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Business

Swiss manufacturing PMI sinks to lowest level since 2009 on coronavirus fears

ZURICH (Reuters) – From expensive watches to chocolates and cement, Swiss industry is being battered by the coronavirus epidemic, data showed on Wednesday, with the country’s PMI survey sinking to its lowest level in more than a decade.

The Swiss Purchasing Managers’ Index for March fell to 43.7 points, its lowest since July 2009, and is likely to drop further, the authors said. [S8N2B2006]

A measure of below 50 points indicates a shrinking manufacturing sector, which represents around 19% of the country’s economic output.

A reading for the services sector was even bleaker, dropping to a record low 28.1 points.

“I still think the manufacturing PMI has some way further down to go while the service industry reading, although very worrying, will stabilize around that level,” said Claude Maurer, an economist at Credit Suisse, which compiled the survey with dataprocure.ch.

“Many service companies such as most shops and restaurants are banned from selling and are also facing delivery or purchasing problems. They have been hit more at first, but they will be quicker to recover.”

Companies welcomed the government’s 42 billion Swiss franc ($43.6 billion) support package to provide emergency loans and expand its short-time working compensation scheme.

These measures should keep Swiss companies in a holding pattern until a recovery begins, Maurer said.

“If (the partial shutdown in Switzerland) comes to an end in the next couple of months there will not be a second-round effect on companies. If it goes longer, then it will become much more serious,” he said.

To deal with the situation, Swatch Group (UHR.S), the world’s largest watchmaker, has introduced shorter working hours at most of its factories, while Hublot, owned by Moet Hennessy Louis Vuitton LVMH (LVMH.PA), has shuttered a factory.

“We hope that the situation will allow us to reopen the factory at the beginning of May. But obviously we await the official directives… on the duration of the confinement,” said Hublot CEO Ricardo Guadalupe.

Swiss companies have also started issuing profit warnings, including chocolate maker Lindt & Spruengli (LISN.S), cement maker LafargeHolcim (LHN.S) and engineering group ABB (ABBN.S).

Smaller companies have also been hurt, despite their best efforts to adapt.

Bern bakery Bohnenblust has made chocolate Easter bunnies wearing protective face masks made from sugar and marzipan to cheer customers during the crisis.

“They’ve been an absolute hit,” said manager Ruth Huber. “People have said they are very funny and they bring a bit of humour and smile to faces at this difficult time.”

But the bakery has also had to put around a third of its 70 staff put on short-time working as deliveries stop to schools, restaurants and business canteens, reducing demand for bread.

“We have high fixed costs like rents, but less sales,” said Huber. “It’s very difficult.”

($1 = 0.9642 Swiss francs)

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Analysis & Comment

Commentary: Despite Brexit, I’m proud to be a Brit

This is a fine time to be British. Indeed, to be proud to be British. You would not, to be sure, think so from this past week in London – as the House of Commons humiliated Prime Minister Theresa May by throwing out her plan for Brexit in Tuesday by 432 votes to 202 – an unprecedented rejection. On Wednesday, the Labour Party moved that her government had lost the confidence of the House – a maneuver defeated only narrowly, by 325 votes to 306.

The British, and foreign, news media would guide you to seeing the events as pure, destructive chaos. In an article for CNN, Stephen Collinson writes of the United States and the UK that it’s “hard to believe that two such robust democracies, long seen by the rest of the world as beacons of stability, have dissolved into such bitter civic dysfunction.” Hard to believe only if you see democracy as the smooth management of affairs by an elite. This is what democracy looks like when a citizenry is grappling with fundamental issues – or should.

A nationwide debate is under way on the nature of British – and by extension European – governance, which has rumbled and grumbled under the surface for decades. The decision by then Conservative Prime Minister, David Cameron, to hold a referendum on European Union membership in 2016 – a decision he now says he does not regret – was one for which he believed he could win easy assent.

This was in part a question of internal party management, but it had support from influential voices in Labour too, and addressed a threat of widespread desertion from both major parties to the quickly growing United Kingdom Independence Party (UKIP). The politicians, especially those from the bulk of England outside of the rich, cosmopolitan south-east, heard the growing clamor of men and women whose living standards had stagnated, as well as from those who called for more democratic control from a political center they could understand and influence – the Westminster parliament.

Like any such wide and deep civic disruption, the vote for Brexit exacts the price of economic instability and likely future reduction in national GDP. Fear of this prompted me – and others – to vote to remain in the EU. That fear has spread: a poll this week showed that Remainers could outvote Brexiteers by as much as ten percent: a poll last month showed the gap at 18 percent. Indications like these encourage Remainers to call for a second referendum, a proposal which could cleave British politics into two warring camps, but may also be the only way out of a parliamentary logjam, where no single strategy commands a majority. Uncertainty attends every move: such is the nature of a popular surge seeking – peacefully – a different relationship with political power.

Democratic turmoil has also come to Europe – but not to the European Union. The two national leaders most committed to reviving a movement to greater EU integration – French President Emmanuel Macron and German Chancellor Angela Merkel – have themselves been drawn into democratic maelstroms, which have meant they are both much weakened at home.

The Brussels leadership of the EU – Commission President Jean-Claude Juncker and European Council President Donald Tusk – have not had the same popular drubbing. They seem not to have grasped that Brexit, and the surge of France’s “gilets jaunes” protesters, are hugely consequential movements not just for Britain and France, but for the Union as a whole. The EU presently faces its own, increasing strains and the strengthening possibility of recession – prompted by Italy’s rising debt and its reluctance to be bound by EU financial restraints, the end of a long period of quantitative easing which kept interest rates rock bottom – and Brexit itself.

Herein lies the central problem of the EU now. It has chosen to present itself as an adamantine front of 27 states wholly united against the renegade 28th, the UK. They have entrusted the EU’s chief Brexit negotiator, Michel Barnier, to set out the hard facts of a deal which lays down a two-year withdrawal period in which most EU rules would continue to apply, with a severance payment of £39bn ($50 billion). It’s a divorce agreement which may not rival that of Jeff and Mackenzie Bezos, since that could come out at $66bn. But it would take a sizable morsel out of the UK’s GDP (at $2.6 trillion in 2017.)

Yet the hard front is an illusion. The Central European states – Hungary, Poland, the Czech Republic and Slovakia – want continued EU subsidies but recoil from its policies, especially taking a share of the immigrants within Europe. Italy now has a populist government which defies the EU on its spending limits. The country’s rising debt and falling industrial output, together with that of the other main members, now helps to pull the Union towards recession. The “Hanseatic League” of small northern states, under Dutch leadership, explicitly defies any efforts to bring the Union “ever closer” – the strategy to which Juncker and Tusk, as well as Macron, are bound.

This is not a band of brotherly states marching towards a Federal Europe. It is a group of countries of differing political traditions and cultures, with enough in common to have a single market and a growing tradition of cooperation – but with only selective, and minority, appetite to create more than that.

The challenge which confronts the EU, which would include the UK, is that of recognizing the truth of its present condition and of working out how best to decouple the Union from its now counterproductive mission to federalize. Instead of that, there should arise a Union of differing speeds, where neither a desire to form a federal state, nor one to retain sovereignty within existing nations, should be penalized, but accommodated. An EU straitjacket now aggravates rather than solves problems, defeating its initial vision of the creation of a new world power dedicated to freedom.

The continent’s rulers need to grasp what the British establishment has been forced to understand: that politics, and economic decisions, can no longer be located at a distance in institutions citizens do not understand, commanded by figures they do not know. Britain can take real pride that a messy, fraught, passionate struggle over a fundamental principle of democratic and civic life is taking place within it. It should spread across the continent.

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Politics

Pelosi wants 'vote by mail' provisions in next coronavirus bill

WASHINGTON (Reuters) – U.S. House Speaker Nancy Pelosi said Wednesday she hopes “vote by mail” provisions can be part of the next coronavirus response plan being put together by House Democrats.

Speaking in a conference call, Pelosi said at least $2 billion was needed to enable voting by mail, in order to give citizens a safe way to vote during the coronavirus pandemic. She said Democrats had gotten just $400 million for that purpose in a recent bill.

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Business

Equities drop as evidence mounts of deep global recession

NEW YORK (Reuters) – World equity markets began the new quarter with steep losses on Wednesday as evidence mounted that the coronavirus pandemic was sending the global economy into a deep recession.

Traders headed for the safety of government bonds, the dollar [USD/] and gold [GOL/] following sharp slowdowns in manufacturing activity in Japan and Germany, one day after data showed U.S. consumer confidence fell to 3-year lows.

The pan-European STOXX 600 sank 2.7% [.EU], while MSCI’s gauge of stocks across the globe shed 1.11%. Tokyo’s Nikkei slumped 4.5% after the worst plunge in factory activity in almost a decade.

On Wall Street, major benchmarks opened sharply lower after President Donald Trump warned late Tuesday that maintaining social distancing guidelines for the next 30 days would be a “matter of life and death.”

The Dow Jones Industrial Average slumped 755.87 points, or 3.45%, to 21,161.29, the S&P 500 lost 89.48 points, or 3.46%, to 2,495.11 and the Nasdaq Composite dropped 209.88 points, or 2.73%, to 7,490.22.

“President Trump’s warning about two dreadful weeks ahead and 100,000 – 240,000 deaths in the coming months is definitely putting a negative tone on the market,” said Societe Generale strategist Kit Juckes. “It is pretty risk-off out there. It is definitely a day of lower bonds yields, falling equity indexes and tin hats.”

U.S. markets ended the first quarter on Tuesday, marked by the largest quarterly fall since 1987 for the Dow Jones and the steepest for the benchmark S&P 500 since the financial crisis. The fact it all happened in a month and from record highs made it feel all the more brutal.

U.S. economic activity is likely to be “very bad” and the unemployment rate could rise above 10% because of efforts to slow the spread of the coronavirus, Cleveland Federal Reserve Bank President Loretta Mester told CNBC. [L1N2BO2UT]

In currency markets, the dollar’s safe-haven appeal saw it continue to rise.

“In my view, markets have still not fully priced in the damage from the coronavirus, with some people still talking about V-shaped recovery,” said Masahiko Loo, portfolio manager at Alliance Bernstein in Tokyo.

“The U.S. and Europe are hit by the first wave now, but as you can see in Asia, there could be more waves from re-imported cases. Human psychology also does not quickly recover either after an experience like this.”

Traders jumped toward the perceived safety of government bonds, pushing the yield on the benchmark 10-year U.S. Treasury note to 0.5957% from 0.699% late on Tuesday.

Commodity markets were much rougher. Brent crude fell nearly 6% at one point to as low as $24.80 per barrel as the United States, Russia, and Saudi Arabia jostled over a massive oversupply of oil. [O/R]

Crude oil benchmarks ended the first quarter with their biggest losses in history. Both U.S. and Brent futures got hammered throughout March by the pandemic and a Saudi-Russia price war.

Global demand has been cut sharply by travel restrictions. Forecasters at major merchants and banks see demand slumping by 20% to 30% in April, and for weak consumption to linger for months.

Graphic: Global assets in 2019, tmsnrt.rs/2jvdmXl

Graphic: Global currencies vs. dollar, tmsnrt.rs/2egbfVh

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Business

Wall Street sinks as coronavirus anxiety grows

(Reuters) – The Dow Jones tumbled more than 700 points on Wednesday as investors fled to safe-haven assets after new orders for U.S.-made goods plunged to an 11-year low and private payrolls fell for the first time since 2017.

The blue-chip Dow and the S&P 500 ended Tuesday with their worst opening quarters in history as efforts to contain the virus resulted in deserted shopping streets, massive staff furloughs and a halt in business activity.

Meanwhile, the collapse in oil prices brought about its first major casualty with Whiting Petroleum (WLL.N) filing for Chapter 11 bankruptcy protection. Its shares slumped 42%.

“There is no easy way to quantify either the economic shutdown or what the eventual recovery is going to look like as the monetary and fiscal policy initiatives are as historic as the economic decline,” said Art Hogan, chief market strategist at National Securities in New York.

Companies on the benchmark index have lost more than $5.6 trillion in market value so far this year, despite trillions of dollars in fiscal and monetary stimulus that helped equity markets claw back some of the sharp declines last week.

On Tuesday, U.S. President Donald Trump warned Americans of a “painful” two weeks ahead, with White House health officials modeling an enormous jump in virus-related deaths even with strict social distancing measures.

U.S. real estate .SPLRCR, utilties .SPLRCU and consumer staples .SPLRCS stocks, which had held up so far as they are considered stable during times of extreme volatility, fell between 1% and 6.7%.

Goldman Sachs now expects sequential real U.S. GDP to plummet 34% in the second quarter on an annualized basis, foreshadowing a deep economic slump.

“Talk of a bottom in equity markets still seems remarkably premature given the continued increase in infection and death rates across Europe and the United States,” said Michael Hewson, chief market analyst at CMC Markets in London.

With the quarterly reporting season set to begin in two weeks, S&P 500 companies are expected to enter an earnings recession in 2020, falling 3.7% in the first quarter and 9.6% in the second.

At 9:56 a.m. ET the Dow Jones Industrial Average .DJI was down 658.21 points, or 3.00%, at 21,258.95, the S&P 500 .SPX was down 82.63 points, or 3.20%, at 2,501.96 and the Nasdaq Composite .IXIC was down 213.20 points, or 2.77%, at 7,486.90.

Interest-rate sensitive stocks on the banking index .SPXBK fell 5%, while airlines, hotels and cruise operators shed between 5% and 7%.

The energy sector .SPNY shed another 3%, with experts now saying oil prices could touch single digits, exacerbated by a share tussle among top producers as the world runs out of storage space.

Declining issues outnumbered advancers more than 13-to-1 on the NYSE and 6-to-1 on the Nasdaq.

The S&P index recorded no new 52-week high and seven new lows, while the Nasdaq recorded four new highs and 32 new lows.

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World News

Fractures grow among Iraq militias, spell political retreat

BAGHDAD (Reuters) – In February, an Iraqi militia commander trained by Iran took over the empty office of his slain superior, Abu Mahdi al-Muhandis, killed weeks before alongside Iranian military mastermind Qassem Soleimani in a U.S. drone strike.

Many pro-Iran militiamen hoped this was the answer to their problems: the experienced commander Abdul Aziz al-Mohammedawi might replace Muhandis as overall leader of Iraq’s paramilitary groups, scattered after the killing of their two mentors.

Instead, it has led to new splits.

Factions refused to recognize Mohammedawi, known by his nom de guerre Abu Fadak, as commander of Iraq’s militia umbrella grouping, the Popular Mobilisation Forces (PMF). Even within his own group, Kataib Hezbollah, some oppose him taking on that mantle, according to militia insiders.

The deaths of Soleimani and Muhandis in January challenged Iran-backed militias in Iraq, where the United States wants to reverse the influence of its regional foe Tehran.

Now, sources in the Iran-backed factions of the PMF and commanders in groups less close to Tehran describe growing fractures over leadership and reduced Iranian funds, thwarting attempts to unite in the face of adversity.

The rifts are accelerating a retreat from the political arena, where militia leaders who once controlled government jobs and parliament seats are in hiding for fear of assassination by the United States and confront anti-Iran dissent on the streets. They face the installing of a U.S.-aligned prime minister who signals he would check the dominance of Iran’s proxy groups.

Bruised, the militias have stepped up attacks on U.S.-led forces in Iraq. Western military and diplomatic officials say this raises the prospect of a U.S.-Iran escalation Baghdad will be powerless to stop.

The focal point for the splits has been leadership of the PMF, which was formed to fight Islamic State after Iraq’s top Shi’ite Muslim cleric Grand Ayatollah Ali al-Sistani called all able bodied men to take up arms against the Sunni militants.

The state-funded PMF comprises dozens of mostly Shi’ite militias with different loyalties but is dominated by powerful factions who take their orders from Iran, including Muhandis’s Kataib Hezbollah, the Badr Organization, Nujaba and others.

Soleimani held ultimate authority over Iraq’s toughest Shi’ite militias. But for those groups, loss of PMF military chief Muhandis, a rare unifying figure, was more significant.

GROWING DIVISIONS

Kataib Hezbollah in February announced Mohammedawi would be PMF military chief. Mohammedawi now works in Muhandis’s old office in Baghdad, according to a senior militia source. He requested anonymity to talk about splits among paramilitaries.

“This created divisions, including within Kataib,” the source said.

He and two other militia officials described shifting alliances, including within two pro-Iran groups. They said the splits were over both Muhandis’s succession and where Iranian funds should go – into military action or political influence.

“One camp in Kataib is led by Abu Fadak. Another opposes him taking over the PMF,” the first source said. “In Badr, there’s a wing that supports him and was closer to Muhandis – and another that doesn’t, the political wing.”

The sources did not provide details on reduced funding from Iran, which is being hit hard by coronavirus and U.S. sanctions.

A PMF spokesman could not immediately be reached to comment.

The divisions mean groups are beginning to stage attacks on their own, without consulting each other, the militia sources said.

“Not everybody agreed Taji military base should be targeted,” one official said, referring to an attack that killed two U.S. troops and a British soldier in March. “Some groups just operate without consulting the PMF chain of command.”

The militia sources report an additional PMF split.

Several factions closer to Sistani, who oppose Iran’s hegemony over the PMF, publicly rejected Mohammedawi taking over in February in a rare show of defiance of the pro-Iran camp.

Their commanders said they have since agreed in principle with the defense ministry to integrate into the military, a move that would clearly separate them from Iran-backed factions. A source close to Sistani confirmed his office had blessed the move.

POLITICAL WEAKNESS

Pro-Iran militias worry.

“If Sistani is backing this maybe 70 percent of lower-ranking fighters in all groups might follow – they joined up only because of his edict,” the first militia source said.

None of those moves can be official until a new government is in place. But lawmakers and government officials say it is likely the designated prime minister, Adnan al-Zurfi, will be approved this month – a result of pro-Iran militia weakness.

“Before, the Iran-backed groups and politicians were able to get their choice of prime minister,” one lawmaker from Iraq’s biggest parliamentary bloc said, declining to be named.

“Now, they can’t even agree among themselves who they want for the post,” he said, adding many favoured Zurfi for the job.

President Barham Salih last month designated Zurfi, who is opposed by Iran-backed militia commanders. He has signaled he would come down hard on the factions, posting on Twitter in March that the PMF’s “loyalty will be to Iraq, and Iraqis”.

Iran-backed militias will not go quietly. Kataib Hezbollah warned last week it would fight any force cooperating with Washington in attacking militias.

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World News

Britain working with industry on reagent shortage: PM's spokesman

LONDON (Reuters) – The British government is working with industry to address a shortage of chemicals required for coronavirus testing kits to tackle the coronavirus outbreak, a spokesman for Prime Minister Boris Johnson said on Wednesday.

“We’ve been working with industry throughout but as the chief medical officer and the deputy chief medical officer have both set out, there is a global demand for reagents. But it is clear from industry that they are working as hard as they can to support the NHS (National Health Service),” the spokesman told reporters.

Addressing concerns that Britain is lagging other countries in introducing a large-scale testing regime, the spokesman said: “A clear instruction has been issued that where there is capacity available it should be used on testing frontline staff and we expect that to happen.”

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World News

Swiss coronavirus death toll rises to 378, positive tests hit 17,139

ZURICH (Reuters) – The Swiss death toll from the coronavirus has reached 378, the country’s public health ministry said on Wednesday, rising from 373 people a day earlier as Switzerland prepares additional measures to mitigate the epidemic’s economic hit.

The number of positive tests also increased to 17,139 from 16,176 on Tuesday, the ministry added.

The Swiss government is preparing to expand an emergency liquidity programme for coronavirus-hit businesses, as banks have already handed out more than half of the 20 billion Swiss francs ($20.70 billion) set aside for state-backed loans.

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World News

Italy's coronavirus lockdown measures to be extended to April 13: minister

ROME (Reuters) – Italy will extend anti-coronavirus lockdown restrictions imposed last month to April 13, Health Minister Roberto Speranza said on Wednesday.

“We must not confuse the first positive signals with an ‘all clear’ signal. Data shows that we are on the right path and that the drastic decisions are bearing fruit,” Speranza told the upper house Senate.

After days of steep rises in cases, data this week has suggested the pace of growth in the number of total cases in Italy is slowing, with new infections coming in at 4,053 on Tuesday. Deaths have remained largely steady at over 800 a day.

Speranza added that the “battle (against the virus) is still very long.”

Italy was the first Western country to introduce the restrictions and has tightened them week by week, banning all but core activities.

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World News

U.S. air strikes killed civilians in Somalia, Amnesty International says

MOGADISHU (Reuters) – U.S. air strikes in Somalia killed two civilians and injured three in February, human rights watchdog Amnesty International said on Wednesday, in a statement that raised questions over U.S. investigations of such allegations.

U.S. Africa Command said it was assessing the allegations and goes to great lengths to avoid civilian casualties.

U.S. forces have been fighting a decade-long struggle against the al Qaeda-linked militant group al Shabaab. The insurgency wants to overthrow Somalia’s shaky, internationally backed government and rule using its own strict interpretation of Islamic law.

Africa Command says air strikes are a key weapon against al Shabaab, but Amnesty says they also mistakenly target civilians.

A U.S. airstrike in the town of Jilib on Feb. 2 hit a family having a meal, Amnesty said, killing 18-year old Nurto Kusow Omar Abukar, injuring her two younger sisters – aged 7 and 12 – and her 70-year-old grandmother. Amnesty cited an interview with the girls’ father, who was present but uninjured in the strike.

“He was very devastated, he didn’t know why his family was targeted,” Amnesty researcher Abdullahi Hassan told Reuters. “He said, ‘I’m now in my farm, alone in an open place, if they want to kill me.’”

Mohamed Omar Abukar, the son of the 70-year-old woman, told Reuters his family had been devastated by the strike. His youngest niece had come to the capital for medical treatment, he said.

“She is OK and walking. My mum and my niece Fatuma … are too seriously injured to be brought by car to Mogadishu,” he said.

Another strike on Feb. 24 on the village of Kumbareere, about 10 kilometers north of Jilib, killed Mohamud Salad Mohamud, a 53-year-old father of eight who ran a banana farm and the local office for telecom company Hormuud, Amnesty said. Hormuud confirmed his death.

Africa Command – also known as AFRICOM – issued statements after both strikes saying it had killed militants.

“Following every airstrike, U.S. Africa Command conducts additional analysis to ensure the military objectives were met and that there were no civilian casualties,” AFRICOM told Reuters in response to the allegations from Amnesty.

“Our in-depth post-strike analysis relies on intelligence methods that are not available to non-military organizations, including Amnesty International … The command’s civilian casualty allegation assessment process is precise, comprehensive, and led by a team of experts.”

Amnesty researcher Hassan said Africom should be more transparent about how it investigates allegations of civilian deaths.

“They seem to be living in denial that the airstrikes actually kill civilians,” he said.

Last year, Amnesty issued a report alleging 14 civilian deaths in five U.S. air strikes in 2017 and 2018. At the time, Africa Command rejected the report but later said a review found that two civilians had been killed in a 2018 strike.

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