U.S. Rollbacks Business Reopening But China’s Economy Recovers – First Monthly Profit Of $82 Billion In 6 Months

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Jun 29 2020
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Stocks drop 730 points on Friday, and the Dow Jones has every reason to be spooked. There were 45,255 new Covid-19 cases reported across the nation on Friday, bringing the total to more than 2.5 million cases, according to Johns Hopkins University data. Compared to the previous week, the average new cases as of Friday increased more than 41%.


Of all 50 states in America, only 2 states have reported a decline in new Coronavirus cases – Connecticut and Rhode Island. Florida, for example, broke another record when it registered 9,585 new cases on Saturday, surpassing Friday’s 8,942 cases. In just over a week, Florida has reported nearly 40,000 new cases. By Saturday, more than 2.5 million people in the U.S. are infected.


But the horrible numbers could just be the tip of the iceberg. The U.S. Centers for Disease Control and Prevention (CDC) suggests the total number of Covid-19 infections across the nation could actually be 6 to 24 times more than reported. The country is so “infectious” that the European Union plans to ban American travellers indefinitely – but visitors from China are allowed.

Coronavirus - Americans Wants Freedom Rejects Lockdown

Thanks to President Trump’s stubbornness and ignorance, as well as some Governor’s arrogance, now the country is paying the price for prematurely reopening the business. Due to the latest spike in Covid-19 cases, Texas has rolled back some of its reopening measures, including an order to close bars and reduce restaurant capacity from 75% to 50%.


Likewise, Florida has banned alcohol consumption in bars, as government officials finally admitted that the new outbreak was due to young people crowding bars without respecting social distancing rules. While it’s too early to say the reopening of Disney World in Florida will proceed next month, Disney has announced the Disneyland resort in Anaheim, California, would not reopen on July 17 as scheduled.


To make matters worse, American banks are under pressure after the Federal Reserve found several banks could get close to minimum capital levels in scenarios related to the Coronavirus pandemic. The annual stress test results have forced the Fed to slap a suspension on share buybacks and put a limit on dividend payments at current levels for the third quarter.

Coronavirus - Stock Market Trading Floor - Dow Jones - Wall Street

While some of the biggest U.S. banks already announced as early as March that they would voluntarily suspend share repurchases, investors were still bullish about the banking sector’s dividends. But with the latest precautionary measures from the Federal Reserve, the financial markets have bet that banks would be forced to cut dividends.


But it’s a different story in Beijing. For the first time in 6 months, profits of China’s industrial firms rose in May, climbing 6% to 582.3 billion Yuan (US$82.28 billion) following a significant recovery in key industries like oil refineries, power, chemicals and steel. A month earlier (April), the same statistics showed a 4.3% plunge. The month of May’s gain is its sharpest since March 2019.


The latest positive number suggests that China’s economic recovery is on track of gaining speed, which in turn provides a healthy prospect for manufacturing investment and jobs. China had locked down Wuhan, the city of 11-million people that was at the epicentre of the pandemic, for 76 days before life returns to normal beginning April 8.

Coronavirus - Wuhan Doctors

An estimated 56 million people in Hubei province were put under quarantine during the outbreak. Unlike Washington, the decision by Beijing to consider the ending of the lockdown was arrived only after Hubei registered zero new cases for 5 consecutive days from March 19 onwards. Trump administration hastily lifted the lockdown, even when there were thousands of new cases every day.


True, China’s economy has not yet returned to pre-virus levels. The country had reported that its first-quarter GDP contracted by 6.8% from the same period in 2019 – the first decline since official quarterly GDP records began being recorded in 1992. But its economic activity is clearly improving after the lifting of the “draconian lockdown” measures that led to weeks of near paralysis.


While economic activity in China is improving, Zhu Hong said – “market demand remains relatively weak amid the epidemic, and sustainability of the profit recovery deserves further observation“. The senior statistician at the statistics bureau also attributed May’s profit growth to easing cost pressures, improving profit margins, positive impact from policy stimulus and much higher investment returns.

Coronavirus - China Industrial Firms - Steel Export

As the U.S. economy struggles with the latest U-turn in business reopening, it provides a temporary breather to the trade tensions between the U.S. and China. Donald Trump is increasingly looking at a humiliating defeat in the coming U.S. November election. The “Phase One” trade deal appears to be “hanging on by a thread” as Trump has a bigger problem of his own.


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