Congress could kick China listings off U.S. stock exchanges, but it won’t happen overnight

The bill rushed unanimously through the U.S. Senate and spun into the news cycle as if it were a certainty.

As the thinking goes, the House and then the president will shuffle this legislation into law, forcing Chinese companies listed on U.S. exchanges to play by the same transparency rules as those from other parts of the world.

Senate bill would require Chinese companies to establish that they are not owned or controlled by a foreign government and submit to an audit that the Public Company Accounting Oversight Board can review.

Normally, powerful entities would make the passage of this “anti-China” bill an uphill battle. The Nasdaq
the NYSE
the Securities and Exchange Commission and Wall Street in general largely oppose the move and the yanking of billions of dollars from their pocketbooks. And House Speaker Nancy Pelosi said Thursday that her side of the Capitol was willing to look at the issue, but no vote was promised.

But the legislation comes amid a striking U.S. political competition of sorts to show who is toughest on China — and during the crucial few months before the presidential election.

Also from Tanner Brown:U.S.-China relations are bad and getting worse, with major ramifications for trade and investment — and the U.S.’s presidential election

Even if a variation of the bill does eventually pass, already-listed firms will have three years to comply. That is ample time for China to increase the attractiveness of its own bourses, and for Chinese companies to prepare for a relatively smooth landing back home — likely Hong Kong for larger already-listed companies, and the growth boards for smaller startups, according to Peking University’s Paul Gillis.

China has already opened more attractive doors for public fundraising. After the decade-old Nasdaq-like ChiNext welcomed tech startups in Shenzhen, neighboring Shanghai learned from the pains and successes of that venture and unveiled the Science and Technology Innovation board, or Star Market, last year. Its niche is profit-losing tech-focused startups that show promise and otherwise might list in New York.

As of now, some 200 Chinese companies are listed in the U.S. — some in ways more transparent than others — possess a total market value of more than $1.8 trillion, according to the U.S.-China Economic and Security Review Commission.

Their departure would represent a big flight of capital from U.S. exchanges, a diminution of U.S. tax revenue, a loss to investors and, some would argue, a prestige hit for Wall Street as the center of global finance.

But it would also mean those willing to buy into U.S.-listed firms from China wouldn’t be duped like they were recently by Luckin Coffee, whose shares

resumed trading this week after a six-week freeze. Luckin’s American depositary receipts tumbled 36% on Wednesday from their closing price on April 6, after which trading was halted by Nasdaq. The stock plummeted 89% in the first quarter of this year. It ended the week at $1.38, against a closing level above $40 as recently as March 6.

Nasdaq has informed the onetime Starbucks

rival that it faces delisting after it disclosed that some employees fabricated $300 million in sales. Luckin is appealing the decision, but if it’s delisted investors would lose essentially all equity, a “wipeout” for which one analyst warned investors to prepare.

A Luckin Coffee location in Beijing on Jan. 15, before the fast-expanding chain — billed as a potential Starbucks slayer — was engulfed by controversy.


Opinion:Luckin Coffee shows how risky Chinese IPOs can be, but investors are just not listening

“A lot of these companies, by the way, have already had scandals and cost investors a lot of money, because of their failure to be transparent in their reporting,” White House economic adviser Larry Kudlow told Fox News. “The Chinese government forbids that kind of transparency.”

The painful delisting decision may still be bothering Wall Street and the SEC, but lawmakers appear ready for action.

“We want investors to understand what they’re investing in,” said Sen. John Kennedy, a Louisiana Republican and a co-sponsor of the Senate bill. “And those reports have to be accurate or you get in a lot of trouble.”

Tanner Brown covers China for MarketWatch and Barron’s.

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Fed’s Powell to urge Congress to ‘do everything’ it can to help those suffering amid pandemic

As Democrats and Republicans squabble over what kind of coronavirus relief to provide next to millions of suffering Americans, the chairman of the Federal Reserve has a simple message: Do everything you can.

Jerome Powell, the head of the powerful U.S. central bank, plans to reiterate his message on Tuesday at a Senate hearing to explain how the Fed is helping businesses and governments to cope with unprecedented financial strains caused by the COVID-19 pandemic. Congress have given the Fed the authority to make potentially trillions of dollars in loans.

See:MarketWatch Coronavirus Recovery Tracker

Although detailed discussions about the Fed’s emergency lending will take center stage, Powell’s prepared testimony also includes a subtle reminder about the biggest victims of the pandemic.

“All of us are affected, but the burdens are falling most heavily on those least able to carry them,” Powell is expected to say. A recent Fed study indicated that almost 40% of the households making less than $40,000 a year lost a job during the first month of the pandemic.

Powell has implied several times in recent remarks that Congress has to do more to support the economy. Washington has already passed almost $3 trillion in aid, but the two parties are divided over the next step.

Read:The economy can only start to recover from its coronavirus meltdown once it hits rock bottom. Are we there yet?

Democrats in the House have crafted a $3 trillion bill to supply money to states and local governments and to fund a multitude of cherished liberal goals. President Donald Trump and the Republican-led Senate say the House bill is a nonstarter. They insist on liability protection for companies that reopen and object to what they call bailouts for states.

Like prior Fed chairmen, Powell is unlikely to back specific spending proposals and get drawn into the political fray. Yet as chairman he has consistently pursued policies with an eye toward helping the most disadvantaged and distressed communities. His concern for them has become a staple of recent speeches.

“It is worth remembering that the measures taken to contain the virus represent an investment in our individual and collective health,” Powell will tell the Senate. “As a society, we should do everything we can to provide relief to those who are suffering for the public good.”

The rest of Powell’s prepared statement explained all the actions the Fed has taken to stabilize the U.S. financial system and make loans available to businesses and government. He also is promising to publicize monthly the identities of all loan recipients, the amount of money borrowed and the interest rate charged.

“We are deeply committed to transparency, and recognize that the need for transparency is heightened when we are called upon to use our emergency powers,” Powell will say.

Powell will testify remotely on Tuesday morning along with Treasury Secretary Steven Mnuchin before the Senate Banking Committee. Mnuchin’s prepared text can be found here.

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Hotels asks Congress for more aid as industry’s revenue may drop by nearly 50%

A trade group representing the hotel industry on Monday asked top U.S. lawmakers to increase the maximum amount that hotels are allowed to borrow in the Paycheck Protection Program, and make other changes to the aid program.

“The maximum loan under the PPP, defined as 250% of average monthly payroll costs for the prior calendar year, is insufficient for the hotel industry,” said the American Hotel & Lodging Association in a letter to the leading Democratic and Republican members of Congress.

The trade group is asking for the limit to be increased to 800% of average monthly costs for payroll, utility bills, and mortgage or rent payments, saying that will let most hotels keep their employees and stay in business.

Along with airlines and restaurants, the hotel industry is among the travel-related sectors that has seen demand evaporate because of the coronavirus pandemic and resulting stay-at-home orders.

Related:Restaurants desperately fighting to survive coronavirus seek more help from Congress

And see:U.S. taxpayers set to be major investors in the struggling airline industry

The American Hotel & Lodging Association praised lawmakers for establishing the PPP while asking for other changes to the program as well, and it emphasized the massive hit that the hotel industry is experiencing.

“The economic impact of the COVID-19 health crisis on the hotel industry is estimated to be nine times greater than the September 11th terrorist attacks,” the association said in its letter.

“According to Oxford Economics, nearly 4 million hotel employees have been furloughed and the industry is expected to lose nearly fifty percent of its total revenue in 2020 — which could exceed $112 billion.”

Related:3 publicly traded hotel companies won’t give back small-business relief loans

Also read:Tourism bureaus seek help from Congress to survive the coronavirus crisis

Another requested change is letting hotels spend just 50% of proceeds from PPP loans on payroll, down from the current requirement of 75%.

“The remaining 25% does not leave enough margin for owners to also be able to pay their mortgage, utilities, rent and other time-sensitive loan obligations,” said the American Hotel & Lodging Association, whose membership includes public hotel companies such as Marriott


“Retaining and rehiring employees remains hotel owners’ top priority, but that is only possible if they can retain their physical asset.”

The PPP quickly ran through its initial allocation of $350 billion that came through last month’s $2.2 trillion Cares Act, and then on Friday got an additional $320 billion as President Donald Trump signed into law the $484 billion Paycheck Protection Program and Health Care Enhancement Act.

Operators of large hotel or restaurant chains were specifically given the green light to get PPP loans, though the Treasury Department last week said the program was not intended to help public companies “with substantial market value and access to capital markets” and gave such companies until May 7 to return their money.

U.S. stocks


are trading well below their February peaks because of coronavirus-related worries, but they have rallied from their late-March lows thanks in part to optimism around Washington’s aid efforts. The S&P 500 and Dow closed higher Monday, with analysts giving credit to some lockdowns easing.

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Dow rebounds more than 400 points as Congress looks to roll out new stimulus package

U.S. stocks traded sharply higher at the start of Wednesday, for the first time in three days after finishing at the lowest level in about two weeks on Tuesday, amid expectations for Congress to roll out a new stimulus package to ease the economic damage wrought by the COVID-19 pandemic.

How are benchmarks performing?

The Dow Jones Industrial Average
advanced 440 points, or 1.9%, to around 23,459. The S&P 500
added 53 points, or 1.9%, to 2,790. The Nasdaq Composite
climbed 178 points, or 2.2%, to 8,442.

At Tuesday’s regular close, the Dow fell 631.56 points, or 2.7%, to end at 23,018, the S&P 500 index lost 86.60 points, or 3.1%, to close at 2,736.56, with both benchmarks finishing at their lowest levels since April 7, according to FactSet data. Meanwhile, the Nasdaq Composite Index retreated 297.50 points, or 3.5%, to end at 8,263.23, marking its lowest close since April 13.

What’s driving the market?

Investors may be taking some heart from U.S. corporate earnings reported late Tuesday and the passage in the Senate of another coronavirus relief package worth about $500 billion to replenish funds for small businesses that were exhausted within days of applications opening, and will likely pass the House of Representatives Thursday, as President Donald Trump threw his support behind the measure.

The deal provides $100 billion for health care, split between $75 billion for hospitals, including some set aside for rural ones, and $25 billion for coronavirus testing.

Treasury Secretary Steven Mnuchin said he was looking forward to having most of the U.S. economy open later in the summer. He also added the Trump administration was looking at ways to support U.S. oil producers.

An unprecedented collapse below zero in the price of spot oil futures earlier this week eroded the market’s bullish patina, but values for crude appeared set to stabilize Wednesday, after the history-setting May contract expired and as West Texas Intermediate oil for June delivery looked set to recover a portion of its losses after settling at the lowest level for a most-active contract since 1999.

Although oil companies represent a sliver, at about 2.6%, of the overall S&P 500 index, the slump in crude prices has undermined investor confidence as the market recovers from its fall in the wake of the coronavirus pandemic, with the oil-price drop seen leading to bankruptcies among energy-related companies.

Meanwhile, Netflix Inc.
reported far better earnings than analysts’ consensus estimates and revealed record growth in subscribers amid stay-at-home protocols to slow the COVID-19 contagion. Netflix shares have been among the main drivers of the market’s gains from its bear-market low put in on March 23.

“Can shares continue their strength and buoy the overall market on Wednesday?” That’s the question BTIG analysts Julian Emanuel and Michael Chu posed heading into the day’s action.

Which stocks are in focus?
  • Shares of Netflix
    fall 0.7% as investors worry about the outlook for the streaming-media company after reporting record membership amid the pandemic.

  • Delta Air Lines Inc.
    shares rose 3.5% after it reported its first quarterly loss in five years as the coronavirus pandemic drove down passenger numbers.

  • Shares of AT&T
    are up 3.2% Wednesday, though the company fell short of expectations with its first-quarter results as the COVID-19 outbreak negatively impacted its media business.were off 1.2% ahead of its quarterly results, due in the premarket.

  • Biogen Inc.’s stock
    slipped 7.5% after its earnings beat expectations.

  • Kimberly-Clark Corp.
    shares were up 1.8% after the Kleenex parent reported first-quarter earnings and sales that beat expectations.

  • Shares of energy company Baker Hughes Co.
    climbed 6%after the oil services company swung to a first-quarter loss.

  • Chipotle Mexican Grill Inc.
    said late Tuesday its sales rose 8% in the first quarter, thanks in large part to a surge in online sales that accounted for more than a quarter of the three-month revenue. Shares jumped 8.8%.

  • Snapchat’s parent company Snap Inc.
    revealed advertising revenue rose above estimates that were diminished by fears of the spread of COVID-19. Shares surged 24%.

How are other markets trading?

The rebound in equities weighed on haven inflows, with the 10-year Treasury note yield
up 3 basis points to 0.60%.

In global stock markets, the STOXX Europe 600 index
rose 1.6%. In overnight action in Asia, Japan’s TOPIX index
fell 0.6%, while China’s CSI
benchmark gained 0.8%.

June futures for West Texas Intermediate oil
rose around 21% to trade at $13.91 a barrel, on the New York Mercantile Exchange. In precious metals, June futures for gold
rose 2.3% to $1,726.60 an ounce.

The greenback fell 0.2% against its major rivals based on the ICE U.S. Dollar index.

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How Congress is spending trillions in response to the coronavirus crisis — in one chart

As Congress breaks records with its spending in response to the coronavirus crisis, it might all feel a bit hard to track.

So here’s a handy chart giving a timeline and brief descriptions for the massive outlays.

The pandemic-related spending began in early March with an $8.3 billion measure that provided money to federal health agencies as well as state and local governments.

Then came a mid-March package costing an estimated $192 billion that targeted paid leave and testing, as shown in the above chart, which comes from lobbying firm Mehlman Castagnetti Rosen & Thomas.

Related:Drain the swamp? Spending on Washington lobbying rises to 9-year high

In late March, President Donald Trump signed an unprecedented $2.2 trillion measure into law. Known as the CARES Act, Washington’s “Phase 3” legislation is offering direct payments to Americans, aid to small and large businesses and other programs.

During the past week, Democratic and Republican lawmakers have been struggling to reach a deal on what some analysts are describing as a “Phase 3.5” response — a bill that could give an extra $250 billion to the CARES Act’s Paycheck Protection Program for small businesses. The GOP has argued just for an additional $250 billion for PPP, while Democrats have pushed for packaging that with other provisions, such as $100 billion for health-care institutions and $150 billion for state and local governments. Analysts predict an agreement could be achieved by the end of the week, when PPP looks set to run out of money.

Related:Small-business owners express confusion, fear over federal bailout fund

And see:Coronavirus small-business aid program could ultimately need $1.8 trillion in funding

Congress and President Donald Trump’s administration also have been working on “Phase 4” legislation, or a “CARES 2 Act,” to fight the coronavirus causing the disease COVID-19 and the resulting economic damage. Analysts have predicted that next big spending package could cost about $1 trillion and become a reality between late April and mid-May.

Related:Kentucky Republican objects again to quick vote on next batch of coronavirus aid

The possible “Phase 4” bill does not appear to be focused on major infrastructure spending, as once seemed possible, but rather looks set to extend programs from the CARES Act. But there also has been talk of “Phase 5” legislation that could feature outlays on U.S. infrastructure or other stimulus efforts.

U.S. stocks


have been plunging for weeks on coronavirus-related worries but have pared some of their losses thanks in part to hopes surrounding Washington’s aid programs.

“There could still be adoption of a limited infrastructure package this year,” said Capital Alpha Partners analyst Charles Gabriel in a recent note to clients. “There could be more direct payments to workers and families; state and local government funding could grow; and there could an increase/extension of unemployment benefits. But all of that, and any full Phase IV (or V) package, could turn on whether the virus peaks in the next few weeks or lasts into summer/fall.”

From the MarketWatch archives (December 2018):How the recent tax cuts and budget deal jack up the national debt — in one chart

This is an updated version of a report first published on April 10, 2020.

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