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Wall Street Breakfast: Earnings Season Kicks Into High Gear

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Fed boosts muni bond buying program

Looking to keep the money flowing, the central bank is buying up to $500B worth of state and local government bonds. Purchases of the paper will be in effect for counties with at least 500K residents, and cities with at least 250K residents (the previous cutoffs were 2M and 1M, respectively). This will allow for up to 261 state, city, and county issuers, up from just 76 previously, with the longest maturity extended to up to three years, from two years previously.

Another price crash

Carl Icahn says we won’t see crude prices in negative territory again, but it is sure looking more likely by the day. WTI plunged 25% on Monday, slumped another 20% overnight to $10/bbl, and there are still 20 days to go until the June settlement date. Weighing on prices is a warning from BP (NYSE:BP) of an unprecedented coronavirus shock (see below), fears over a lack of storage and a reshuffling of contracts by United States Oil Fund USO.

BP profit nosedives, maintains dividend

Underlying replacement cost profit, used as a proxy for net profit, at BP (BP) slid 67% Y/Y in Q1 to $800M after bolstering its financial reserves (with a new $10B credit facility and selling $7B of bonds) during the initial stages of the coronavirus pandemic. “Our industry has been hit by supply and demand shocks on a scale never seen before,” said CEO Bernard Looney, who took the company reins earlier this year. The company also maintained its dividend, having increased it to 10.5 cents in the previous quarter, as the sustainability of Big Oil’s payouts falls under renewed scrutiny.
Go deeper: BP hopes to generate profit at prices below $35/bbl by 2021.

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Mounting credit losses

HSBC (NYSE:HSBC) warned of more earnings pain to come after reporting a 48% plunge in pre-tax income as it was forced to put $3B aside to cover bad debts caused by the pandemic. “The outlook for world economies in 2020 has substantially worsened in the past two months. The impact and duration of the COVID-19 crisis will likely lead to higher ECL [expected credit losses] and put pressure on revenue due to lower customer activity levels and reduced global interest rates.”

Restart date for the Detroit Three

Detroit automakers have targeted May 18 for a restart of some production at U.S. car factories, WSJ reports. Representatives from General Motors (NYSE:GM), Ford Motor (F) and Fiat Chrysler (NYSE:FCAU) agreed on the timeline following talks with Governor Gretchen Whitmer’s office and the United Auto Workers union, which warned last week that it was “too soon and too risky” to reopen plants in early May. While terms haven’t been finalized, the companies are working with the union on drawing up safety protocols.
Go deeper: Stimulus call to revive the German auto industry.

Slow road to aviation recovery

Air traffic may not bounce back for 2-3 years from the effects of the coronavirus, Boeing (NYSE:BA) CEO David Calhoun warned shareholders during a virtual meeting on Monday. “The health crisis is unlike anything we have ever experienced… and it’s going to be a while before dividends come back,” he added. “We know we’re going to have to borrow more money in the next six months in order to get through this really difficult moment, to provide the right liquidity to the supply chain that represents our industry.”

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Vaccine in 2020?

With the number of global coronavirus infections surpassing 3M, the pressure is growing to come up with medical solutions to combat the contagion. In a sign of good news, the Coalition for Epidemic Preparedness Innovations said a vaccine could be available as early as this year for vulnerable groups like healthcare workers, compared to an earlier time frame of 12-18 months. The foundation, which is supporting nine different COVID-19 vaccine projects, has provided funding to Moderna (NASDAQ:MRNA) Novavax (NASDAQ:NVAX) and Inovio Pharmaceuticals (NASDAQ:INO).

‘Food supply chain is breaking’

In a direct appeal to consumers, Tyson Foods (NYSE:TSN) took out a full-page ad in The New York Times to say that the food supply chain is breaking. “As pork, beef and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain,” wrote Chairman John Tyson. “As a result, there will be limited supply of our products available in grocery stores until we are able to reopen our facilities that are currently closed.”

Paid residential drone deliveries

The plans were in the making for quite a while, but come just in time to deal with the coronavirus pandemic. Starting in May, UPS (NYSE:UPS) will begin using drones to fill prescriptions for residents of The Villages in Florida, one of the country’s biggest retirement communities with 135,000 residents. The deliveries will be dropped at a central location from a CVS (NYSE:CVS) store about a half mile away and an employee will then ferry them to homes via golf cart. The ultimate goal is for the program to make the deliveries directly, with the drone lowering packages by winch.

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