Drug Hopes Overshadow GDP
Yesterday the U.S. Commerce Department released the widely-anticipated first quarter GDP data.
As expected, the U.S. economy contracted in the first quarter as GDP fell 4.8%. It was the first negative GDP print since the first quarter of 2014 when GDP fell 1.1%. The nearly 5% drop in GDP in the first quarter marks the worst GDP reading since the fourth quarter of 2008 when GDP fell 8.4%.
Consumer spending, which makes up more than two-thirds of U.S. economic activity, fell 7.6% in the first quarter. The drop in consumer spending marked the largest quarterly drop since the second quarter of 1980.
The Commerce Department's Bureau of Economic Analysis cited shelter-in-place orders as negatively affecting GDP for the quarter, saying they "led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending."
As bad as all of that sounds, markets soared yesterday as headlines about Gilead Sciences' antiviral drug remdesivir conveniently came out just as the GDP data was released.
Gilead said preliminary results of the drug to treat COVID-19 showed at least 50% of patients who had been treated with a five-day dosage saw improvement. Gilead also said a separate trial being conducted by the National Institute of Allergy and Infectious Diseases met its main goal, although didn't provide further details.
"These data are encouraging as they indicate that patients who received a shorter, five-day course of remdesivir experienced similar clinical improvement as patients who received a 10-day treatment course," lead investigator of the study Aruna Subramanian said.
Scott Gottlieb, the former commissioner of the Food and Drug Administration, warned the drug is "not a home run, a cure by any means." Gottlieb continued,"It’s not going to be a cure, but it is going to be a drug potentially that if you use it particularly early in the course of the disease ... it could reduce their chances of having a really bad outcome."
With hopes for remdesivir high, the Food and Drug Administration is in talks with Gilead to make remdesivir available to COVID-19 patients.
"As part of the FDA’s commitment to expediting the development and availability of potential COVID-19 treatments, the agency has been engaged in sustained and ongoing discussions with Gilead Sciences regarding making remdesivir available to patients as quickly as possible, as appropriate," an FDA spokesperson said.
For the sake of humanity, hopefully remdesivir is as effective as the markets are interpreting it to be.
Homebuyers returned last week. With the average interest rate for a 30-year fixed-rate mortgage dropping marginally last week, mortgage applications to buy a home jumped 12% last week, according to the Mortgage Bankers Association’s seasonally adjusted index. However, applications to refinance fell 7% for the same period, causing total mortgage volume to decline by 3.3%. However, the National Association of Realtors reported March pending home sales fell 20.8% from February, a decline of more than 16% from the same period a year ago.
Boeing is slimming down. Boeing announced it will cut 10% of its workforce of 160,000 employees through voluntary measures and "involuntary layoffs as necessary." Boeing also announced it burned through $4.3 billion in cash in its latest quarter and will reduce aircraft production. "We’ll have to make even deeper reductions in areas that are most exposed to the condition of our commercial customers — more than 15% across our commercial airplanes and services businesses, as well as our corporate functions," Boeing CEO Dave Calhoun said.
Layoffs hit ride-sharing companies. Uber is reportedly considering laying off about 20% of its workforce, which would affect more than 5,000 employees. "As you would expect, the company is looking at every possible scenario to ensure we get to the other side of this crisis in a stronger position than ever," an Uber spokesperson said. Over at Lyft, the company announced it is laying off 982 employees, or about 17% of its workforce. Lyft is also furloughing an additional 288 employees while cutting base salary for exempt employees.
Starbucks has a plan. Starbucks plans to have "a significant number" of locations opened next week, with a goal of opening 90% of its locations by June. Roughly half of Starbucks' U.S. locations are currently open, although for drive-thru service only. "It’s going to take some time for a vaccine or the appropriate treatments to be available for COVID-19, so we’re going to be in the monitor-and-adapt phase while that happens," Starbucks CEO Kevin Johnson said. "What consumers are looking for are experiences that are safe, familiar and convenient."
Hackers target Nintendo. Nintendo has confirmed that 160,000 accounts have been hacked, with the hackers purchasing digital goods from Nintendo’s online store in some instances. Nintendo said the hacking began in early April and peaked this past weekend. "While we continue to investigate, we would like to reassure users that there is currently no evidence pointing towards a breach of Nintendo’s databases, servers or services," Nintendo said.