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“It’s Shocking No Matter How You Look At It” – Futures Jump On Blockbuster Tech Earnings; Gold Hits New Record High

"It’s Shocking No Matter How You Look At It" – Futures Jump On Blockbuster Tech Earnings; Gold Hits New Record High



"It's Shocking No Matter How You Look At It" - Futures Jump On Blockbuster Tech Earnings; Gold Hits New Record High Tyler Durden Fri, 07/31/2020 - 08:10

S&P futures rose (but faded much of their earlier gains) alongside European shares with Nasdaq futures jumping nearly 1% as stellar earnings from US tech giants lifted sentiment amid dismal economic data and a resurgent virus. Gold climbed to a record even as the dollar rebounded from two year lows.

The Tech Tsunami helped lifted European shares, with the Stoxx Europe 600 Index rising, even after France and Spain posted record economic contractions. Nokia Oyj soared after earnings beat estimates, while BNP Paribas SA jumped on a blowout performance in fixed-income trading. Following the dismal US GDP print, the Euro Area reported that in Q2, its GDP contracted sharply by 12.1%qoq, in line with expectations, and corresponding to by far the sharpest decline in quarterly GDP growth since records began in 1995. French and Italian GDP both contracted by less than expected—by -13.8% and -12.4%, respectively—whereas Spanish GDP contracted most sharply (-18.5%) across the Euro area countries that have so far reported Q2 GDP. The unprecedented contractions in GDP were primarily attributable to weak domestic demand in both France and Spain, with a comparatively smaller drag from net trade as both exports and imports collapsed. The weakness was broad-based across sectors, with industry and services both registering record quarterly declines.

Asian stocks fell, led by industrials and energy, after falling in the last session. Most markets in the region were down, with Japan's Topix Index dropping 2.8% and Australia's S&P/ASX 200 falling 2%, while Shanghai Composite gained 0.7% on widespread retail buying as margin debt increased once again. The Topix declined 2.8%, with SoldOut and DTS falling the most. The Shanghai Composite Index rose 0.7%, with Xi'an Bright Laser and Anji Micro posting the biggest advances.

Apple surged 6% in premarket trading, setting the stock on course to open at a record high, as it delivered year-on-year revenue gains across every category and in every geography. also jumped 5.4% after posting the biggest profit in its 26-year history, while Facebook gained 6% as it reported better-than-expected revenue. Trading in Alphabet was more subdued as quarterly sales fell for the first time in its 16 years as a public company (for a response to tech earnings from some Wall Street analysts see here). Elsewhere, Ford rose 2.7% after signaling ample cash-on-hand for the year even as it forecast a full-year loss. Gilead Sciences fell 3.5% as it posted worse-than-expected quarterly results, hurt by weak sales of its hepatitis C drugs and flagship HIV treatments. Caterpillar Inc. gained after reporting higher-than-expected profit. Bucking the trend, U.S. oil giant Chevron Corp. posted its worst quarterly loss in at least three decades, sending the shares lower.

"It’s shocking no matter how you look at it," said Randy Frederick, vice president of trading and derivatives for Schwab Center for Financial Research.

"The virus is getting worse in a lot of areas, and some places have started to shut back down again. If you look at earnings in terms of beat rates, the results have actually been pretty good, granted the expectations bar has been set very low."

A surge in the stock price of the four companies, which make up nearly a fifth of the S&P 500’s value, as well as aggressive fiscal and monetary stimulus have sent the tech-heavy Nasdaq to record highs and set the S&P 500 on course for its fourth straight monthly gain. The S&P is now about 4% shy of its February all-time high, but faltering macroeconomic data and rising COVID-19 cases are making investors cautious again.

The GDP number on Thursday confirmed the sharpest contraction in the US economy since the Great Depression, while rising jobless weekly claims suggested a nascent recovery in the labor market was stalling. Investors betting on more U.S. government stimulus, before an extra $600-per-week federal jobless benefit expires on Friday, have also been disappointed as the Senate adjourned for the weekend and will return on Monday.

In FX, a gauge of the dollar’s strength weakened to its lowest since May 2018, heading for its sixth week of losses, before rebounding sharply as the EUR slumped. The pound advanced against the dollar, while the euro trimmed its gains following data showing an unprecedented euro-area slump. The two currencies are heading for their best monthly performance for a decade.

The Aussie dollar declined against the greenback as a risk-off mood persisted on reports of surges of the virus across the world, including Australia’s Melbourne.

In rates, Treasuries bull flattened as yields ticked lower, outperforming German bunds; the two-year yield hovered near May’s record low. The 10-year TSY dropped as low as 0.519%, supported by month-end flows. Yields were lower by 0.5bp to 2bp across the curve with long-end-led gains flattening 2s10s, 5s30s by ~0.5bp; 10-year at 0.535% has breached the 0.54% level where convexity trigger is thought to lie and is also its record low closing level on March 9 Bunds, gilts trade broadly in line with Treasuries; S&P 500 E-minis have pared an 0.8% gain to 0.3% with Euro Stoxx 50 higher by 0.6%.

China’s 10-year government bond yield rose after official data showed manufacturing activity expanded at a faster rate this month, suggesting the country’s economic recovery has gained momentum to start the year’s second half. The yield on 10Y Chinese bonds rose 4bps to 2.98% and is on pace to climb 12 basis points for July, the third straight monthly gain. The official manufacturing purchasing managers’ index rose to 51.1 in July from 50.9 a month earlier, as government-led investment gained traction and global demand recovered. Economists have revised up their forecasts for full-year growth, and now see China’s economy expanding 2% this year. Building strength could further reduce the prospects of more monetary easing and add downward pressure on China’s bonds.

In commodities, WTI and Brent have been rangebound throughout the morning as sentiment more broadly remains modestly elevated, while Gold futures stormed back to its all time high just shy of $2,000.

Looking ahead, on the economic front, core personal consumption expenditures data due at 830am, the Fed’s preferred measure of inflation, is likely to have edged higher by 0.2% in June.

Market Snapshot

  • S&P 500 futures up 0.3% to 3,257.00
  • STOXX Europe 600 up 0.7% to 362.11
  • MXAP down 1% to 165.19
  • MXAPJ down 0.3% to 551.51
  • Nikkei down 2.8% to 21,710.00
  • Topix down 2.8% to 1,496.06
  • Hang Seng Index down 0.5% to 24,595.35
  • Shanghai Composite up 0.7% to 3,310.01
  • Sensex down 0.3% to 37,628.16
  • Australia S&P/ASX 200 down 2% to 5,927.78
  • Kospi down 0.8% to 2,249.37
  • German 10Y yield fell 0.7 bps to -0.549%
  • Euro up 0.2% to $1.1866
  • Brent Futures up 0.8% to $43.26/bbl
  • Italian 10Y yield fell 2.1 bps to 0.845%
  • Spanish 10Y yield fell 0.8 bps to 0.309%
  • Brent Futures up 0.8% to $43.26/bbl
  • Gold spot up 1% to $1,975.84
  • U.S. Dollar Index down 0.2% to 92.82

Top Overnight News from Bloomberg

  • The euro-area economy plunged into an unprecedented slump in the second quarter, putting it in a deep hole from which it may take years to fully recover. Spain took the biggest hit in the period, shrinking 18.5%, while French and Italian output also dropped by double digits
  • Gold rose to another record high on Friday, setting it on track for its strongest monthly performance in eight years, fueled by a weaker dollar and low interest rates
  • An uptick in virus infections are stoking fears of a resurgence in Europe, with Spain seeing particularly high numbers of new cases and the British government re-imposing lockdown measures in part of the U.K. New York City has kept its Covid-19 infection rates low, but the risk of a resurgence looms over the Big Apple as fall approaches
  • The Senate left Washington for the weekend after a fourth day of negotiations yielded little substantial progress on narrowing differences between Republicans and Democrats on a plan to bolster the coronavirus- ravaged U.S. economy
  • The largest U.S. technology companies are thriving in a pandemic that has increased dependence on their products and services, while hammering much of the rest of the economy

Asian equity markets traded lacklustre heading into month-end after somewhat mixed Chinese PMI data with the region failing to take advantage of the momentum from US, where futures were boosted after-hours following big tech earnings in which Apple, Alphabet, Amazon and Facebook all beat on top and bottom lines. ASX 200 (-2.0%) was dragged lower by underperformance in the commodity related sectors and with the top-weighted financials also heavily pressured, while there were reports that Australian PM Morrison recently held emergency discussions with the Victoria state Premier which included possible further restrictions for movement within Melbourne and a shutdown of non-essential businesses. Nikkei 225 (-2.8%) was hampered by unfavourable currency flows and although Industrial Production data beat expectations for June, quarterly output was at a decline of 16.7% which was the largest drop according to comparable data since 2015. Furthermore, the biggest movers were driven by earnings including Panasonic, while SoftBank shares also suffered due to the currency effects despite a share repurchase announcement of up to 12.3% of shares for JPY 1tln. Hang Seng (-0.5%) and Shanghai Comp. (+0.7%) were both initially positive with outperformance in the mainland after the PBoC’s liquidity efforts resulted to a net weekly injection of CNY 120bln, although this eventually faded following the latest mixed data releases in which Chinese Official Manufacturing PMI topped estimates but Non-Manufacturing PMI missed and Composite PMI slowed although all figures remained in expansionary territory. Finally, 10yr JGBs eked mild gains amid the soured risk appetite in the region and with the BoJ present in the market for JPY 450bln of JGBs predominantly concentrated in the belly of the curve.

Top Asian News

  • Japan Factory Production Rises for First Time in Five Months
  • China Stocks Will Only Get Wilder After July Whipsaws Investors
  • Facebook, Google Told They Must Pay Australia Media For News

European equities (Eurostoxx 50 +0.6%) trade modestly firmer across the board in what has been another busy morning of corporate updates whilst incremental macro newsflow remains relatively light since yesterday’s close. Although stocks are attempting to recoup some of yesterday’s heavy losses, the extent of the recovery is relatively mild with the Eurostoxx still lower by some 2.5% on the week heading into month-end. Some of the positivity in Europe is a by-product of the fallout from US mega-cap stocks earnings’ in which Apple, Alphabet, Amazon and Facebook all beat on top and bottom lines and were seen higher in after-market trade, prompting outperformance in Nasdaq 100 futures and the tech sector in Europe this morning. Also supporting the tech sector in Europe today is Nokia (+12.2%) post-earnings in which the Co. raised its guidance. Banking names have posted a strong performance in Europe following earnings from BNP Paribas (+2.1%) and Natwest Group (+1.1%), although gains for the sector have been capped by performance in the periphery following disappointing earnings from Spanish-listed Caixabank (-2.6%) and Sabadell (-2.0%). Elsewhere, travel & leisure names have been unable to join in on the mild positivity seen in Europe this far following earnings IAG (-9.1%) in which the Co. announced a EUR 1.37bln operating loss and proposed a capital increase of EUR 2.75bln; easyJet (-3.0%), Ryanair (-3.2%) and Deutsche Lufthansa (-2.2%) are seen lower in sympathy. Performance for telecom names has been hampered by BT (-3.4%) with the Co. warning over the impact of coronavirus on its revenues and earnings after posting a decline in profits. Looking ahead, asides from US participants continuing to digest the latest updates from Apple, Alphabet, Amazon and Facebook, focus will also be on pre-market updates from Exxon, Chevron, Phillips 66, Caterpillar, Merck and Colgate.

Top European News

  • NatWest Adds $2.8 Billion Provision for Pandemic Loan Losses
  • He Built It But No One Came: China Chills the Next Canary Wharf
  • Fortiana Buys Out Abramovich in Bid for Russian Gold Miner
  • Spanish-Led Outbreaks Fuel Concerns About Further Economic Pain

In FX, it seemed to start with a tweet, but Dollar losses accumulated after Thursday’s plunge in Q2 GDP and IJC data into the NY close and as APAC participants entered the fray for their final trading day of July to push the index further below 93.000 where it remains. The latest rise in unemployment benefit claims is especially worrying as Congress remains at odds over the next fiscal support package that looks certain to leave an overhang when the current jobless insurance measures expire, and with White House Chief of Staff Meadows not confident about reaching a deal next week. All this on top of the ongoing resurgence of COVID-19 across many US states plus the prospect of even more Greenback selling for month end, especially around the 4 pm London fix, amidst a growing number of bank models flagging bearish portfolio rebalancing signals. However, the DXY is holding between 92.539-969 parameters as the Buck pares some declines across the board.

  • EUR/GBP/JPY – The aforementioned sell Dollar for the July/August turn dynamic is said to be strongest against the Euro and has propelled the single currency through touted resistance between 1.1815-51 to just over 1.1900 temporarily, but Sterling is keeping pace and actually forming a firmer base on its next psychological/round number level at 1.3100. Similarly, the Yen has broken free of tethers that were restraining rallies beyond 105.00, but has retreated ahead of 104.00 following the first signs of alarm about FX developments from Japan’s MoF. Back to Eur/Usd, decent option expiry interest at the 1.1900 strike (1 bn) may be capping attempts to the upside.
  • CAD/CHF/AUD/SEK/NOK – All narrowly mixed vs their major counterparts in consolidative mode, with the Loonie just below 1.3400 and eyeing a tentative recovery in crude prices, but perhaps more intently aware that unusually large expiries run off at the big figure (2.2 bn) after Canadian GDP and PPI. Elsewhere, the Franc has drifted back towards 0.9100 from circa 0.9057 in wake of a marked slowdown in Swiss retail sales and the Aussie has lost momentum above 0.7200, but the Scandinavian Crowns are benefiting from the Euro’s fade from best levels to maintain upward trajectories within 10.3155-2840 and 10.7825-7240 respective ranges.
  • NZD - The major underperformer or laggard, as the Kiwi loses grip of the 0.6700 handle and retreats from 1.0750+ in Aud/Nzd cross terms, perhaps taking heed of a stark warning from ANZ overnight about a double dip NZ recession in Q4.
  • EM - Broad depreciation vs the Usd but the Yuan is extending gains from a firmer PBoC Cny fix and end of month 7-day liquidity injection to supplement mixed, but comfortably above 50 Chinese PMIs, while the Lira has rebounded from lows presumably with the aid of yet more Turkish state bank intervention.

In commodities, WTI and Brent have been rangebound throughout the morning as sentiment more broadly remains modestly elevated as we close out the busiest week of earnings season, with a number of energy names still on the schedule ahead including Exxon & Chevron. As it stands, the benchmarks are going to finish the week in the red by some USD 1/bbl for WTI; albeit, such a close would leave it just about in positive territory for the month as a whole. Aside from the aforementioned earnings, the energy schedule is again very light and we haven’t see any new thus far aside from inflammatory rhetoric from Iranian Supreme Leader Khameni against the US, following the sanctions yesterday, who also said they should not be dependent on oil exports. Moving to metals, in which spot gold is bolstered once more after soft APAC trade and the continuing decline for the USD; albeit, the DXY is currently modestly firmer. Yellow metal resides in the top half of a USD 30/oz range so far but off the USD 1984/oz session peak thus far. At present, spot gold is up by ~10% for the month and is on target for the biggest monthly gain in over 4-years; even given the recent upside desks still believe the rally has further to go with Goldman Sachs envisaging USD 2300/oz; however, JP Morgan believe the pace will decline later into the year. For reference, BofA Flow Show saw the second largest inflows into gold ever, totalling USD 3.9bln.

US Event Calendar

  • 8:30am: Personal Spending, est. 5.2%, prior 8.2%; Real Personal Spending, est. 5.0%, prior 8.1%
  • 8:30am: Personal Income, est. -0.55%, prior -4.2%
  • 8:30am: PCE Deflator MoM, est. 0.44%, prior 0.1%; YoY, est. 0.9%, prior 0.5%
  • 8:30am: PCE Core Deflator MoM, est. 0.2%, prior 0.1%; YoY, est. 1.0%, prior 1.0%
  • 9:45am: MNI Chicago PMI, est. 44.5, prior 36.6
  • 10am: U. of Mich. Sentiment, est. 72.9, prior 73.2; Current Conditions, est. 85.5, prior 84.2; Expectations, est. 65.5, prior 66.2

DB's Jim Reid concludes the overnight wrap

As the first week of potty training the twins comes to an end my knowledge of the progress is best summed up by the fact that Eddie has 27 stickers on his “well done” chart whereas poor Jamie only has 10. I’ve been trying to keep a low profile in my office as my wife patrols the battlefield waiting to deal with the many casualties. I fear I’m going to be given a lot of the cloths and disinfectant spray this weekend. To be honest I probably am going to get double duties due to the language I used last night when my wife told me how much she spent kitting out Maisie for her first school uniform yesterday. I was gobsmacked and I’ve still got two more to do next year! Oh and then repeat every year or two. Yikes!

If only I had set up a school uniform fund with tech stocks a few years ago. If I had I would now be buying them all gold encrusted blazers rather than asking my wife why she didn’t go to the second hand sale. On tech, the big news after the US closing bell last night was with four of the biggest five companies in the US (and pretty much the world outside of Aramco) reporting. These big four tech companies represent c.16% of the S&P 500 and over a third of the Nasdaq 100. In terms of results all but one ended up higher in after-hours trading. Apple (+6% after-market trading) reported quarterly revenues ahead of analysts’ estimates as iPhone and laptop demand surged, causing revenues to come in 11% higher than a year earlier. Facebook (+6% after-market trading) saw Q2 sales beat even the most bullish analyst’s estimate, with revenues rising 11%. Amazon (+5% after-market trading) beat on profits even after increasing costs substantially through the pandemic. Q2 revenues were up 40% from the same quarter last year, which offset over $4bn in incremental covid-1 related costs. Lastly, Google’s parent company, Alphabet, had falling revenues for the first time as companies lowered ad-spend during the pandemic. That resulted in shares trading flat after market.

Staying with this theme, yesterday we highlighted Amazon in a Chart of the Day (link here), where we showed how its recent rise has coincided with more Americans buying online than ever before during the pandemic. We’re keen to see whether this trend will continue so we've set up a 10 second survey to gauge the frequency of your Amazon purchases pre-, during and (likely) post pandemic. All responses welcome including those who don’t use or are unlikely to do so going forward.

Unsurprisingly, NASDAQ futures are trading well overnight, up +0.81% while S&P 500 futures are up a more modest +0.20%. It’s a more mixed picture in Asia however where gains for the Hang Seng (+0.22%) have been offset by moves lower for the Shanghai Comp (-0.05%), Kospi (-0.20%) and most notably, the Nikkei (-2.15%) and ASX (-1.88%). The underperformance in those markets appears to be related to the latest virus data, with Tokyo expected to report more than 400 cases on Friday according to NHK, and the State of Victoria in Australia continuing to see a high number of new cases. Away from that, we've also had China’s July PMIs, where the manufacturing reading came in slightly ahead of expectations and the strongest since March (51.1 vs. 50.8 expected; 50.9 previously) and non-manufacturing slightly below (54.2 vs. 54.5 expected; 54.4 previously).

This follows a difficult day for risk but one that recovered progressively after a bad first hour of US trading and one that was back in positive territory after hours with the strong beats seen above. Sentiment initially wasn’t helped by challenging data even if the GDP weakness was well flagged and in the ballpark of expectations. On this, the US’s sharpest quarterly downturn since the 1940’s was confirmed with an annualised rate of -32.9% (vs consensus at -34.5%) or a -9.5% quarterly rate. While this is the worst data point in the official quarterly data going back to 1947, as we showed in yesterday’s second “Chart of the Day” (link here), it was not the worst over the last century. Elsewhere, yesterday’s German GDP print of -10.1% (vs. -9.0% expected) was the biggest drop in at least 50 years and is an ominous sign for the Spanish, French and Italian GDP prints due this morning. These countries had much longer lockdowns than Germany.

Investor sentiment was not helped by the initial weekly jobless claims in the US, which covered the week ending July 25. The data showed a second straight weekly increase in claims with 1.434m (vs. 1.443m expected) registered. On the continuing claims front for the previous week (ending July 18), 17.02m (vs. 16.2m expected) Americans filed to continue to receive benefits, up 867k from the week before. That was the largest weekly increase since the early part of May.

Following the expectedly bad GDP data in the US and the less expected poor continuing claims data, the S&P 500 fell -1.67% within the first half hour of US trading. However by the close the index had pared much of those loses ahead of those largest US tech companies reporting. With technology stocks leading the way, the S&P finished with a -0.39% loss on the day and the NASDAQ finished +0.43%.

European stocks dropped further and closed before the full comeback, with the STOXX 600 retreating -2.16% for the worst daily performance in over a month. The only industry group to finish higher was Travel & Leisure (+0.20%) led by Francaise des Jeux rallying +18.84% after the company announced that overall activity since mid-June had returned to a level comparable to 2019. The worst performing sector was banks (-4.26%) following Lloyds announcing a loan loss provision that cancelled out the lender’s quarterly profit, while BBVA fell after posting worse-than-expected revenues from lending and also set aside larger provisions than expected.

Whether the poor economic data yesterday in the US and Europe led to a risk-off sentiment or simply the feeling the central banks will need to do more, core sovereign bonds rallied. 10yr German bund yields fell -4.4bps to -0.54%, while US 10yr Treasuries fell -2.8bps to 0.546%, about half a basis point above all-time closing lows. US yields barely sold off as risk sentiment improved though. Elsewhere the dollar fell another -0.46%, but the drop in yields and the dollar move could not keep gold positive. The yellow metal fell (-0.72%) for the first time in 10 sessions yesterday.

There was a flurry of positive coronavirus vaccine news yesterday, though not enough to offset the negative economic data. There is also the possibility that the likelihood of a vaccine in the medium term is already priced in. Nearly 10,000 people in the UK were given a dose of the AstraZeneca and University of Oxford experimental vaccine after an early study showed promising signs in primates. In the US, Johnson & Johnson announced intent to start their phase 3 trials of its covid-19 vaccine in September. A study in Nature showed that the Johnson & Johnson candidate caused a strong protectionary immune response against the infection.

There continues to be calls for covid vigilance across Europe though, even as countries are mostly reopened. In Sweden, one of the most critiqued nations for their handling of the crisis, Prime Minister Lofven urged residents to continue working from home this autumn. Amsterdam has joined other metropolitan regions in the continent requiring face masks in public spaces where previously they were only required on public transport. While in the UK, the government announced that they have lengthened the self-isolation period for coronavirus patients to ten days from seven. Prime Minister Johnson warned citizens that the pandemic was ongoing and that other European nations are seeing “signs of a second wave of the pandemic”. Spain and France in particular have both seen an uptick in cases, with Spain reporting over 1000 infections on 2 consecutive days for the first time since the start of May. French cases are increasing by just under 1,000 a day on average over the last week, compared to under 500 per day at the end of June. The U.K. also saw its highest numbers of cases (846) since 28 June and there have been a tightening of household interactions in northern England.

These growing case numbers are still low compared to the US where cases rose by over 60,000 yesterday for the fourth day in a row. Florida reported a third straight day of record fatalities with 253 new covid-19 deaths. Arizona also saw a record rise of deaths with 172, yet 78 of those were belatedly reported numbers after prior clerical errors. Regardless, the country as a whole is seeing over 7200 deaths per week, up from the 4100 recorded at the beginning of July, but about half as bad as was seen during the height of the pandemic in April (peak of 15,400 fatalities in a week).

These data points should get Congress’s attention, as the US fiscal stimulus situation in the US becomes more fraught. The senate held a procedural vote to try and extend lapsed supplemental unemployment insurance, however Democrats held out saying that the measure should be included in comprehensive stimulus legislation. The senate is on recess until Monday, but expect negotiations over the weekend with the base case remaining a deal is done with additional unemployment benefits less than the $600 per week it was at and some aid to state and local governments to deal with the costs of the pandemic.

Lastly to the day ahead, where the highlights should be French, Italian and Euro Area preliminary Q2 GDP and CPI prints. Along with those there is Italian retail sales and a bevy of US data, including June personal income, personal spending, July MNI Chicago PMI and the final July University of Michigan sentiment. While there are no big central bank speakers, the busiest week of earnings season will end with results from Chevron, Charter Communications, Merck, AbbVie, Phillips 66, ExxonMobil, BNP Paribas, Caterpillar, Nokia, NatWest Group and Fiat Chrysler.

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Revenge travel is coming to an end, says industry CEO — a recession will replace it

The CEO of Intercontinental Hotels Group says that the world has moved beyond revenge travel–even China.



Maybe revenge isn't so sweet anymore. Not so long ago the term "revenge travel" was making the rounds. The idea was that people were so fed up with the covid-19 pandemic lockdown that they packed their bags and took off for just about anywhere once travel restrictions started to ease.

Related: Delta adds a route U.S. tourists have been begging for

Last year, travel insurance company Allianz Partners projected that travel to Europe would soar 600% over 2021. “The pandemic made people realize you can't take travel for granted and many Americans are eager to visit Europe this summer,” Daniel Durazo, director of external communications at Allianz Partners USA, said in an April 2022 statement.

'Last stage of pent-up demand'

The Summer of '23 was also pretty strong, according to a survey by the Federal Reserve Bank of New York, which found that almost a third, or 32.8%, of all U.S. households took a vacation between May and August, up from 28.5% in August 2022 and a record high in data going back to 2015. However, it looks like the revenge travel upswing is coming to an end. The Federal Reserve's Beige Book said in September that consumer spending on tourism was stronger than expected, "surging during what most contacts considered the last stage of pent-up demand for leisure travel from the pandemic era." Elie Maalouf also thinks that the revenge travel dish has gone cold. The CEO of Intercontinental Hotels Group  (IHG) - Get Free Report said in an interview with CNBC that he believes pent-up demand is over. "People started traveling really by the end of 2020 as restrictions started to lift,” he said. “So we’re really past revenge travel — even in China.” Intercontinental Hotel Group operates hotels under several brand names, including Regent, Crowne Plaza, Holiday Inn Club Vacations, and Candlewood Suites. The company’s latest quarterly update showed travel demand remained strong during the close of the summer travel season. “We think we’re in a sustainable place,” Maalouf said. “Our bookings for groups and meetings going into 2024 and beyond are the strongest we’ve seen in a very long time.”

Average room rates increase

IHG’s third quarter trading update showed the company’s revenue per available room — or “revpar” — was up 10.5% compared to third quarter 2022, and nearly 13% higher compared with the third quarter of 2019, which was before the pandemic. This is despite a 3% drop in revpar, compared to 2019, in large cities in Greater China, which are more dependent on international travelers. Maalouf said that lack of “airlift,” or flight capacity, into China is below 50% of prepandemic levels, which is affecting travel recovery in cities like Beijing, Shanghai, Guangzhou and Shenzhen. “But if you look at the country as a whole, travel — which is mostly domestic in China — it’s recovered well above 2019,” he said, adding that more than 80% of IHG’s business in China is in mid-sized to smaller cities. Occupancy levels in the third quarter at IHG hotels was 72% — just 1% shy of pre-pandemic levels, according to the quarterly update. But average room rates have jumped well above 2019 levels — up nearly 6% in Greater China, 15% in the Americas, and 24% in Europe, Middle East, and Africa (EMEA) and Asia. But rising rates are barely keeping up with inflation, said Maalouf. “Room rates have not really exceeded inflation in any of our markets,” he said. “I think people’s willingness to travel is exhibited by the fact they’re willing to pay.” Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now.

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Spread & Containment

How Novo Nordisk’s Rybelsus went from pandemic washout to blockbuster amid the GLP-1 boom

Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.
The Danish drugmaker cashed in a priority review voucher in early 2019 for…



Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.

The Danish drugmaker cashed in a priority review voucher in early 2019 for what would be the first oral GLP-1, primed by positive studies showing reduced blood sugar in patients with type 2 diabetes. Analysts and company insiders anticipated blockbuster status for the oral version of semaglutide, with peak sales expected to hit up to $5 billion — and potentially follow the trajectory of its sibling injectable Ozempic, which reached $1.6 billion in sales in less than two years.

Camilla Sylvest

“We have another monumental event with the world’s first oral GLP-1,” commercial strategy chief Camilla Sylvest said in November 2019. “This is not just a compressed pill. This is a pill that has a clinical profile to compete and [that has] the oral administration to compete. It’s an unbelievable opportunity for us.”

But then health officials declared the Covid-19 pandemic in March 2020, and everything changed. Novo’s sales reps couldn’t do in-person meetings. No commercial advertising shoots were allowed. Patients scrapped going to the doctor for elective purposes. As Novo’s launch plans crumbled, so did the promise of Rybelsus.

Three and a half years later, amid a frenzy of all things GLP-1, Rybelsus has come back to life — albeit slowly, and with skepticism over its efficacy for weight loss compared to injectables.

There’s fresh enthusiasm for other oral GLP-1s in development, and Ozempic, approved for type 2 diabetes, is now a household name. That’s in part because people have been taking Ozempic — and more recently, Rybelsus — off-label for weight loss amid shortages of Wegovy, the injectable version of semaglutide approved for obesity. But there are also concerns about tolerability in a market that’s increasingly crowded.

The pandemic disruptor

Back in late 2019 and early 2020, everything was going as planned for Rybelsus. The FDA approved the pill in 3 mg, 7 mg and 14 mg doses. Novo had expanded its manufacturing facilities in North Carolina, and it was working on plans for a broad direct-to-consumer ad campaign, including mainstream TV commercials.

The company was so confident that it priced Rybelsus on par with Ozempic at about $770 per month, to the surprise of some analysts at the time. The commercial strategy was to market its GLP-1 drugs side-by-side, positioning Ozempic as the first and preferred injectable for type 2 diabetes and Rybelsus as the first and preferred oral medication, Sylvest and then-chief scientific officer Mads Krogsgaard Thomsen said in an investor call, according to AlphaSense transcripts.

Mads Krogsgaard Thomsen

“With our two recent GLP-1 products, Ozempic and Rybelsus, we want to redefine type 2 diabetes treatment,” Novo wrote in its 2019 annual report. “We are at the forefront of innovation in the GLP-1 class and orally administered delivery devices and are pursuing several therapeutic opportunities with semaglutide.”

But then came Covid, and Novo had to switch gears from the splashy DTC ad campaign to animated work with an upbeat soundtrack that eventually debuted in the autumn of 2020. For the first six months of that year, Rybelsus brought in just $92 million.

By 2022, however, it rang up sales of $1.7 billion, more than twice its 2021 total, likely fueled by the demand for semaglutide sibling brand Wegovy, which was approved to treat obesity in mid-2021. Novo is reporting Q3 sales next week, with Rybelsus likely on track to top $2 billion in sales this year. Novo declined comment for this story, citing its quiet period ahead of its Q3 earnings release.

Off-label for weight loss

As Wegovy took off and supplies waned, clinicians used their off-label prescribing power to redirect desperate obesity and overweight patients to Ozempic.

Some physicians turned to Rybelsus. Tracking off-label prescribing is difficult, but data show that there were 157,500 Medicaid prescriptions for Rybelsus for weight loss in 2022. In the same year, Wegovy had 30,100 Medicaid prescriptions for weight loss, while Eli Lilly’s type 2 diabetes treatment Mounjaro had 30,700, according to a KFF analysis in August. Ozempic was the lead seller among Medicaid populations, at more than 978,000 prescriptions.

That said, Rybelsus does not seem to be as effective at weight loss as the other approved GLP-1s.

Diana Thiara

Diana Thiara, medical director of the University of California, San Francisco’s weight management program, calls the new GLP-1 meds in general “amazing,” citing an example of a patient taken off a lung transplant list after losing weight and improving lung function. But she also acknowledges the social trends driving low-dose oral uptake by “people so desperate to lose weight.”

“I have one patient who can’t even use our MyChart electronic health communications, but tells me about what Reddit says,” she said. “Reddit and TikTok people say stuff, but that’s not really what the evidence shows right now.”

Rybelsus’ current highest dose is equivalent to Ozempic’s lowest dose, though some experts say the lower doses can still help patients lose weight.

“The lower doses, based on my experience, are effective for weight loss,” said Kristin Baier, clinical director at Calibrate, a telehealth weight loss startup founded in 2020. “When used along with lifestyle changes, we have seen patients achieve up to 20% weight loss on the lower doses of oral semaglutide.”

The future of oral GLP-1 weight loss drugs

Novo is currently testing higher doses at 25 mg and 50 mg doses of Rybelsus in the Pioneer Plus (with type 2 patients) and Oasis (with people with overweight or obesity) trials against the 14 mg currently approved by the FDA. The results, published this spring and summer, show up to 15% bodyweight loss, which is on par with Ozempic and Wegovy.

Clinicians are also encouraged by differentiated competing oral candidates, like Pfizer’s danuglipron and Lilly’s orforglipron, both in Phase II trials. The candidates are non-peptide GLP-1s and can be taken with food. Rybelsus is directed to be taken on an empty stomach with small sips of water and a wait time of 30 minutes before other medications or food.

“With Novo Nordisk expected to file for the higher dose approval, I believe there’s going to be an uptake that hopefully would help with some of the manufacturing supply issues we see [with injectable semaglutides],” said Weight Watchers medical director Spencer Nadolsky. “It will be nice to have the larger dose option when it’s available.”

Yet, it’s not all upside on the weight loss front for Rybelsus.

“It’s equivalent to a pretty low dose of Ozempic. So in terms of weight loss, we don’t see much weight loss in terms of the average person at that dose of Rybelsus,” Thiara said.

She also has some concerns about the higher doses and gastrointestinal issues and tolerability.

“People just seem to have more side effects with oral Rybelsus than they do with the equivalent Ozempic dose,” Thiara said, adding that she does think it will be approved. “But head-to-head right now, with no supply chain issues and if 50 milligrams was on the market and I had a patient who was open to anything injectable or oral, I would probably skew towards injectable.”

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Spread & Containment

Popular mall retailer Express facing potential Chapter 11 bankruptcy

The brand has seen its sales fall and its costs rise dramatically which has caused it to fall behind on some bills.



The Covid pandemic hit malls hard. Even when they were allowed to operate, many people did not want to be confined in a tight space with other people breathing near them.

Mask rules and social distancing requirements made the once-fun experience of just wandering around a mall a whole lot less fun. Even when vaccines were introduced and life returned mostly to normal, some malls — generally the weaker ones before Covid — continued to struggle. 

Related: Beloved discount retailer faces significant bankruptcy risk

So far, no major mall-based retailer has filed for a post-Covid bankruptcy. Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning, all of which went bankrupt and were liquidated, generally were located in strip malls. The same is true for Party City and David's Bridal, two chains that managed to survive their Chapter 11 filings.

But, mall retailers are not immune from the problems caused by Covid, where sales dropped to near zero for months, but expenses did not go away. That led to increased debt.

The pandemic also changed consumption habits. Some people still work from home full time and many Americans are now in hybrid work situations. That has changed their wardrobe needs and that's bad news for certain retailers, including Express, a mall favorite with over 500 stores nationwide.     

"Express is truly on a respirator and teetering on possible bankruptcy,” Shawn Grain Carter, a retail consultant and Fashion Institute of Technology professor, told RetailDive.

Some malls have seen smaller crowds, but that is not universal.

Image source: Getty Images

Express is struggling in many ways

Express has seen its sales fall and its cost rise,

The retailer’s consolidated net sales dropped 6.4% to $435.3 million, according to its second-quarter earnings report. In addition, the company’s selling, general, and administrative expenses have increased to $146.1 million (33.6% of net sales) compared to the second quarter in 2022. 

Perhaps most damningly, the chain's debt has consistently grown. In fact, its total debt was $220.8 million at the end of Q2 2023, compared to $202.2 million at the end of Q2 2022 and $122 million at the end of Q4 2022. 

"Over the last few months, speculation has been mounting about apparel retailer Express’ financial state. While some might speculate that one big thing has caused the retailer’s failure, that’s just not how bankruptcies work. Several things have been going wrong over a prolonged period," Matthew Debbage, Creditsafe CEO of the Americas and Asia, told TheStreet via email.  

According to Creditsafe data, 35% of the company’s owed payments are past due, which amounts to over $3 million.

"On top of this, Creditsafe data reveals that the value of these late payments is well over $3 million. While this might not seem like a big chunk of money compared to Express’ annual revenue, the fact that the retailer’s DBT (Days Beyond Terms) has increased consistently for the last six months indicates that its cash reserves are likely low, which will only drop even lower if sales continue to decline, operating costs keep rising and its debt load grows," he said.

It's a slowly rising tide that could ultimately swallow the company.

"When you combine all these factors, I can see why some analysts are speculating that the company could be at high risk of bankruptcy," he wrote.

Debbage believes the company should be taking steps to prepare for a Chapter 11 filing (even if it ends up not needing one).

"What Express needs to be thinking about right now is how it can cut operating expenses with a recession looming and consumer spending expected to drop significantly," he wrote. "The retailer’s finance leadership should also be prioritizing data, analytics and technology to make sure it has the right financial data so it can get a clear picture of its financial affairs, especially if it tries to secure financing to stave off bankruptcy."

Express did not return an immediate request for comment sent to its investor relations email.

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