US banks signal post-Covid optimism


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US banks signal post-Covid optimism

JPMorgan Chase, Citigroup and Wells Fargo have released more than $5bn of pandemic-era loan loss reserves in a sign of optimism for the economic outlook even as the US reels from the latest wave of Covid-19.

The move helped three of America’s biggest banks end the year on a high and reflects the lenders’ confidence that their clients will make good on debts despite the fallout from the pandemic.

“It’s not like we’re bragging, we’re not,” said Jamie Dimon, chief executive of JPMorgan, who added that the decision to release the reserves was driven in part by “positive vaccine and stimulus developments”.

But he also highlighted the risks to the world economy posed by coronavirus, noting that “our credit reserves of over $30bn continue to reflect significant near-term economic uncertainty”.

As US consumer sentiment fell and investors studied details of president-elect Joe Biden’s proposed $1.9tn additional stimulus, oil prices and Wall Street stocks dropped, including for banks, in a gloomy end to the week after disappointing US retail sales data.


Column chart of weekly flows into US municipal bond funds ($bn) showing investors ploughing into municipal debt after Democratic party’s victories

Investors have piled into US municipal bonds since Democrats clinched control of the Senate last week, as money managers positioned themselves for billions of dollars of aid to cash-strapped local governments. EPFR estimated $2.5bn had been placed into funds that invest in municipal debt, the largest inflow in at least a decade.

The pandemic has accelerated the trend among investors towards using alternatives to national accounts data in measuring macroeconomic performance, writes James Sweeney, chief economist at Credit Suisse. Nominal gross domestic product does not cover at-home production and free goods that comprise internet services, and is biased by inflation.

Private debt investors face a shakeout, fund managers have warned, after a decade-long boom propelled the sector’s assets to about $900bn. They warn that less stringent lending standards before the pandemic will mean a reckoning in the next couple of years, notably in retailing, leisure and hospitality that have been hit hard by pandemic restrictions.


Line chart showing global bookings for all travel periods as a year-on-year % change, seven-day moving average

While leisure travel may bounce back once borders reopen, business travel faces a severe crisis and may not recover — raising concerns for hotels and airlines, which depend on it for up to 75 per cent of their revenue. The uptick in virtual gatherings, a greater focus on sustainability and post-pandemic cost-cutting at financially straightened companies risk long-term consequences.

Sales of low and no-alcohol drinks have held up during the pandemic even as global alcohol sales dropped almost 10 per cent as bar and restaurant closures cut social drinking. Demand remains modest but quality is improving. “Heineken 0.0 tastes like a beer, looks and smells like a beer,” said Edward Mundy, analyst at Jefferies.

Hundreds of thousands of UK businesses have won the right to claim on insurance for Covid-19 linked losses after the country’s top court ruled that many policies should pay out because of coronavirus and the government’s lockdown measures. About 700 types of insurance policies issued by 60 different insurers could be affected by the ruling from the Supreme Court.

Global economy

The UK economy risks entering a double-dip recession after shrinking for the first time in six months in November. The latest contraction was less severe than expected and much milder than in the spring. UK output fell 2.6 per cent compared with October, the first contraction since April’s lockdown, data from the Office for National Statistics showed.

Bar chart of general government gross debt as % of GDP (forecast for 2021) showing Latin America has the developing world’s highest debt levels

Latin America is the world’s worst-hit region by the coronavirus pandemic and its economy faces a slow and painful recovery, with a growing risk that worsening poverty and inequality will trigger political upheaval, economists have warned. Challenges for 2021 include the continuing spread of the virus, constraints on the amount of fiscal stimulus the region can afford and lack of political support for structural reforms to boost growth.

China’s trade surplus hit its highest ever monthly level in December, driven by higher demand for medical products and lockdown-related goods at a time when global trade has come under intense pressure. Exports rose above expectations at 18.1 per cent in dollar terms, while imports increased 6.5 per cent, pushing the trade surplus to a record $78bn.

Have your say

In response to Health and tech groups aim to create digital Covid ‘vaccination passport’, FT reader Euthydemus writes:

This digital passport infrastructure sets a dangerous precedent, which undoubtedly will be abused for other purposes in the future

The essentials

After the initial shock of the pandemic, those on the glide path to retirement are more mindful about their financial health, prompting many to seek professional financial advice. Money aside, planners are encouraging people in their fifties and sixties to do a better job of mapping out retirement goals by considering what they missed the most in the pandemic and what it made them reassess.

Final thought

Stephen Foster has advised on the books on show in films ranging from Disney to Bond
Stephen Foster has advised on the books on show in films ranging from Disney to Bond © Stephen Foster/Evening Standard/eyevine

The man who curates shelves in films has advice for Zoom users who want to improve the look of their on-screen libraries. “The key is authenticity,” says Stephen Foster, who has advised on books on show in movies from Disney to Bond. “If I have a bugbear, it’s the people who are trying too hard — turning the book so the front board is out.” The worst offenders? Politicians.

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