Jun 3, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙 “Who's that whispering in the trees? It's two sailors and they're on leave. Pipes and chains and swinging hands. Who's your daddy? Yes I am.” - See who said it and why it matters at the bottom.

1 big thing: Softbank's $100 million statement

Illustration: Aïda Amer/Axios

SoftBank COO Marcelo Claure will say in a letter to employees early Wednesday that the firm plans to create a $100 million fund that "will only invest in companies led by founders and entrepreneurs of color."

Why it matters: The Opportunity Growth Fund is one of the first to put significant capital behind companies' statements of empathy and outrage in response to protests over systemic racism in the U.S. typified by the killings of George Floyd, Breonna Taylor and other African Americans by police.

  • It immediately makes SoftBank a leading presence in the impact investing space dedicated to backing businesses owned and operated by people of color.

What they're saying: "The Opportunity Growth Fund will be the biggest fund providing capital to black Americans and people of color," Claure says in the letter. "We believe in this investment strategy, and we believe in these founders."

The big picture: This could mark a sea change from talk to action for well-heeled financial institutions.

  • Bank of America announced a $1 billion four-year program to "address economic and racial inequality" that will target people of color by funding initiatives including virus testing, support for minority-owned small businesses and investment for affordable housing.
  • JPMorgan, Citi, Wells Fargo and other major U.S. banks have released statements condemning racism and supporting diversity efforts, but none have yet announced similar projects or investment.

Where it stands: The fund will invest in "companies that use technology to disrupt traditional business models," and will donate an unspecified portion of gains from the fund’s investments to organizations focused on "creating opportunities for people of color."

  • 50% of the gains from the fund's investment will go toward future programs with similar aims.
  • SoftBank has said it "will not take a traditional management fee" on the Opportunity Growth Fund.

Yes, but: At the moment, the fund has not identified any companies or dedicated any capital, the spokesperson said.

  • SoftBank is in the midst of a public relations battle after announcing earlier this year it would sell off $41 billion in assets and facing a wave of criticism from investors over money-losing investments in WeWork, Uber and others.

Between the lines: The letter also will announce the creation of a diversity and inclusion program, admitting the company needs to "do better at hiring underrepresented groups for open roles at SoftBank and our portfolio companies — especially for leadership and board seats."

One level deeper: Prominent black Silicon Valley executives Stacy Brown-Philpot, CEO of TaskRabbit, and Paul Judge, co-founder of TechSquare Labs and Pindrop, will serve as "founding members" and "fund advisors," a SoftBank spokesperson told Axios.

  • However, neither will be directly involved in selecting companies for investment.
  • Investing will be led by Shu Nyatta, a managing partner who works on the company's Innovation Fund, and overseen by managers at SBGI.

The bottom line: "Founders and entrepreneurs of color have so much potential, but they face unfair barriers that white founders don’t face," Claure writes. "This is our opportunity to remove those barriers for a new generation of founders."

2. Catch up quick

Amazon has informed sellers it is planning a seven- to 10-day "Summer Sale” event that’s designed to provide a boost for sellers seeing declining sales because of the coronavirus pandemic. (CNBC)

Mobile gaming company Playtika, which is owned by a Chinese investor group, has hired investment banks to prepare for a U.S. IPO that could raise around $1 billion. (Reuters)

A proposed class action lawsuit against Google accuses the company of illegally invading the privacy of millions of users by tracking them while in “Incognito” mode. (Reuters)

German Chancellor Merkel failed to broker a deal on a stimulus package that will delay plans to spend up to 100 billion euros to boost the economy. (Bloomberg)

Brent crude oil prices rose above $40 a barrel for the first time in three months as OPEC and allies edged closer to a consensus on extending production cuts. (Bloomberg)

3. Black workers overrepresented on the front lines

Reproduced from Economic Policy Institute; Chart: Axios Visuals

A bit of a correction about yesterday's newsletter — I said black workers have suffered worse job losses than their white counterparts, when on a percentage basis more white workers have lost their jobs since February.

  • That has largely been because black workers in the U.S. are much more likely to work front-line jobs considered essential during the coronavirus pandemic.

By the numbers: Black workers make up about one in nine workers overall, but about one in six front-line-industry workers, according to a study from the Center for Economic and Policy Research.

  • "Given the disproportionate representation of black workers in front-line occupations where they face greater risk of exposure to COVID-19, it is not surprising that illness and deaths are disproportionately found among black workers and their families," Valerie Wilson, director of the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy, and EPI senior economist Elise Gould write.
  • "African Americans’ share of those who have died from COVID-19 nationally is nearly double (1.8 times higher than) their share of the U.S. population."
4. Atlanta Fed GDPNow tracker predicts -53% growth in Q2
Data: Atlanta Fed; Chart: Axios Visuals

The Atlanta Fed's GDPNow tracker estimates that real GDP growth in the second quarter will decline by -52.8%.

  • That estimate is down from -51.2% on May 29 and -40.4% on May 28.

Why it matters: Recent economic reports have shown slightly improving numbers, but the Atlanta Fed's model suggests the overall trend is projecting a worse quarter than most economists had as even their worst-case scenario only weeks ago.

  • The 10 percentage point decline from last week's estimates are based on Monday's ISM report on business and the construction spending report from the U.S. Census Bureau.

By the numbers: Expectations for real personal consumption expenditures declined from -56.5% to -58.1% and expectations for real gross private domestic investment decreased from -61.5% to -62.6%, the Atlanta Fed noted.

What's next: Today's data will be closely watched with the release of IHS Markit and ISM's non-manufacturing indexes for May and the ADP private payrolls report potentially offering some good news for investors.

5. Taiwan and Korea show coronavirus stifles demand after lockdowns

Looking at the economies of South Korea and Taiwan leads to a discomforting takeaway: "Reopening isn’t going to be an economic cure-all," Matthew C. Klein writes for Barron's.

What it means: "Both countries contained the virus better than the U.S., yet consumers in those countries remain reluctant to spend and venture out," Klein notes.

State of play: Taiwan, which never shuttered businesses or imposed lockdowns is seeing worsening economic data, with retail and food service spending excluding groceries and fuel in April down 12% from last year and spending at restaurants 23% lower — the steepest declines ever.

  • Cellphone location data from Google shows Taiwanese consumers were about as unlikely to visit “retail and recreation” venues in May as they were in April, even though they did venture out to such locations at far greater rates than Americans or Europeans under lockdown.
  • South Korea did have a particularly harsh COVID-19 outbreak and was able to contain it through widespread testing and early quarantine measures.
  • However, the latest monthly data show passenger rail, hotels and “arts, sports and recreation related services” were all down by half in April compared to January, with personal services, restaurants, bars, movie studios, and passenger land transport services all down by about 25%.

Yes, but: Economic data is steadily improving in China, which was the first country to implement widespread lockdowns.

  • Private data provider Caixin's Chinese services PMI rose to 55.0 in May, from 44.4 in April, beating consensus estimates of 47.3. It was the first return to expansion for the survey since January.
  • Caixin's reading on the manufacturing industry was similarly strong, showing production recovering faster than demand, and the rate of expansion for output rising at the fastest pace since January 2011.

The bottom line: The U.S. stock market's rally has largely been underpinned by expectations for a speedy economic recovery.

  • “The hope is that what we’ve seen with China is playing out in Europe, and there will eventually be follow-through in the U.S. once the virus is under containment,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab, told the Wall Street Journal.
Dion Rabouin

Thanks for reading!

Quote: "Who's that whispering in the trees? It's two sailors and they're on leave. Pipes and chains and swinging hands. Who's your daddy? Yes I am."

Why it matters: The lyrics from the 1997 Cherry Poppin' Daddies hit "Zoot Suit Riot" refer to a real riot.

On June 3, 1943, a mob of 60 officers from the Los Angeles Naval Reserve Armory began attacks on anyone perceived to be Hispanic, starting the weeklong Zoot Suit Riots, which some have called "the worst mob violence in Los Angeles history."

  • Servicemen from various factions of the U.S. armed forces combined with local police officers and some civilians to target Latinos wearing "zoot suits" with many young people arrested "for their own protection."
  • The white attackers were often portrayed by local news publications as heroes fighting against what was referred to as a Mexican crime wave.

Editor’s note: A story from Friday was corrected to show that the Fed bought $3 billion in the Secondary Market Corporate Credit Facility (not $35 billion) and that Commercial Paper Funding Facility usage rose to $4.3 billion (not $13 billion). The $35 billion number earlier quoted from TD Securities reflected the Treasury Department’s investment in the facilities, rather than the Fed's purchases, according to a Federal Reserve spokesman.