What to watch: Airlines facing 'worst year in history', global economy to slump 6%, HSBC under fire

·6-min read
A passenger wearing a face shield and face mask arrives on the first day of new rules that people arriving in Britain from overseas will have to quarantine themselves for 14 days to help stop the spread of coronavirus, at Heathrow Airport in London, Monday, June 8, 2020. The British government has said that anyone caught not complying with the quarantine will face a fine. (AP Photo/Matt Dunham)
As many as 70,000 jobs linked to the aviation industry are at 'immediate' risk due to the COVID-19 pandemic, according to a new report. (Matt Dunham/AP Photo)

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

Airlines facing ‘worst year in history’

Two reports paint a bleak picture for the global airline industry, predicting mass job cuts and tens of billions in losses.

The International Air Transport Association (IATA) said in its financial outlook report that the global airline industry is forecast to lose $84bn (£66bn) this year. Revenue is expected to slump by 50% to $419bn.

“Financially, 2020 will go down as the worst year in the history of aviation,” Alexandre de Juniac, IATA’s director general and CEO, said in a statement. “On average, every day of this year will add $230m to industry losses.”

A separate report from think tank the New Economic Forum warned that as many as 70,000 jobs linked to the aviation industry were at “immediate” risk due to the COVID-19 pandemic. The report compared the expected collapse in aviation employment to the rapid decline of the UK coal industry in the early 1980s, which left lasting economic scars on many communities.

British Airways-owner IAG (IAG.L) was down 2.9% by mid-morning, easyJet (EZJ.L) was down 1.5%, and Ryanair (RYA.L) lost 1.9%.

Global economy to slump 6%

The world economy is forecast to slump by at least 6% this year, the OECD has warned.

The group’s quarterly economic outlook paper warned the world is facing the most severe recession in almost a century. Output could collapse by as much as 7.6% if a second wave hits the globe later this year.

Europe is expected to be particularly hard hit, with the UK suffering the most of any developed nation.

If there is no second wave of the virus, the OECD said that the country’s economy will contract by 11.5% in 2020, the sharpest decline due to be experienced by any of the 37 members of the organisation.

“As a service-based economy, the United Kingdom is heavily affected by the crisis,” the OECD said on Wednesday in its latest economic projections. “Trade, tourism, real estate and hospitality are all hard hit by confinement restrictions.”

Stocks slip after OECD warning

European stock markets opened higher on Wednesday, but slipped into the red after the OECD’s downbeat assessment of the global economy.

The FTSE 100 (^FTSE) was down 0.2% by mid-morning, while the DAX (^GDAXI) dropped 0.4% in Frankfurt and the CAC 40 in Paris lost 0.1%.

The outlook also weighed on US futures, which had been trading higher. S&P 500 futures (ES=F) were flat by mid-morning in Europe, Dow Jones futures (YM=F) were down 0.1%, while Nasdaq futures (NQ=F) remained up 0.3%.

Trading was mixed in Asia overnight. Japan’s Nikkei (^N225) rose 0.1%, the Hong Kong Hang Seng (^HSI) was flat, and China’s Shanghai Composite (000001.SS) was down 0.4%.

HSBC under fire over support for Hong Kong security law

US secretary of state Mike Pompeo has condemned HSBC (HSBA.L) for supporting China’s Hong Kong security law, as the controversy over the bank’s position deepens.

Pompeo issued a statement on Tuesday criticising HSBC for supporting the law, which has been widely condemned both in Hong Kong and internationally.

China has been trying to impose a security law on Hong Kong that would make it a crime to undermine Beijing and would allow Hong Kongers to be extradited to the mainland.

Opponents say the law would allow Beijing to impose its authoritarian rule on the region. Pompeo said it would “destroy Hong Kong’s autonomy and to break commitments made in a UN-registered treaty”.

It emerged last week that Peter Wong, the head of HSBC’s Asian business, had signed a petition supporting the new law. Standard Chartered, another UK-headquartered bank, has also come out in support of the security law.

“That show of fealty seems to have earned HSBC little respect in Beijing, which continues to use the bank’s business in China as political leverage against London,” Pompeo said.

HSBC stock came under pressure in London on Wednesday morning, falling 0.8% in a rising markets.

Fed meeting in focus

Investor attention will be focused on a meeting of the US Federal Reserve later today.

Fed chair Jerome Powell will deliver the central bank’s latest monetary policy statement at 6pm London time, with the central bank’s latest Summary of Economic Projections set to be published too. The quarterly report sets out the Fed’s forecast for economic growth, inflation, and unemployment. Publication was delayed in March due to the COVID-19 pandemic, which made forecasting almost impossible.

Deutsche Bank strategist Jim Reid said he expected the Fed meeting “to mark the first step away from a complete focus on crisis prevention towards more traditional goals of providing accommodation to support the recovery.

“As part of this, they expect that the Fed will announce an open-ended QE program consistent with monthly Treasury purchases of between $65bn and $85bn, while the statement should slightly enhance the commitment to keep rates low,” Reid wrote in a morning note to clients.

3,000 jobs at risk as Frankie and Benny's owner axes 125 restaurants

The owner of the Frankie & Benny’s restaurant chain has announced plans to close at least 125 sites, putting up to 3,000 jobs at risk.

The Restaurant Group (RTN.L) said a further 85 sites were also at risk, with their survival dependent on securing rent cuts and renegotiating leases.

The majority of sites affected will be Frankie & Benny’s restaurants, but other brands operated by the group’s ‘leisure’ arm are also likely to be affected. The company did not give a breakdown of closures by chain, but this branch of the business includes 226 Frankie & Benny’s sites, 13 Chiquito restaurants and 35 sites from other brands including Garfunkel’s, Coast to Coast and Joe’s Kitchen.

Dozens of stores to close after Monsoon and Accessorize collapse

More than 500 staff and dozens of stores face the axe at Monsoon Accessorize, despite the company being swiftly bought after collapsing into administration this week.

The owner of the two high street fashion chains had been struggling before the pandemic, but the forced closure of its sites during the lockdown has exacerbated its troubles.

Now 545 staff face redundancy and 35 stores shuttered by the coronavirus will close for good.

Calls for interest rate cap for banks

Banks should have interest rates capped in light of COVID-19, according to a raft of proposals aimed at ensuring lenders continue to go easy on customers as the economic fallout from the pandemic continues.

The Fairbanking Foundation is calling for “significant intervention by government and regulators” to limit high cost credit. The lobbying group sent proposals to the Treasury’s economic secretary John Glen last week.

Suggestions include a freeze on credit card rates at where they were on 1 May and capping overdraft interest rates at 25%. The current maximum rate on overdrafts is 40%.

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