This article is a preview of The Logic’s Daily Briefing newsletter, sent every weekday.
Get complimentary access to award-winning reporting to navigate these unprecedented times. Sign up now.
It’s day 50 since Canada’s 100th coronavirus case. The number of cases is 51,231 as of publication time, up 1,205 since yesterday, a 16 per cent decrease from the seven-day prior average of new cases. On their respective 50th day, U.S. daily new cases were down 10 per cent from the seven-day prior average; the U.K. was down eight per cent in daily new cases from the seven-day prior; and in Italy, new cases were up four per cent.*
There are 33 countries and territories in the world that have yet to report a single case of the coronavirus.
FB and MSFT report: Facebook slightly exceeded expectations in its first quarter, with revenue of US$17.74 billion, ahead of the US$17.48-billion consensus estimate. Daily active users for Facebook and its Messenger service rose 11 per cent year over year to 1.73 billion, as a growing number of people are staying home and turning to the internet to stay connected. That user surge isn’t translating into strong earnings per share, though, with this quarter’s US$1.71 missing the US$1.75 consensus. Like Alphabet yesterday, Facebook is reporting a significant slowdown in March ad revenue. However, Facebook said it’s seeing “signs of stability” in the April ad market. The firm’s stock popped over 10 per cent on the news.
Microsoft had a similarly strong quarter, with reported revenues of US$35 billion, up 15 per cent from the same quarter of 2019. That beat analysts’ consensus estimate of US$33.88 billion, according to Barron’s. The company’s commercial cloud business grew 39 per cent to US$13.3 billion, with its Azure product—which competes against Amazon Web Services and a similar Google offering—expanding revenues by 59 per cent. The firm said COVID-19 had “minimal net impact” on its overall results, although cloud usage rose and LinkedIn advertising buys dropped.
Wall Street’s favourite drug: Wednesday saw the release of promising preliminary results from a U.S. government trial of Gilead Sciences’ antiviral drug remdesivir. COVID-19 patients treated with the drug had a 31 per cent faster recovery time than those who had received a placebo. In a separate trial from Gilead itself, at least 50 per cent of 397 patients treated with a five-day dosage of the drug improved; over half were discharged from the hospital within two weeks. “What [this] has proven is a drug can block this virus,” said Dr. Anthony Fauci, head of the U.S. National Institute of Allergy and Infectious Diseases, which conducted the trial. Fauci said the U.S. government is working on making the drug available quickly to those who need it. While another study based on the results of the first randomized trial of 237 COVID-19 patients in China found the drug was “not associated with significant clinical benefits,” Gilead said the results were inconclusive because the study was ended early.
In the markets: All major North American stock indices rose by over two per cent on Wednesday following news of Gilead’s positive drug trial result. The Canadian dollar rose to 71.99 cents U.S. in late afternoon trading. Oil prices were also up on reports that the U.S. may not run out of crude storage space as rapidly as some had predicted, although competition remains fierce for storage space in Canada. Canada’s oil sector received more bad news today, as China’s CNOOC said it would cut back on oilsands projects in Canada, and Cenovus and Husky Energy posted quarterly losses.
The marginal increases continue a trend that has seen the TSX inch up since its most recent low of March 23, despite a steady stream of negative macroeconomic indicators. Today was no different, with the U.S. economy shrinking 4.8 per cent in the first quarter, the worst slump since the 2008 recession. The U.S. Federal Reserve kept its main interest rate near zero as it waited to see the impacts of earlier stimulus measures. Germany’s economy minister is predicting his country will face its worst recession since the aftermath of the Second World War, despite over one trillion euros in government spending. The contraction is prompting a growing number of protectionist measures. France announced today it would tighten controls on non-European foreign investors, following similar moves by Germany and Canada.
Ugly numbers: More than three-quarters of the more than 12,600 Canadian businesses surveyed by Statistics Canada and the Canadian Chamber of Commerce have lost revenue to the COVID-19 pandemic, according to data released Wednesday. Firms in sectors particularly impacted by physical- and social-distancing measures, such as retail and accommodation and food services, were hit hardest: a respective 48 per cent and 60 per cent saw their revenue drop 30 per cent or more between January and March compared to the same period in 2019. Sectors like professional, scientific and technical services and information and culture experienced less disruption than the average.
While the StatCan data includes the whole first quarter rather than specific months, it provides a rough guide for the Canada Emergency Wage Subsidy (CEWS) program’s potential reach. Companies qualify for the CEWS, Ottawa’s biggest effort to support businesses, if their revenue has dropped 30 per cent or more in April or May compared to the same month last year, or for the average of January and February 2020.
Here’s what share of firms in each sector have lost 30 per cent or more revenue:
Some 41 per cent of businesses surveyed have laid off workers, while 38 per cent reduced hours or shifts and 24 per cent trimmed or froze wages. But the staffing changes were concentrated among those same COVID-19-exposed industries—almost half of respondents in the finance and insurance sector (45 per cent) made no staffing changes, and many professional, technical and management firms also stood pat. Small employers cut most, with more than a third of surveyed firms with between five and 99 employees laying off more than half their workforce. Firms are also cutting back in other areas. Just over a fifth have cancelled contracts, while six per cent have postponed M&A activity. And in what could be a worrying sign for future innovation, firms in some of Canada’s biggest industries said they were more likely to cut R&D spending, including more than a fifth of natural resources and manufacturing companies.
Businesses are also turning to banks and landlords to ensure cash flow. More than a quarter of firms surveyed sought credit from a financial institution. Success tracked size—just 41 per cent of no-staff firms got at least part of what they applied for, while the rate was 74 per cent among companies with less than five employees; by contrast, large firms had a 96 per success rate. Small-business groups and fintech platforms focused on that market have raised concerns that such firms have trouble accessing credit via traditional financial institutions. Companies are also seeking rent relief, and about 13 per cent have been able to defer their payments, although double that share have been denied.
1.6 billion: That’s how many people are in “immediate danger of having their livelihoods destroyed” by the economic impact of COVID-19, the International Labour Organization warned. It estimated that about two billion people worldwide work in the “informal economy”—those on short-term contracts or self-employed—and have seen a 60 per cent collapse in their wages in the first month of the pandemic. According to a new report by the McKinsey Global Institute, a nationwide shutdown could leave up to 57 million jobs vulnerable. Forty-six per cent of those jobs are in the food-service sector.
“It was a great idea in the beginning—but it turned out to be another loan which I don’t need”: American restaurant owners who have received federal relief money are “highly likely” to return it after learning they had to spend it all within eight weeks to qualify for forgiveness.
Trace me on my cellphone: Ottawa is considering app- or other mobile-based approaches to contact tracing as it discusses with the provinces how and when to reopen the economy, Prime Minister Justin Trudeau said Wednesday. “We have a number of proposals and companies working on different models that might be applicable to Canada,” he said, but emphasized that governments would consider privacy and data security in any implementation. Still, Trudeau said he thought Canadians would be willing to allow some things that would not normally be acceptable to them because of the pandemic.
Apple and Google released the API for their contact-tracing technology today to select developers associated with public health authorities around the world. Both companies have released beta versions of their exposure-notification software. Company representatives said they were looking for feedback; on Friday, they will release additional information, including sample code. Meanwhile, India has ordered government employees to download its coronavirus contact-tracing app; as of April 25, the government-backed app has been downloaded 75 million times. “Test and trace” has been a winning strategy for Ghana, where the government launched an app in mid-April.
Cross-country checkup: Manitoba Premier Brian Pallister announced a phased plan to reopen the province’s economy starting May 4. The first phase will allow some non-essential businesses, including some retail, hair salons, libraries and campsites, to reopen at reduced capacity. By June 1, public gatherings of more than 10 people may be allowed, and dine-in service at restaurants, film production and non-contact sports for kids may resume; travel bans will remain in place. Details of the subsequent stages have yet to be determined, but events like concerts, public festivals and major sporting events won’t be considered until September at the earliest.
P.E.I. is extending its state of emergency to May 31. Quebec workers will not have the right to refuse work due to fear of the coronavirus once the province reopens its economy, starting next week. A charter plane is flying nurses into 23 First Nations communities in remote areas of northern Ontario and Manitoba to help with their COVID-19 responses. Nearly 80 per cent of deaths from COVID-19 in Canada are linked to long-term care and seniors’ facilities, up from about half of all cases two weeks ago. Brooks, Alta. is offering testing to asymptomatic people in an effort to slow the recent rise in cases in the city. The Canadian Football League asked Ottawa for $150 million in relief funding on April 2; Trudeau said discussions were ongoing.
Bay Street to Main Street: Canadian companies have raised a fraction of the debt of their U.S. counterparts, largely due to a series of government programs. So far, large American firms have brought in over US$20 billion in debt during the pandemic. In Canada, there’s been less of a push other than $1 billion each from Suncor Energy and TC Energy. A number of Canadian companies may need to tap debt once government support stops, or even before. Moody’s has given 46 Canadian firms its lowest rating and flagged all but 10 of them as being unable to pay bills with cash on hand. Some companies could get creative to raise debt. Air Canada, for example, has $5 billion in assets like airplanes against which it could borrow. Other firms may have a harder time, as institutional investors are hesitant to lend in such an unpredictable market.
- Loblaw’s first-quarter revenue jumped by 10.7 per cent to $1.14 billion. The company saw $751 million in additional sales due to unprecedented COVID-19 demand, boosting its net earnings by 14 cents per share. The company said the surge in demand it saw in the first weeks of the pandemic has moderated, with continued strength in essential food categories and pharmacy.
- Sobeys started testing online grocery-delivery orders today through British online supermarket Ocado Group’s first automated warehouse in North America.
- McDonald’s Canada will start importing beef due to shortages in the country.
- Toronto-based Top Hat is launching a free version of its virtual classroom platform.
- Toronto ride-sharing firm Facedrive is getting into the food-delivery business.
- The City of Toronto is partnering with telecoms to provide free internet for vulnerable residents.
- Aimia has replaced its CEO as part of a strategy to switch from a rewards program focused company to an investment holding firm.
- Shopify’s stock is up more than any other TSX Composite-listed firm year-to-date. The Ottawa-based ecommerce firm has risen 59.4 per cent this year, despite Canada’s benchmark index dropping over 13 per cent during the same period.
Postcard from Middlebury: Chris Kelley is the plant manager at Aqua ViTea, a producer of Kombucha based in Middlebury, Vt. A saving grace for the company amid the pandemic: the alcohol in the roughly 480,000 gallons of the yeasty concoction it produces a year.
“You’d be surprised by how much booze there is in kombucha, and we needed to get it out,” he told The Logic. “We came across this spinning cone technology from this Australian company called Flavourtech. The US$1.6-million machine strips the alcohol off and then puts the product back together without damaging it. Our kombucha comes out of the building at 0.3 per cent alcohol. And before the outbreak, we had something like 40,000 gallons of alcohol distillate sitting around.
“Our distributor also distributes beer, and they’re getting all this stuff back from these breweries and bars. Keg Logistics has 6.2 million kegs that need to be emptied, and they can’t just dump them, because it would kill all the microbes used in wastewater treatment plants. So now we’re making alcohol for hand sanitizer.
“A keg goes into the cone at five per cent alcohol and comes out at 30 per cent alcohol. I can run that back through again and get it up to 68 per cent. Then it’s shipped to the Barr Hill distillery in Montpelier, where they bring it up to 95 per cent, which is what you need for hand sanitizer. We’re charging about US$5 a keg, and I can run about 600 litres an hour; we’re running it 12 hours a day. We just cleaned out about 20,000 gallons or so. We’ve done a lot of Bud, Bud Light, Long Trail, pretty much everyone. We’ve had to lay off some people, but mostly in sales. Our production crew has been able to remain intact, just because we’ve been able to adapt to make this. If we didn’t have the cone, I don’t know where we’d be right now.”
Drinking from the firehose: App-based companies in the delivery and transportation space continue to feel pressure from the pandemic: Lyft is laying off 17 per cent of its workforce and Deliveroo is cutting 15 per cent of its staff.
- Chinese e-commerce giant JD.com is moving forward with plans for a secondary listing in Hong Kong as early as June, despite the impacts of COVID-19 on the markets. The firm could raise at least US$3 billion through the deal.
- U.S. workers at Amazon, Instacart, Whole Foods and Target plan to walk off the job on Friday to protest what they say are failures by their employers to protect their health and safety during the pandemic.
- Barclays CEO Jes Staley said the coronavirus may permanently change the way the bank operates, after reporting a drop in first-quarter profits: “The notion of putting 7,000 people in a building may be a thing of the past.”
- Bentley’s reopening plan involves its workers at its British car factory wearing masks and maintaining a two-metre distance between each other when they return to work on May 11.
- Three weeks after its digital debut, the movie Trolls World Tour has generated nearly US$100 million in rentals—more than the original brought in after five months in theatres.
Around the world: U.S. Senate Majority Leader Mitch McConnell said he wants to protect companies from liability over pandemic-related suits. U.K. Prime Minister Boris Johnson has welcomed a new son about a month after he tested positive for the coronavirus. The U.K. is considering enforced quarantine and thermal screening at the border. Italy is considering giving work permits to thousands of undocumented immigrants to sustain its food supply chain. Ghana’s capital city Accra is using drones to deliver COVID-19 testing samples. China will begin its first parliamentary session in two and a half months on May 22. Hundreds of small-business owners protested in Kiev, Ukraine to demand lockdown measures be eased to save them from bankruptcy. More than 5,000 people in Brazil have died from COVID-19. “So what?” President Jair Bolsonaro told reporters. “I’m sorry. What do you want me to do?”
“Try mending a sock”: The Swiss embassy in the U.K. has created a list of 22 activities to help preoccupy citizens under lockdown abroad. Suggestions range from “yodelling through an open window” to building “a paper model of a landmark, e.g. Matterhorn.”
* We’re emphasizing new cases, rather than running totals, because “flattening the curve” is when each day’s new cases are fewer than those of the previous day. The percentage increase is determined based on how today’s cases compare to a rolling seven-day prior average. Numbers may also vary based on countries’ individual testing capacity and reporting.
Our reporting team is working tirelessly around the clock to deliver the very latest information on the COVID-19 crisis. If you like our journalism, please consider subscribing. You can get a subscription today for more than $100 off your first year.