workers and first responders are allowed to use it, and they still have to ship the sample back to a lab.
The Virginia Tech researchers’ method can identify the coronavirus even if patients have had the virus for a short period of time and therefore have a low viral load that other tests are unable to detect, the release says.
Unlike PCR, the researchers’ new technique does not require RNA extraction or amplification. Instead, scientists place the liquid sample onto a surface with different levels of friction that separate out droplets of the liquid. They then heat the surface so the liquid partially evaporates, causing its contents to “float toward the nanoantennas,” which work as sensors. The sample shrinks into a package of molecules that scientists target with a laser beam, generating a light signal that allows them to detect the frequency of the coronavirus.
“All of this happens in just a few minutes, and the fingerprint spectrum and frequency of the coronavirus can be quickly picked out of a lineup of the returned data,” the release said.
The research paper presents biosensing droplets as a general method for separating the contents of a sample and detecting what the molecules are. The Virginia Tech release specifies that it can be used to detect COVID-19, but doesn’t give details on how the test would be deployed or how much it would cost.
The research team is pursuing a patent and applying for National Institutes of Health funding “to deliver the method for widespread use,” the release said.
Such a technique could help increase coronavirus testing rates in the U.S., which has lagged in testing capacity since the start of the pandemic. Some Americans are waiting as long as 10 days to learn the outcome of their coronavirus tests, a delay that makes the results largely useless.
Earlier this week, the FDA granted emergency use authorization to allow Quest Diagnostics to use batch testing, a method that could cut down testing time and save resources by testing multiple samples at once.


fortune--2020-07-23--‘There are plenty of alternatives:’ The pandemic is threatening to dethrone the U.S. dollar

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The decline in domestic saving in the U.S. and its “squandered global leadership” have put the U.S. dollar under pressure, says former Morgan Stanley Asia chairman Stephen Roach. He predicts the broad dollar index will drop by 35% and foresees legitimate challenges to the greenback’s status as the world’s dominant reserve currency.
“There are plenty of alternatives,” said Roach, who’s now a senior fellow and lecturer at Yale University and considered a top authority on Asia and currency matters. The passing of the European Union’s 750 billion euro coronavirus recovery fund and a sovereign pan-European bond could boost the euro, he says.
The Chinese yuan could be another U.S. dollar alternative if China “stays the course on reforms,” said Roach. The idea of there being “no alternative to the dollar” is being tested by the ongoing pandemic, he said.
In an Eastworld Spotlight conversation with Fortune’s Clay Chandler this week, Roach discussed U.S. dollar alternatives, the future of U.S.-China relations, and how a President Joe Biden would treat Beijing. The conversation below has been edited for length and clarity.
Fortune: You’ve been warning for nearly a month that the dollar is in danger. Talk to us about the outlook and the sources of your concerns.
Stephen Roach: The dollar has had a strong run since 2011; a broad dollar index up close to 30% in inflation-adjusted terms. Over the next couple of years, I think the dollar is going to undergo a sharp correction to the downside. I look for the broad dollar index to decline by 35% on an inflation-adjusted basis for two sets of reasons.
One, the U.S. macro imbalances are going to be building as never before. A sharp decline in domestic savings that will trigger a record current account deficit. We entered the pandemic with a very low domestic savings rate, 1.4% of national income. And courtesy of these gigantic budget deficits, we’re going to see a negative savings rate to the tune of –5% to –10%.
The second set of reasons behind the dollar call is that America has squandered its global leadership in so many ways—de-globalization, decoupling, a trade war, trade protectionism. We’ve had an unbelievably abysmal performance in addressing the coronavirus relative to other nations, and we have a racial catharsis going on in the United States.
So from both standpoints…the dollar headed down 35% is not unprecedented. We had a comparable decline in the 1970s, a comparable decline for a couple of years in the mid-’80s, and about a 30% decline in the early 2000s. We’re going to have another one, it’s long overdue. It’s 35%—it’s a sharp decline.
Are we going to have an alternative to the U.S. dollar?
There are plenty of alternatives, [and] the most unloved [and undervalued] major currency in the world right now is the euro. [The euro has] been moving up recently, and if European political leaders can get their act together and pass this package that funds a 750 billion euro Next Generation EU recovery plan, and endorses the issuance of a sovereign pan-European bond to go along with it, the euro will continue to move up sharply. [Editor’s note: The interview was conducted before EU leaders preliminarily passed the recovery fund on Tuesday.]
I think the Chinese renminbi can also continue to move up on a broad trade-weighted basis. It’s up about 50% over the last 15 years, [and there’s more to go] if China stays the course on reform. I’m not recommending…exotic alternatives, but you have to look seriously at cryptocurrencies like Bitcoin and precious metals like gold.
So I think the idea that there’s no alternative to the dollar is really going to be tested during this COVID crisis.
What are the additional reforms needed for China to play a bigger role as a reserve currency?
Three things in particular that are really critical: state-owned enterprise reform, where the progress has been very disappointing. Capital market reforms—an ongoing process [that has] slowed down; more needs to be done, especially in the area of currency and capital market convertibility. And thirdly, as glaringly pointed out by the coronavirus, [China’s] social safety net is still porous and much more needs to be done to invest in retirement and in health care infrastructure.
The Trump administration seems determined to prevent China from getting a hold of cutting-edge Western technologies and has reached out to other U.S. allies to join the effort to keep China out of the global techno ecosystem. Can the U.S. succeed in slowing the pace of innovation in China or even shut it down?
I don’t think [the effort] could shut it down, but it certainly can have an adverse impact. The Trump administration’s move on Huawei and its suppliers is something to be [taken] very seriously.
The U.S. has a view that China is a threat and should be contained from achieving the type of technological dominance that America has long enjoyed post–World War II. And I think this technology battle is really at the heart of what could well be a “Cold War 2.0.”
Given all the other turmoil in the U.S. economy right now, is the focus on the U.S.-China trade deal a thing of the past, or is it still something that’s important to how markets perform?
COVID-19 has taken over where the trade issues have left off [and] has clearly taken the upper hand to a large extent. Investors have pretty much come to the view that phase 1 didn’t really accomplish much and that the likelihood of a phase 2 is very low. And with Vice President Biden leading so soundly in the polls, the prospects of a new reset or a new framework to negotiate these trade issues is something that investors will have to take into consideration in shaping their market outlook.
The markets are done with the trade war for the time being, and this is very much at odds with Republicans’ and the Trump administration’s strategy to fixate on China to deflect attention away from their pathetically horrible performance in dealing with the coronavirus.
In the case of a Biden victory, do you see a significant reset on how the U.S. deals with China?
There will be greater predictability to do policy. There are a lot of tough issues that have been put on the table in the last two and a half years that are not going to be yanked off the table. You are going to see a very different approach, one that doesn’t cave to China but really focuses much more on finding common ground through compromise, rather than utilizing the so-called Art of the Deal strategy to punish and bully a supposed economic adversary as the Trump administration has done.
On the structural issues of technology transfer, innovation policy, intellectual property rights, and cyber, I think if [Biden] is elected, he will be very tough on those issues. But I think it’ll be a process that will be easier to understand, [and] more transparent in its objectives and its tactics.
This story is part of Eastworld Spotlight, a series of conversations on matters of business, tech, and finance with executives, experts, entrepreneurs, and investors in Asia. Subscribe to Fortune’s Eastworld newsletter to get them in your inbox.


fortune--2020-07-23--New COVID-19 vaccine data spotlights an unsung immune player: T cells

Antibodies have become a familiar word in the pandemic era, perhaps suggesting they’re the best hope for keeping the deadly coronavirus at bay. But when crucial vaccine data was released this week, the spotlight panned to an unsung immune player: T cells.
AstraZeneca Plc, Pfizer Inc. and partner BioNTech SE, as well as China’s CanSino Biologics Inc. all hailed the presence of these white blood cells in vaccine recipients as a sign their experimental shots show promise.
Thrust into focus by recent studies, T cells are a reminder that the body’s defenses rely on more than one weapon, and that much of the immune response to Covid-19 is still a mystery — especially after researchers revealed that the more lauded antibodies lack staying power.
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“Antibodies are only a very small part of the picture,” said Paul Griffin, an associate professor of medicine at the University of Queensland in Brisbane, who is leading clinical studies in Australia of two potential Covid-19 vaccines. But “we’re really not there yet in terms of fully understanding” people’s immunity to the new coronavirus.
As the pandemic took the world by storm, scientists first focused on antibodies — proteins that stick to and disable foreign invaders — because eliciting them is the basis for most successful vaccines. The immune proteins are also easier to measure than T cells and can be used to gauge prior infection.
The study showing they wane quickly in patients with mild disease dealt a blow to hopes that antibodies will provide some lasting form of immunity.
Unsung warriors
T cells, by contrast, are able to kill virus-infected cells, remember past diseases for decades, and rouse fresh antibody soldiers long after the first have left the battlefield. People infected with another coronavirus that was responsible for the SARS epidemic in 2003, for example, still have a T-cell response to the disease 17 years later.
That suggests T cells may still, at least hypothetically, be ready to protect SARS survivors against the infection almost two decades later, and might bolster their defense against Covid-19, Griffin said. “They might have a slightly milder or shorter duration in terms of the course of their illness, but I certainly wouldn’t think that that would be protective, unfortunately,” he said.
One study found that some patients with no symptoms of Covid-19 had T-cells that recognized the virus — even when they had no detectable antibodies. Another pointed to a level of immunity in people who never encountered the pathogen, possibly because of exposure to one or more of the coronaviruses that cause the common cold.
Balancing act
More research is needed to determine whether pre-existing T cells that cross-react with the SARS-CoV-2 virus may explain why some Covid patients are barely affected while others get very sick and even die. What’s clear is that a balance of both antibodies and T cells is necessary for optimal defense, according to Griffin.
Corey Smith, head of translational and human immunology at the QIMR Berghofer Medical Research Institute in Brisbane, says the findings about antibodies’ short duration don’t mean immunity wanes completely, precisely because of T cells.
So-called helper T cells, as well as memory T and B cells are able to prime antibodies to respond to a subsequent infection before it causes severe symptoms, said Smith, who is studying the immune response to the SARS-CoV-2 virus.
The virus, like other coronaviruses that cause the common cold, may have a way of evading antibodies, leading to reinfection, Smith said. “But there’s enough cellular immunity to put a dampener on any severe symptoms.”
If could be that T cells are what ultimately subdue and blunt the pandemic virus that’s killed more than 600,000 people in less than seven months.
“If we can’t eradicate it, does it end up as a kind of a circulating virus, another cold virus?” Smith said. “I’m not sure, but it’s interesting.”


fortune--2020-07-23--One country avoided a full coronavirus lockdown. It just entered a recession anyway

South Korea, Asia’s fourth-largest economy, plunged into recession last quarter, with GDP hitting its lowest quarterly growth rate since 1998.
Data released by the Bank of Korea (BOK) Thursday showed GDP contracted 3.3% compared to the first quarter—marking the second straight decline in quarterly growth. GDP dropped 1.4% in the first quarter, meaning South Korea is now in its first technical recession since 2003.
“When we offered our growth projection in May, we had expected the COVID-19 pandemic to begin slowing down in the second half of the year, but now we are in the second week of July, and the spread of the disease is rather accelerating,” BOK Gov. Lee Ju-yeol told a press briefing last Thursday. The BOK had earlier predicted a year-on-year contraction of 2% in the second quarter, but the actual figure turned out to be 2.9%.
Unlike many other countries battling the pandemic, South Korea never issued widespread shutdowns to manage the outbreak. The government relied on mass testing, contract tracing, and quarantine to control the spread of the virus, instead, making its fall into recession all the more remarkable.
Private consumption did increase 1.4% in the second quarter, but it wasn’t enough to counterbalance the massive decline in exports. In ordinary times, exports account for roughly 40% of South Korea’s economic growth. In the second quarter, exports crashed 16.6%—the worst quarterly reading since 1963.
The government has so far deployed $231 billion worth of stimulus to combat the pandemic, but the majority of South Korea’s exports go to China and the U.S. The latter is still grappling with the pandemic while China cut imports 3.3% in the first half of the year.
By comparison, exports were actually China’s main bright spot for the second quarter, increasing 0.3% quarter-on-quarter. That’s not much on paper but far higher than the roughly -25% growth analysts had predicted.
China was able to pivot to manufacturing medical equipment to answer the fall in demand for other exports. South Korea, which primarily exports semiconductors and automobiles, hasn’t been so nimble. Economists and government officials expect South Korea’s economy to resume positive growth in the current quarter, however.
“It’s possible for us to see China-style rebound in the third quarter as the pandemic slows and activity in overseas production, schools and hospitals resume,” Finance Minister Hong Nam-ki said Thursday.
Nevertheless, South Korea’s economy will likely decline for the full year. The International Monetary Fund predicts a 2.1% contraction for 2020.


fortune--2020-07-24--After four-month drought, movie theaters beg studios: Release the blockbusters

These big companies have cut the most daily ad dollars during the Facebook boycott

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A long time ago in a pre-COVID universe far, far away, blockbusters opened around the globe simultaneously or nearly so. In 1975, “Jaws” set the blueprint. Concentrate marketing. Open wide. Pack them in.
Since then, Hollywood has turned opening weekends into an all-out assault. Staggered rollouts still happen, of course, but the biggest films are dropped like carpet bombs. Anything less risks losing the attention of moviegoers. Global debuts north of $300 million became commonplace. Last year, “Avengers: Endgame” made well north of $1 billion in a couple days.
Hollywood has now gone more than four months without a major theatrical release. While some films have found new streaming homes, the biggest upcoming ones — “Tenet,” “Mulan,” “A Quiet Place Part II” — remain idled like jumbo jets on the tarmac. The leading chains are still shuttered. Recent coronavirus spikes have forced release dates to shuffle and chains to postpone reopening to August.
Now, movie houses say that despite far from ideal circumstances, it’s time for new movies. Four months of near zero revenue has brought the $50 billion annual business to its knees. While the beleaguered restaurant industry still has takeout and airlines continue to operate with masked flyers, the vast majority of U.S. movie theaters haven’t punched a single ticket since March. Some have turned to selling popcorn curbside.
“The problem is, we need their movies,” says John Fithian, president and chief executive of National Association of Theater Owners. “Distributors who want to play movies theatrically, they can’t wait until 100% of markets are allowed open because that’s not going to happen until there’s a vaccine widely available in the world.”
“The old distribution models of big blockbusters,” adds Fithian, “need to be rethought.”
That may mean returning to a more old-fashioned release pattern, opening films overseas first and, in the U.S., opening at different times in different areas. When Warner Bros. earlier this week announced it was delaying the release of Christopher Nolan’s “Tenet” because of the rise in cases, Warner Bros. Pictures Group chairman Toby Emmerich said the studio is “not treating ‘Tenet’ like a traditional global day-and-date release.”
Right now, the biggest movies are getting further away, not closer. AMC, the world’s largest circuit, on Thursday delayed its reopening from the end of July to mid-to-late August. After “Tenet” earlier this week postponed indefinitely, Disney’s “Mulan” followed suit Thursday. Disney also pushed back numerous releases, including films in the “Avatar” and “Star Wars” franchises, back by a year.
“A Quiet Place Part II” also joined the exodus Thursday, uprooting from Sept. 4 to April 23 next year.
The coronavirus crisis has ushered in new chapter in the often symbiotic, occasionally quarrelsome relationship between distributors and exhibitors. Splitting ticket sale revenue approximately in half, their fortunes have often been closely linked.
The largest studios — the Walt Disney Co., Warner Bros., Universal — now all have streaming services of their own now, along with television operations. So they have options. The on-demand release of “Trolls” caused a rift between Universal and AMC. But the two halves of theatrical moviegoing have worked largely in concert through the pandemic thus far.
It’s in their own self-interest. Studios have been loath to sacrifice billions in box office for their priciest and most popular releases. On Thursday, John Stankey, chief executive of Warner Bros. parent company AT&T said direct release to HBO Max could be option for some Warner Bros. movies but not the $200 million “Tenet.”
With distancing protocols and other measures, cinemas have reopened in parts of Europe, the Middle East and South Korea, where last weekend Yeon Sang-ho’s “Train to Busan” action sequel “Peninsula” debuted with $13.2 million. Theaters in China, the world’s second largest movie market, this week reopened with theaters limited to 30% capacity.
North America, usually the main event of a blockbuster release, may have to learn to follow the rest of the world.
Despite the virus surge in much of the U.S., exhibitors believe they can operate relatively safely by adhering to health officials, decreasing theater capacity and cleaning in between showings. After initially flip-flopping, AMC will require patrons to wear masks.
Some moviegoers, naturally, don’t anticipate going, regardless of what comes out. Jeffrey Shaman, an epidemiologist at Columbia University, isn’t planning to go to the movies this year.
“It seems prudent to think that indoors is where the lion share of transmission takes place,” says Shaman. “You could think: well, it’s a movie theater. If you space people out, it’s a big room, tall ceilings. If they get the ventilation cranked up, it’s actually not the most concentrated environment. It’s not liked a packed bar with a low ceiling. It’s probably not as dangerous as that scenario. But is it more dangerous than sitting home and watching Netflix? Yes, of course it is.”
But imperfect may be all cinemas and studios have for now. Fithian believes 75% of U.S. theaters could be open within days if they had new movies. (Those currently open are mainly playing older films.) Theaters are closed in California and have yet to reopen in New York despite the state’s relative success in combating the virus. That removes the two top cities in ticket sales, Los Angeles and New York.
“The longer this goes, there will be bankruptcy filings and reorganizations and there will be people who go out of business,” says Fithian who’s currently lobbying for greater Congressional support for theaters. “But if there are no new movies until that’s a vaccine, that’s a dire situation for a lot of companies.”
AMC recently raised $300 million in debt relief to help itself remain solvent. Throughout the industry, some 150,000 workers remain furloughed.
Jonathan Kuntz, a film historian and professor at the University of California, Los Angeles, says “Tenet” “was made for a world that no longer exists.”
But as much as the familiar kind of worldwide launch is now impossible, the downside of improvising might not be as bad as it seems — provided piracy isn’t widespread. There will be scant competition. “Tenet” can take up most screens. Its opening can be spread out through the week. Advertising will be cheaper. Audiences will have little to distract them.
“They’re going to have to be very inventive and very nimble to squeeze what they can out of this movie and maybe set a pattern for this kind of COVID theatrical universe we’re moving into,” says Kuntz. “If they don’t do something, if they just keeping holding the films back, the theaters are going to die. Then everything’s going to just be streaming and we’ll have lost something a lot of people — not just Christopher Nolan — treasure.”


fortune--2020-07-23--Airlines expand their face-mask rules—but government enforcement is needed, CEOs say

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Major airlines are cracking down on passengers who try to fly without face masks. But without a federal order, their ability to enforce their new rules remains limited—at best.
American Airlines, United Airlines, and Southwest Airlines this week all said they would expand their existing requirements for passengers to wear face masks aboard their planes and even as soon as they enter the airport, to protect workers and fellow passengers from the risk of contracting COVID-19. Meanwhile, Delta Air Lines this week increased its screening of passengers who say they cannot wear a mask due to a medical condition.
Most major U.S. airlines started requiring face masks aboard their planes by mid-June, and several of them are banning customers who refused to wear the coverings. Delta has now put at least 120 customers on internal no-fly lists for refusing to wear masks, according to an employee memo sent Thursday, while United CEO Scott Kirby said Wednesday that his company has taken action against “fewer than 30” customers. American and Southwest, which both reported second-quarter results on Thursday, declined to disclose how many passengers they have banned from future flights for ignoring their face-mask requirements.
“Countless studies and medical experts have advised us that masks are an essential response to the virus that will help us reduce transmission,” Delta CEO Ed Bastian wrote in an internal memo seen by Fortune. “That’s why we’re taking it very seriously.”
But it’s still very possible to board a plane and see many passengers slipping off their masks for most of the flight—as I, several of my Fortune colleagues, and anyone else who has flown recently can attest. So the industry’s piecemeal new rules, coming as each airline reports massive losses from the pandemic-related travel slump, seem unlikely to meaningfully improve mask-wearing compliance—or enforcement.
“The airlines are doing as much as they can with the tools that they have,” says Eduardo Angeles, a managing director at law firm Clark Hill and a former Federal Aviation Administration (FAA) official under President Obama. “But unless [wearing masks is] mandated by the federal government, then it’s spotty—and it’s much less effective.”
‘Let’s mandate masks’
The federal government does not currently require that Americans wear face masks in airports or on airplanes, and the White House has resisted calls to mandate face coverings in public—even though greater mask discipline could halt the spread of the coronavirus in four to six weeks, the director of the U.S. Centers for Disease Control and Prevention said last week.
More Americans are wearing masks in public, according to a Fortune-SurveyMonkey poll conducted between July 17 and 21—but the question of whether to mask or not remains politicized, with Republicans still less likely to wear masks than Democrats and with President Trump remaining a lukewarm supporter of the idea.
In the absence of a federal mask mandate, individual companies including Walmart, Best Buy, and Walgreens are trying to implement and enforce internal policies. Now airline CEOs, their companies at the forefront of so much of the pandemic’s sweeping damage to American businesses, are increasingly calling for the federal government to require all Americans to wear masks—not just on planes, but in all public spaces.
“It’s really important that we as a nation comply with the mask policy,” Delta’s Bastian said during a conference call last week. “The stronger that our federal government can reinforce the need to wear masks the better—not just in air travel, but in life in general.”
Southwest CEO Gary Kelly echoed Bastian on Thursday. “I have no problem with a mask mandate. I just don’t think it should be only for air travel,” he told CNBC’s Jim Cramer. “Let’s mandate masks. You have to wear pants. Why can’t we mandate that you have to wear a mask in a pandemic?”
Spokespeople for United and American referred questions about federal regulations to Airlines for America, an industry trade group, which has not requested a federal mandate on mask-wearing; a spokeswoman would not comment on the matter.
In the meantime, the airlines are hoping that their internal efforts will make a difference—and get more passengers more comfortable with flying.
Spokespeople for Delta, United, and American told Fortune that customers who refuse to wear masks would receive multiple warnings, sometimes in writing, before being put on future no-fly lists. But they declined to provide much detail about how flight attendants and other employees are being instructed to enforce the stricter regulations.
Delta spokesman Morgan Durrant said that instructions on enforcing mask rules are part of the airline’s regular communication and training for flight attendants, but that the company also understands the need to be flexible with certain passengers.
“There are just so many different situations,” he said. For example, children over the age of two are required to wear masks, but if an older child “is fidgeting with it and has pulled a mask down…we’re not going to ask the flight attendants to sternly ask the child to pull their mask up over their nose, you know?”
Aviation industry analyst Henry Harteveldt of Atmosphere Research Group also points out that, even on the emptier flights these days, flight attendants “can’t be everywhere, especially during takeoff and landing.”
“Flight attendants do the best that they can, but there’s some passengers who are simply trying to outfox the flight attendants because they don’t want to wear a mask,” he adds. “There’s only so much they can do, absent federal policy.”


fortune--2020-07-23--These big companies have cut the most daily ad dollars during the Facebook boycott

Airlines expand their face-mask rules—but government enforcement is needed , CEOs say

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New data shows that of all the corporate advertisers on Facebook, Microsoft, Samsung, Starbucks, and Wells Fargo have cut the largest amount ad dollars three weeks into a one-month boycott over how the service has handled hate speech and discrimination.
Microsoft was responsible for the largest decline in spending, eliminating the average $166,000 it spent daily on U.S. ads during the second quarter, according to data from digital marketing data firm Pathmatics. Samsung followed, decreasing but not completely eliminating, its average daily spend by $160,400, while Starbucks eliminated its spending by about $111,500 per day. Wells Fargo also reduced, without completely cutting, its daily average by $111,200.
Colin Sebastian, analyst at Baird Equity Research said he wasn’t surprised by the individual advertiser reductions, given that many of these companies had publicly announced their intentions. “What the data does is it confirms that most of those advertisers did cease the majority of their spending on these platforms,” he said. “They followed through with their threat.”
The temporary boycott, which was organized by groups including the Anti-Defamation League, Color of Change, and National Association for the Advancement of Colored People, aimed to pressure Facebook into doing more to control hate speech, discrimination, and violence on its service by asking advertisers to halt ads for a month. Hundreds of small businesses participated, but the campaign also landed several big brands including Verizon, Unilever, and Levi Strauss. Other big brands like Disney, which never publicly joined the campaign, have reportedly reduced their advertising on Facebook as well, according to the Wall Street Journal.
Ninety of Facebook’s top 500 advertisers participated, according to a note Sebastian published Wednesday. Overall, the top 500 advertisers from the second quarter were responsible for an $80 million reduction in ad spend from July 1 through July 17. The top advertisers on the service so far this month, according to Pathmatics, include: Purple Innovation, TaxACT, Home Depot, AT&T, and HBO.
Microsoft wasn’t alone in eliminating its Facebook ad spending completely. But as seen with some of the top reduced spenders, Pathmatics data shows that some companies—including some Unilever brands—that publicly joined the boycott still bought ads, though at smaller levels, during the month of July. Similarly, other big advertisers—which include Samsung—that didn’t publicly join the boycott significantly reduced their ad spend. For example, Geico reduced its daily average ad spend by $92,700, and Walmart dropped by $86,700.
Sebastian estimates that the boycott will ultimately lead to $200 million in lost ad revenue in July if the current trend continues, which would only represent 1% of quarterly revenues. Sebastian calls this nothing more than a “blip” in the earnings—a prediction shared by several analysts when the boycott debuted.
Bryan Karas, CEO of marketing agency Playbook Media and former Facebook employee, said Facebook has been reaching out to his agency and its advertisers reiterating its efforts and the progress it has made to improve the detection of hate speech. Meanwhile, many small advertisers are still putting their marketing dollars into Facebook out of necessity as they try to gain new customers during the coronavirus pandemic, which has crippled their businesses.
“If we’re working with a small venture backed company and their lifeblood is new customers, they have to take that [public relations] risk,” Karas said. “REI and Coca-Cola, they can shut it down, and they can get the positive PR.”
YouTube, Twitter, and Amazon appear to have benefited from the pause on Facebook ads, according to Pathmatics. Sebastian points out that Hulu, Geico, and Samsung—all of which have cut back on Facebook ads—began allocating more to YouTube in July. At the same time, Target, Best Buy, and Geico increased their spend on Twitter ads by double or more. Sebastian said companies may use this opportunity to see if they can get similar returns from advertising on other services.
“I think the answer is no, but some companies will be doing that experiment,” he said.
While Facebook is scheduled to release its second-quarter earnings next Wednesday, the impact of the boycott won’t be reflected until its third-quarter earnings. Analysts estimate that Facebook will report $17.4 billion in second-quarter revenue. While that would represent a 3% increase over last year’s second quarter, it pales in comparison to the 28% year-over-year growth Facebook reported at that time.
Sebastian said he hopes Facebook will shed more light on the ads boycott during next week’s earnings call. But he’s also hoping to hear more about Facebook’s outlook on its profit margin.
“Bigger picture with Facebook is spending levels,” Sebastian said. “Are they continuing to invest in bigger projects? Are they going to dial back? Are they going to do more to ensure elections aren’t as disruptive as 2016?”


fortune--2020-07-23--Big Tech’s no good, very bad day on Wall Street

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Good evening, Bull Sheeters. This is Fortune finance reporter Rey Mashayekhi, filling in this week for Bernhard Warner.
A bad day for Big Tech stocks led a poor day overall for the markets, as all eyes remain focused on the U.S. government’s response to the coronavirus pandemic and its escalating feud with Beijing.
Markets update
U.S. 🌎
After trading in negative territory for most of Thursday, markets in New York sank even further in the afternoon to finish deeper in the red. The Dow lost more than 350 points (-1.3%), the S&P 500 fell -1.2%, and the Nasdaq felt Big Tech’s pain and shed -2.3%.
lost more than 350 points (-1.3%), the fell -1.2%, and the felt Big Tech’s pain and shed -2.3%. Notable earnings reports out today include Intel , AT&T , American Airlines , Southwest Airlines , Twitter , and Blackstone .
reports out today include , , , , , and . Warren Buffett ’s Berkshire Hathaway has taken advantage of Bank of America ’s stock slump by picking up $813 million worth of BAC shares .
’s has taken advantage of ’s stock slump by picking up . Ascena Retail Group , which operates clothing chains Ann Taylor and Lane Bryant , is the latest retailer to have filed for bankruptcy amid the pandemic.
, which operates clothing chains and , is the latest retailer to have amid the pandemic. Congressional lawmakers continue to work on a new coronavirus stimulus package. While some Republicans are suggesting steep cuts to the CARES Act’s $600-per-week federal unemployment benefit, Treasury Secretary Steven Mnuchin and Senate Majority Leader Mitch McConnell are said to be floating a second round of stimulus checks. Meanwhile, unemployment claims are again on the rise as a spike in COVID-19 cases hinders the economy.
Europe 🌍
After starting Thursday strong, the European bourses gave up much of their gains to end the day virtually flat across the board. London’s FTSE was up less than 0.1%, Frankfurt’s DAX was down fractionally, the CAC 40 in Paris slipped less than -0.1%, and the pan-European STOXX 600 gained less than 0.1%.
was up less than 0.1%, Frankfurt’s was down fractionally, the in Paris slipped less than -0.1%, and the pan-European gained less than 0.1%. Notable European companies to release their earnings Thursday include Daimler , Unilever , Publicis Groupe , and Roche .
Thursday include , , , and . The scandal surrounding defunct German payments processor Wirecard thickens. German authorities arrested former Wirecard CEO Markus Braun and two other former executives Wednesday on new charges for their alleged role in cooking the company’s books. The scandal also threatens to envelop German chancellor Angela Merkel , who reportedly lobbied the company to Chinese officials last year despite knowing of probes into Wirecard.
surrounding defunct German payments processor thickens. German authorities arrested former Wirecard CEO and two other former executives Wednesday on new charges for their alleged role in cooking the company’s books. The scandal also threatens to envelop German chancellor , who reportedly lobbied the company to Chinese officials last year despite knowing of probes into Wirecard. The coronavirus crisis has prompted the European Commission to ease financial regulations in a bid to boost the continent’s economy.
to ease financial regulations in a bid to boost the continent’s economy. The U.K. says previous assessments have underestimated the economic benefits of its post-Brexit trade deals.
Asia 🌏
The Asian exchanges had a mixed Thursday. Markets in Japan were closed for a national holiday, but Hong Kong’s Hang Seng gained 0.8% while South Korea’s KOSPI lost -0.6%. On mainland China, Shanghai’s SSE Composite fell -0.2% and Shenzhen’s SZSE Component closed virtually flat (+0.03%).
gained 0.8% while South Korea’s lost -0.6%. On mainland China, Shanghai’s fell -0.2% and Shenzhen’s closed virtually flat (+0.03%). South Korea’s economy is officially in recession , per second-quarter GDP figures released Thursday.
, per second-quarter GDP figures released Thursday. U.S.-China tensions remain high, with China’s foreign ministry warning the U.S. to “carefully think about” its stance after the latter ordered the Chinese consulate in Houston to close. Secretary of State Mike Pompeo , for his part, says it is the Chinese Communist Party that needs a change in direction.
remain high, with China’s foreign ministry warning the U.S. to “carefully think about” its stance after the latter ordered the Chinese consulate in Houston to close. , for his part, says it is the Chinese Communist Party that needs a change in direction. While China’s crackdown on Hong Kong’s autonomy has some worried about HK’s future as a global financial hub, Beijing is betting that it will become a bigger center for Chinese finance.
has some worried about HK’s future as a global financial hub, Beijing is betting that it will become a bigger center for Chinese finance. The Wirecard scandal has extended to the Philippines, where authorities are investigating bank employees who may have facilitated the fraud.
Elsewhere 📈
Gold continued its historic rally toward $1,900 per ounce.
continued its historic rally toward $1,900 per ounce. The dollar continued to sink as the euro climbed.
continued to sink as the climbed. Crude oil dipped, with Brent retreating to under $44 per barrel.
Taking a bite out of Apple
Like most of its Big Tech counterparts, Apple had a dreadful day on Wall Street. Apple shares closed down more than -4.5%—a drop steeper than those experienced by Microsoft (-4.4%), Amazon (-3.7%), Alphabet (-3.1%) and Facebook (-3%).
Cupertino was surely not amused by a Goldman Sachs note that advised investors to steer clear of Apple’s stock, citing concerns over an “unsustainable” share price that, as of Wednesday, had surged more than 70% from its March low. What’s more, ahead of Apple’s earnings call next Thursday, Goldman says it doesn’t expect the tech giant to provide an official guidance for the next quarter—blurring the pandemic’s impact on Apple’s business, and particularly on the upcoming launch of its next iPhone.
Even a one-month delay to the iPhone’s launch could potentially hurt the company’s revenues by 7% and its earnings by 6% in the final quarter of 2020, Goldman said. The investment bank’s analysts set Apple’s price target at $299 per share—a level that the stock hasn’t traded at since early May.
Meanwhile, Thursday also brought news that the attorneys general of Texas and several other states are investigating Apple over possible violations of consumer protection laws. That could give lawmakers on Capitol Hill more fodder ahead of Monday’s much-hyped Big Tech congressional hearing, in which Tim Cook will appear alongside Jeff Bezos, Mark Zuckerberg, and Sundar Pichai.
Betting against Apple’s continued success may seem foolhardy, given the company’s dominance in the consumer tech sphere and the enviable performance of its stock (see: its $1.6 trillion market capitalization).
But at a time when many observers believe the equity markets at large are overinflated, it’s not hard to look at Apple’s recent run-up with a fair dose of skepticism. After all, even before the pandemic, the company was showing signs of flattening revenue growth—a dynamic that could well be exacerbated by our current, unprecedented headwinds.
***
That’s all for today. Have a pleasant evening and see you tomorrow.
Rey Mashayekhi
@ReyM12
Rey.Mashayekhi@Fortune.com
Today's reads
Take notice. Fortune's Shawn Tully examines the recent changes to the Current Expected Credit Losses rule, or CECL—a little-known piece of federal lending regulation that has taken heightened importance as the pandemic impacts consumer credit.
Bitcoin banking. The Office of the Comptroller of the Currency ruled this week that banks are now able to hold cryptocurrencies like Bitcoin on behalf of their customers. That will likely have major implications for both banks and cryptocurrencies, Fortune’s Jeff John Roberts reports.
How much a dollar cost? Economist and former Morgan Stanley Asia chairman Stephen Roach spoke with Fortune about the current struggles of the U.S. dollar—and whether the currency is at risk of losing its global stature to the likes of the euro and the yuan.
Some of these stories require a subscription to access. You can use this link to sign up. Thank you for supporting our journalism.
Market candy
-4.98%
You thought we would get through an entire newsletter without mentioning Tesla, did you? That's how much the electric automaker's stock fell on Thursday, in the wake of a triumphant, profitable earnings report yesterday that cleared the company's path to join the S&P 500. Like most major tech names, Elon Musk's firm still took an L today.


fortune--2020-07-23--Trump cancels Jacksonville portion of Republican National Convention

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President Donald Trump announced Thursday that he has scrubbed his planned Republican National Convention scheduled for Florida next month, citing a “flare-up” of the coronavirus.
Trump’s formal renomination will still go forward in North Carolina, where a small subset of GOP delegates will still gather in Charlotte, North Carolina, for just four hours on Aug. 24. Florida was to have hosted four nights of programming and parties that Trump had hoped would be a “four-night infomercial” for his reelection.
“It’s a different world, and it will be for a little while,” Trump said, explaining his decision. “To have a big convention is not the right time,” Trump added.
Trump moved the ceremonial portions of the GOP convention to Florida last month amid a dispute with North Carolina’s Democratic leaders over holding an event indoors with maskless supporters. But those plans were steadily scaled back as virus cases spiked in Florida and much of the country over the last month.
Trump said he would deliver an acceptance speech in an alternate form, potentially online.
Trump said thousands of his supporters and delegates wanted to attend the events in Florida, but “I just felt it was wrong” to attract them to a virus hotspot. Some of them would have faced quarantine requirements when they returned to their home states from the convention.
“We didn’t want to take any chances,” he added. “We have to be vigilant. we have to be careful and we have to set an example.”
In recent weeks, Trump aides and allies have encouraged the president to consider calling off the convention, advising him it was not worth going forward with the event if the focus would be on the pandemic. Trump acknowledged that consideration, saying, “I could see the media saying, ‘Oh, this is very unsafe.’”
More than 10,000 people were expected in Jacksonville—already a fraction of the number that would attend a normal convention. Only 336 delegates will be allowed to participate in Charlotte under extraordinary procedures approved last month by the Republican National Committee. The balance of the more than 2,500 delegates will vote by proxy.
Democrats will hold an almost entirely virtual convention Aug. 17-20 in Milwaukee using live broadcasts and online streaming, according to party officials. Joe Biden plans to accept the presidential nomination in person, but it remains to be seen whether there will be a significant in-person audience.
The Biden campaign did not immediately respond to messages seeking comment on Trump’s announcement.


fortune--2020-07-23--The extra $600 unemployment benefit keeping millions of Americans afloat is about to expire—just as

The extra $600 unemployment benefit keeping millions of Americans afloat is about to expire—just as jobless claims are back on the rise

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The nation got another dose of bad economic news Thursday as the number of laid-off workers seeking jobless benefits rose last week for the first time since late March, intensifying concerns the resurgent coronavirus is stalling or even reversing the economic recovery.
And an extra $600 in weekly unemployment benefits, provided by the federal government on top of whatever assistance states provide, is set to expire at the end of the week. It is the last major source of economic help from the $2 trillion relief package that Congress approved in March. A small business lending program and one-time $1,200 payment have largely run their course.
With the count of U.S. infections passing 4 million and the aid ending, nearly 30 million unemployed people could struggle to pay rent, utilities, or other bills and economists worry that overall consumer spending will drop, adding another economic blow.
“I’m going to be broke,” said Melissa Bennett, who was laid off from her job at a vacation time-share in Myrtle Beach, South Carolina. “I’ll be broke-broke. I want to go to work, I want health insurance, I want a 401K. I want a life; I have no life right now.”
Without the extra unemployment benefits, Bennett will receive just $200 a week, and she’ll have to decide whether to pay her mortgage or her utilities first.
More than 1.4 million people applied for jobless benefits last week, the Labor Department said Thursday, up from 1.3 million the previous week. That is the first increase since March and 18th straight week that it has topped 1 million. Before the pandemic, applications had never exceeded 700,000. An additional 975,000 people applied for aid under a separate program that has made self-employed and gig workers eligible for the first time.
The news sent stocks slumping on Wall Street, with the S&P 500 recording its worst loss in nearly four weeks. Uncertainty across markets helped gold touch its highest price in nearly nine years.
The weakening of the labor market has raised fears the economy will shed jobs again in July, after two sharp hiring gains in May and June.
Analysts say the economy can’t improve until authorities can control the spread of the virus, a need that is complicating the reopening of businesses and schools.
Adm. Brett Giroir, assistant secretary of health and a member of the Trump Administration’s coronavirus task force, even suggested another shutdown might be necessary. He noted that nearly universal mask wearing, sharp restrictions on restaurant occupancy, and shutting down bars were nearly as effective in controlling the virus as another shutdown of all non-essential businesses.
“Now, if you don’t do that, and people don’t achieve those goals, particularly mask-wearing, there may be no alternative,” Giroir said on MSNBC.
Congress is negotiating another aid package that could extend the extra unemployment support, though likely at less than $600. With the extra $600, roughly two-thirds of the unemployed are receiving more in aid than they earned at their former jobs, research has shown — a finding that’s led Republicans to argue that it is discouraging people from returning to work.
On Thursday, Senate Republicans unveiled a $1 trillion package that would replace the $600 with an amount that would bring a laid-off worker’s jobless benefits to 70% of their previous income. Both parties have agreed on another $1,200 stimulus check.
Democrats in the House approved a $3.5 trillion package last month that would extend the $600 through January. Given the limited time available, Treasury Secretary Steven Mnuchin proposed Thursday that a bill dealing with jobless benefits aid to schools be considered next week.
Democrats say the Republican plans are not enough.
The new economic woes come as outbreaks worsen particularly in the South and West. In Florida, officials reported 173 new virus deaths Thursday, a new daily high that brings the overall toll to more than 5,500. Arizona topped 3,000 deaths, with 89 new deaths reported Thursday. More than 1,000 of those deaths were reported in the past 15 days.
Desperate to stop the spread of the virus and its resulting economic impact, a growing number of states have announced new or broadened mask requirements. A new survey from The Associated Press-NORC Center for Public Affairs Research finds three out of four Americans, including a majority of Republicans, favor requiring people to wear face coverings while outside their homes.
In one small step toward normalcy, many Americans eagerly welcomed baseball’s opening day, which arrived four months late, with two games set for Thursday starting a shortened season.
In contrast to the U.S., the outlook has brightened for some other major economies. Europe is forecast to rebound next year after it managed to shrink its coronavirus caseload. Unemployment in the 19 countries that use the euro has remained contained, reflecting aggressive government efforts to keep workers on payrolls.
And China has become the first major economy to grow since the start of the pandemic. Economists say China will likely recover relatively fast because of the Communist Party’s move to impose early and intensive anti-disease measures.
Last week, applications for unemployment benefits declined in many states that have been hard hit by the virus, including Texas, Florida, Georgia and Arizona. But claims rose in other states that are also seeing increases, however, including Louisiana, California, and Tennessee.
The U.S. government also said Thursday that the total number of people receiving jobless benefits fell 1.1 million to 16.2 million. That was a hopeful sign that even as layoffs remain persistently high, some companies are recalling workers. Yet that figure is still roughly 10 times what it was before the pandemic.
Unemployment aid accounted for 6% of all U.S. income in May, a greater share than even Social Security. Economists say it’s one reason why retail spending rebounded as quickly as it did in May and June. If the full $600 were extended, it would boost consumer spending enough to generate roughly 1 million jobs by the end of this year, Oxford Economics estimates.
The end of the added benefit coincides with the expiration of a federal moratorium on evictions on Saturday. That moratorium bars evictions of renters who live in federally subsidized housing, and without it, about 22 million people are at risk of losing their homes.
“It’s scary, it’s really scary,” said Victorita Raaen, 46, who was laid off in March from her job as a light and sound technician in Boise, Idaho. The extra payments helped her build up a thin financial cushion but once it goes away things will get significantly tighter, especially with no way of knowing when she might be able to work again. She figures she can live on ramen, hot dogs and peanut butter and jelly sandwiches for a while but might not be able to pay for gas.
“I want to go back to work,” she said. “I’d rather go back than sitting here earning unemployment.”
Real-time measures of the economy suggest that companies are pulling back on hiring and that more small businesses are closing permanently. Credit card spending has been stuck at about 10% below year-ago levels for nearly a month, according to JPMorgan Chase, after having risen steadily from mid-April to mid-June.
Data from the consumer-review website Yelp, which tracks millions of small businesses, shows that more such companies are permanently shutting down. Nearly 73,000 small businesses have closed for good since the pandemic intensified in March, up 28% from mid-June.
“Every time a business closes, that makes the recovery longer and harder, so that worries me,” said Ernie Tedeschi, an economist at the investment bank Evercore ISI.


fortune--2020-07-23--Intel has fallen behind again on its next big chip manufacturing improvement

Intel spooked Silicon Valley and many of its investors on Thursday, announcing that it had fallen a full 12 months behind schedule in developing its next major advance in chip-manufacturing technology.
In an unprecedented development, Intel said that as a contingency it would use a competitor’s manufacturing facilities if it could not resolve the delay quickly. The company could use “our fabs or somebody else’s,” CEO Bob Swan said on a call with analysts.
Intel’s stock price, which had previously gained just 1% so far this year, plunged 10% in after-hours trading, despite the company’s having announced solid results for the second quarter.
The surprise delay of the chipmaking technique known as seven nanometer brought back bad memories of Intel’s multiyear delay in achieving the previous advance, known as 10 nanometer. (With seven-nanometer technology, designers can fit more transistors into the same amount of space, increasing performance.) Rival Advanced Micro Devices, which relies on Taiwan Semiconductor for manufacturing, was already leading Intel in the race for the next chipmaking advance, but now could gallop farther ahead. AMD’s stock, previously up 30% in 2020, jumped an additional 7% after hours.
Apple, which last month said it was dropping Intel’s chips from its desktop and laptop computers, has also used Taiwan Semiconductor to manufacture its chips.
Intel’s Swan, who took over in 2019 following the 10-nanometer glitches, said the new seven-nanometer technology was not producing enough useful chips to make it economical yet, owing to a defect. “We have root-caused the issue and believe there are no fundamental roadblocks, but we have also invested in contingency plans to hedge against further scheduling uncertainty,” Swan said on the analyst call. Products using seven-nanometer technology would arrive in later 2022 or early 2023, he said.
The chip industry’s once-steady improvements in semiconductor manufacturing gave rise to the famous Moore’s Law, coined by Intel cofounder Gordon Moore, which states that the number of transistors on a microchip doubles about every two years. Swan’s announcement appears to be an instance of Intel violating that law. But Swan told analysts the company had developed numerous other technologies to improve the performance of its chips even with the delay in seven nanometer.
On other fronts, Intel did better than analysts expected in the second quarter. Revenue increased 20% year over year, to $19.7 billion, over $1 billion more than the average analyst forecast. And Intel’s adjusted earnings per share of $1.23, up 16% from a year ago, beat the average forecast by 12 cents.


fortune--2020-07-23--5 hotly anticipated games Microsoft detailed during its Xbox Series X event

Microsoft held its Xbox Series X game showcase online on Thursday, offering previews of some of the company’s most anticipated games like Halo Infinite and a new Fable.
Those wanting details on how much the new Xbox Series X console will cost or when exactly it will be released were likely disappointed. This was purely a video game–centric event. For what it’s worth, the new Xbox is still slated to be released at an unspecified date during the upcoming holiday season, and some analysts are projecting it will cost $499.
Although Microsoft is heavily pushing its upcoming Xbox console, the company also heavily emphasized its Game Pass online subscription service, which the company said in April has about 10 million subscribers. Xbox chief Phil Spencer said that all of the video games the company showed off will be available via Game Pass on the day they are released.
Halo Infinite
“Halo Infinite” is the latest edition of the “Halo” first-person shooter series. Courtesy of Microsoft
The Xbox event opened with an extended scene from Halo Infinite, the latest addition to Microsoft’s Halo first-person shooter franchise. Halo and its starring character of Master Chief is to the Xbox as Super Mario Bros. and its leading Italian plumber is to Nintendo.
The Halo franchise is developed by Microsoft’s 343 Industries studio, and it represents the type of exclusive video games (meaning they are only available via Xbox) that Microsoft needs to distinguish itself from rivals like Sony and Nintendo.
Like previous Halo games, Halo Infinite doesn’t deviate from other first-person shooters that emphasize fast-paced action and lots and lots of shooting. Indeed, after a brief interaction involving an upset colleague with some sort of Eastern European accent, the game’s armor-clad hero immediately gets down to business—blasting screaming aliens to smithereens, as multicolored lasers fly around the screen like fireworks bursting during the Fourth of July.
The visuals were impressive as the hero walked around an alien planet that kind of resembles a peaceful valley in Yosemite while targeting small, agitated aliens.
The game should be released during the holiday season.
A new Fable
The latest edition of the Fable franchise is developed by another Microsoft-owned studio, Playground Games. It’s arguably one of the most anticipated titles for the new Xbox console, with fans admiring the franchise’s playful fairy-tale-like aesthetic.
The game is part of the action/role-playing genre, in which players take control of a character who embarks on an epic quest during which he or she gradually grows more powerful, gaining new skills as the game progresses.
Microsoft did not say when the game will be released. A spokesperson also clarified that the new Fable is not named Fable 4, but simply, Fable.
Forza Motorsport
Forza Motorsport is the next installment of Xbox’s racing game franchise, which is known for its detailed renderings of real-life race cars and racetracks.
Unfortunately, not much was revealed about the new Forza game, developed by Microsoft’s Turn 10 Studios. It’s going to involve fancy cars that go really fast around a track, that much is for certain.
Psychonauts 2
If you’ve been wondering what funnyman Jack Black has been up to, he was shown to be singing a song that’s part of the upcoming Psychonauts 2 video game, developed by Microsoft’s Double Fine gaming studio.
“Lost alone, neither skin nor bone,” sang Black in a recording studio, juxtaposed with scenes from the action game that appears to center around a little boy running around a colorful world resembling something from a Saturday morning cartoon.
The game is part of the genre of games known as platformers, in which players need to jump, climb, and run like they are on an obstacle course. Unlike other platform games, Psychonauts 2 has a retro aesthetic, capturing a bit of psychedelia from the 1960s, best exemplified by a brief scene involving what looked like a hippie bus.
This game will be released sometime in 2021.
The Medium
The Medium, developed by Polish studio Bloober Team, looks like a horror game, featuring a very serious woman who ventures throughout a decrepit mansion. The game enables players to toggle between two worlds—the real world in the haunted mansion and the spirit realm.
The game will be released during the holiday season.
Update: July 24 at 7:30 PM ET with revised title of Fable


fortune--2020-07-23--Coronavirus can travel 26 feet in rooms with cold, stale air—like meat plants

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Cold and stale air conditions allowed coronavirus particles to travel more than 8 meters (26 feet) at a German slaughterhouse, a study showed, giving an insight into how meat plants turned into hotspots for infections across the world.
Researchers reconstructed the likely cause of the outbreak at a Toennies Group slaughterhouse in Rheda-Wiedenbrueck, where about 1,500 workers contracted the virus. Similar conditions at plants globally are a reason they’ve become virus epicenters, according to the report from groups including the Helmholtz Center for Infection Research.
Meat plants from the U.S. to the U.K. and South America have seen the rapid spread of the virus, infecting thousands of employees who often work in close proximity on processing lines. Dozens of workers have died, and labor advocates have said that a lack of social distancing could continue to put people at risk. Outbreaks also forced American meat plants to close earlier this year, sparking some protein shortages.
Meanwhile, China is ramping up testing of imports of cold food for the virus. Even as global scientific experts say that the likelihood of transmission through food is extremely low, the Asian country has slapped export bans on some abattoirs with cases, further fueling the urgency to contain the disease.
The Toennies outbreak likely began from one employee in May and was largely transmitted in the plant’s dismantling area, where rooms are often chilled to 10C degrees (50 Fahrenheit). Chilly air circulated without frequent changes — coupled with a strenuous work conditions — helped particles move large distances, said Adam Grundhoff, a co-author of the study.
“It is very likely that these factors generally play a crucial role in the global outbreaks in meat or fish processing plants,” said Grundhoff, a research group leader at the Heinrich Pette Institute, Leibniz Institute for Experimental Virology. Under these conditions, a distance of 1.5 to 3 meters between workers isn’t sufficient to prevent transmission, he said.
Disproportionate hit
Workers at meat plants represent some of the populations facing a disproportionate hit from the health crisis and its economic fallout.
In the U.S., about half are immigrants, according to the Center for Economic and Policy Research. Employees also come from relatively low-income families, and about 44% of them are Hispanic and a quarter are African Americans, a demographic seeing a devastating toll both physically and financially.
Minority workers at the U.S. plants have seen the biggest blow from the outbreaks. In a July Centers for Disease Control and Prevention report that showed infection tallies through the end of May, data showed that of the of the cases that disclosed race and ethnicity, 87% involved minority workers — with employees identified as Hispanic accounting for 56% of infections despite making up less than a third of the overall workforce.
The Toennies plant — Germany’s largest pork abattoir — reopened last week after a month-long closure and plans to gradually ramp up output. The company, which posted a link to the research report on Twitter, also recently released a 25-point plan detailing measures it’s making to prevent further outbreaks. They include testing employees twice a week, hiring workers directly and overhauling ventilation.
The report’s findings show that no factory worldwide was built for such a crisis, and the company has invested in air filters and other mechanisms to protect employees, a Toennies spokesman said by email.
Housing conditions — also often pinpointed as a factor in the outbreaks — were not found to play a significant role in the disease’s initial spread.
“The important question now is under what conditions transmission events over longer distances are possible in other areas of life,” said Melanie Brinkmann, a research group leader at the Helmholtz center.


fortune--2020-07-23--As plastic waste in world’s oceans continues to soar, efforts to stem the pollution are falling shor

As plastic waste in world’s oceans continues to soar, efforts to stem the pollution are falling short

The world’s oceans are facing a vast wave of plastic waste over the next 20 years, as growing populations and billions of dollars of investment in petrochemicals outstrip efforts to ban and reduce everything from plastic bags to disposable cups, according to a study by a team of U.K.-based researchers.
The researchers found that at current “business as usual” rates, the scale of plastic entering the world’s oceans will triple by 2040, to an average of 29 million metric tons of waste, per year—equivalent to 50 kilograms, or 110 pounds, of waste per meter of coastline, globally. If all measures promised by governments are implemented, plastic waste will be reduced by only 7% compared with levels of waste if no efforts had been taken at all, the report said.
As a result, current efforts to reduce plastic waste are wildly insufficient, the researchers concluded. Truly reducing waste will require using every available solution, from recycling to designing replacement products, including—perhaps most important—a focus on new plastic not being produced at all.
The paper, Evaluating Scenarios Toward Zero Plastic Pollution, was published in the journal Science on Thursday with an accompanying report, as a collaboration between The PEW Chartiable Trusts and SYSTEMIQ, with the partnership of the University of Oxford, the University of Leeds, the Ellen MacArthur Foundation, and Common Seas.
“The collective impact of all current national and municipal legislation regarding items such as straws, bags, stirrers, cups, cotton swabs, and bottles simply does not add up to a significant reduction in the overall quantity of plastic waste generated and leaked globally,” the accompanying report said.
It continued: “To compound this shortfall, there has been insufficient growth in waste collection infrastructure over the past two decades relative to plastic waste generation, which we estimate has been growing at a 4% to 7% compound annual growth rate.”
Meanwhile, corporate commitments to reduce plastic waste are in fact still relatively niche and small scale, the report adds.
The researchers estimated that plastic waste can be reduced by 80% with existing technology—but to be successful, such an effort cannot stop at simply improving recycling or reducing plastic use, but must include how a product is designed, and how it is replaced and reused, using all potential methods together.
That includes focusing on mechanical recycling—rather than chemical recycling, which can be emissions heavy—and making items reusable, rather than simply replacing plastic with other materials, which can have knock-on environmental and social impacts.
But focusing on reducing the creation of plastic in the first place is the most attractive solution from an environmental, economic, and social perspective, the researchers said: “It offers the biggest reduction in plastic pollution, often represents a net savings, and provides the highest mitigation opportunity in GHG [greenhouse gas] emissions.”
A widespread approach to reducing plastic waste would ultimately cost governments roughly $600 billion by 2040—$7 billion less than it would cost governments to continue to manage the knock-on impacts of plastic waste under the current system, the researchers argued.
The technical and logistical difficulties of recycling—just one element of the waste cycle of plastic—are already challenging.
Even in the world’s most diligent recycling nations, like Germany, single-use plastics—though collected by local authorities—usually end up in landfills, because they are too difficult or uneconomical to process. Meanwhile, local collection in municipalities in the U.S., if recycling is collected at all, long relied on sending that plastic to be processed in China—a system one local authority equated to “recycling on life support.” Since China stopped accepting waste, an even larger logistical challenge has been created.
But Thursday’s report also refers to an awkward contradiction in the global economy: Even as governments and companies pledge to reduce their use of straws or plastic bags, cheap oil and gas prices have made “virgin,” or newly created, plastic far more economical than recycling, which is frequently expensive and labor intense, as Vivienne Walt noted in Fortune’s business and climate change issue earlier this year. Meanwhile, growing populations have made petrochemicals a growth area for many of the world’s largest oil and gas companies, resulting in billions of dollars of investment in expanding capacity.
That conundrum has arguably only been highlighted by the pandemic, as delivery food orders and disposable hygiene products, from masks to gloves to wipes, have made a comeback—and oil prices have sunk further.
The ecological consequences of not addressing plastic waste are already being felt. In only the latest example, a study published Wednesday from researchers at the University of Exeter in the journal Scientific Reports examined the stomachs and guts of a group of sharks caught as bycatch in the waters off the coast of Cornwall, in southeast England. Researchers found that nearly 70% had ingested not only microplastics, but materials from disposable hygiene items—like face masks.
This article has been updated to correct the partnerships involved in the study.


fortune--2020-07-23--Florida leads nation in unemployment claims as surging COVID-19 cases start to pull its economy back

Florida leads nation in unemployment claims as surging COVID-19 cases start to pull its economy backwards

The coronavirus outbreaks in big states like California, Texas, and Florida—the nation’s three most populated states—are already starting to pull the economic recovery backwards.
On Thursday we learned 1.4 million Americans filed initial unemployment claims in the week ending July 18. That’s up from 1.3 million the week prior, marking the first time in four months that new unemployment claims have increased.
This also marks 18 straight weeks that initial unemployment claims have topped 1 million—something that had never occurred before March 2020. The old record of 695,000 claims from the week of October, 2 1982 had stood for almost four decades.
The uptick in unemployment claims over comes after claims had fallen every week since the peak of 6.9 million, for the week ending March 28. It also could be the manifestation of what some economists have been predicting: that soaring COVID-19 cases in the South, West, and Midwest could pull the economy back into recession or contraction.
“The virus is doing significant economic damage. States [with increasing cases] are reversing and pausing. Consumers and businesses there are more cautious and not spending as much,” says Mark Zandi, Moody’s Analytics Chief Economist.
That is reflected in the U.S. Department of Labor’s claims data. Florida, which reported a record high 173 new deaths from COVID-19 on Thursday, also led the nation in the week ending July 11 with 65,890 new unemployment claims. It was followed by Georgia (+33,292) and California (+20,123). Those states are also among the places where COVID-19 cases are swinging upwards.
But this uptick pales in comparison to what the economy experienced in March when it went from 282,000 weekly claims to 6.9 million in just a two week period. And there is reason for optimism: The total number of Americans receiving unemployment benefits fell from 17.3 million to 16.2 million. However, that figure runs one week behind new claims data, and very likely could go up again next week.
Nevada still has the highest number of workers collecting unemployment benefits at 21.3%. It is followed by Hawaii (20.7%) and Georgia (18%).


fortune--2020-07-23--Brooks sprints past the competition as the coronavirus turns more people into runners

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Stir-crazy people looking for new outlets for their energy during the COVID-19 pandemic are proving to be a boon for Brooks Running.
The maker of high-caliber running shoes and apparel—a unit of Warren Buffett’s Berkshire Hathaway holding company—now expects sales to be up 20% for the year after a spike in the spring and summer, despite countless retail stores being closed for several weeks. (Some 92% of Brooks’ products are sold by retailers like Dick’s Sporting Goods and Nordstrom, as well as independent stores.)
“Running started to boom as people froze, started to hunker down, and then lifted their head and a lot went outside for a run. Shoe sales rebounded,” Jim Weber, Brooks Running CEO since 2001, tells Fortune.
The jump is akin to the increase in popularity of bicycling and the accompanying surge in new bike purchases in the U.S. since the pandemic broke out. (Sales of performance-focused running shoes across the industry had been shrinking since 2013, when they hit their peak as fashion items.)
And it is helping Brooks, whose revenue last year was in the area of $750 million, get closer to its goal of becoming a billion-dollar brand in the near future. Brooks was second only to Nike in market share among people who bought shoes for the sport of running between March and June, ahead of Asics, New Balance, Adidas, and Under Armour, according to NPD Data. At specialty running stores, Brooks is No 1.
Yet despite what Weber called a “white-knuckled” period, when sales plummeted in April before snapping back, he says Brooks has no intention of shifting away from retail partners.
“Retailers are really important for us,” he says. “If you want to be the No. 1 brand with runners you have to be in the specialty shops and you have to be online.” While Brooks has beefed up its own e-commerce offering, it also benefited from a surge in online sales at Dick’s and Zappos thanks to a digital marketing push.
And that marketing prowess is even more important at a time when road racing, a big platform for advertising and bringing new people into the sport—particularly the more goal-oriented athletes that make up about half of Brooks’ clientele—is at a standstill. One by one, large marathons from New York to Berlin to Paris to Tokyo have been canceled, and smaller events by local running clubs have largely halted.
“Our sport shut down. The events are hurting,” Weber laments. It’s all the more painful given that races help people recruit friends into the sport. At the same time, many such events, notably the Boston and New York marathons, are offering virtual races this year. Still, Weber doesn’t think they replace the real thing. “Running is such a social, collective experience for people,” he says.
At the same time, running is an easy way to stay fit at a time of limited options. “Running is changing, there’s no question about it, but look what we’re getting. We’re getting replacement activity for gyms,” says Weber.
That has allowed Brooks, which has a devoted following among runners, to take market share from struggling brands like Asics and beat back hot, smaller brands like Hoka (part of Deckers Outdoor Corp.) and On Running.
Despite a decline in road race participation that predates the pandemic, the running boomlet lifting Brooks should have legs.
“People are more concerned about a healthy lifestyle today than they were going into the pandemic,” says Matt Powell, an NPD Group analyst.