Banks brace for wave of loan losses, more businesses are permanently closing, and most firms aren't ready for Brexit: This Week in Finance

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Banks set aside $30B for bad loans

Three of America’s largest banks set aside almost $30 billion in the second quarter to cover bad loans as shutdowns due to the coronavirus pandemic continue to take their toll on the economy. While federal stimulus programs helped consumers and businesses to avoid defaulting on payments in the spring, that "pain" is likely yet to come, according to Jamie Dimon, CEO of the biggest U.S. bank by assets, JPMorgan Chase — where loan provisions helped to push profit down by half. No. 3 U.S. bank Wells Fargo swung to a $2.4 billion loss — its first in a decade — while No. 4 Citigroup reported that profit fell by nearly three-quarters. ?? Here's what people are saying.

• Pandemic takes bite out of earnings season: Earnings overall are forecast to have dropped 44% in the second quarter from a year earlier in what would be the worst quarterly performance since 2008.

Second shutdown hits small business

Small businesses that had taken out loans, laid off workers, and hunkered down thought the worst of the coronavirus outbreak was finally over, bringing back their employees and instituting new safety protocols. Now, as new cases climb across much of the U.S., many are being told to shutter once more for an indefinite period of time. For some small businesses, the second round of lockdown has meant permanently shutting down. As major employers, the closures will impact their communities for years to come and drag down the economic recovery. Small businesses account for 44% of all U.S. economic activity, according to the Small Business Administration. ?? Here's what people are saying.

• U.S. jobless claims stubbornly steady: New weekly claims held steady at about 1.3 million as virus spikes around the country prompted fresh business restrictions. Weekly applications for unemployment insurance benefits have remained at about 1 million for 17 weeks.
• Most ever lose health insurance: More Americans — 5.4 million — lost health insurance coverage due to job losses this spring than have ever lost coverage in a single year, according to a study.

Early signs of inflation?

U.S. consumer prices snapped back in June, rising the most since 2012, as states were beginning to reopen their economies. While gasoline accounted for much of the 0.6% increase in the Labor Department’s index, the price of that and other goods are still down from a year ago as the pandemic stalls growth, suggesting that overall inflation will remain in check. Grocery prices, however, climbed at an annual 5.6% — the most since 2011 — as Americans continued to eat at home. ?? Here's what people are saying.

China's economy rebounds

China posted 3.2% growth in GDP from a year earlier, boosted by a rise in industrial production and government stimulus, as the country got back to work after lockdowns. The results beat analyst expectations and followed a 6.8% slump in the first quarter — the country's first GDP contraction since record-keeping began in 1992. Overall for the first six months of the year, the world's second-largest economy contracted by 1.6%. Consumption remained soft in the second quarter. ?? Here's what people are saying.

Trade tensions flare

China vowed retaliation for new U.S. sanctions imposed over the former's treatment of Hong Kong. U.S. President Trump announced the penalties on Tuesday and revoked the special trading status enjoyed by Hong Kong, which he said will now be treated the same as China. The sanctions would apply to officials and companies that aid in China’s enforcement of a security law aimed at suppressing dissent on the previously semi-autonomous territory — the latest chapter in ongoing trade battles between the world's two biggest economies. ?? Here's what people are saying.

Canada reaches $19B reopening deal

Canada's federal and provincial governments reached an agreement on billions of dollars in transfers to support the economic recovery from the pandemic, according to Prime Minister Justin Trudeau. The federal government will contribute $19 billion to help provinces fund items like child care, contact tracing, and personal protective equipment, while public transit systems and municipal governments that took a financial hit from the pandemic will also receive support. The prime minister had previously offered $14 billion, but premiers pushed for more. ?? Here's what people are saying.

• Bank of Canada sees two-year recovery: The central bank’s outlook is based on the assumption that there won't be a second widespread virus wave.
• Federal debt set to exceed $1T: Canada's policymakers will likely be tackling the new debt for years or decades, depending on the efficacy of their policies for economic recovery.

Most firms 'not ready' for Brexit

Only a quarter of UK businesses are ready for the end of the Brexit transition period in December, according to research from the Institute of Directors. Almost half of the directors polled said they were unable to prepare yet, with a third saying they needed clarity on rule changes and one in seven saying they were distracted by coronavirus. The majority said that reaching a trade deal would be important for their businesses, and 89% said it was important for the economy’s recovery. The institute called for a phasing in of any changes, deal or no deal, to allow businesses time to adjust. ?? Here's what people are saying.

OPEC+ to ease output cuts

OPEC+ producers agreed to restore some oil output starting in August as they see energy demand recovering. Output cuts will be eased to 7.7 million barrels a day until December, from the record reductions of 9.7 million barrels a day agreed to in May. Countries that did not commit to reducing output in May and June, including Iraq and Nigeria, will make extra cuts of 842,000 barrels a day in August and September. ?? Here's what people are saying.

The next GAAP?

Should the value of a company take into consideration the environmental toll it produces? An initiative from Harvard Business School, outlined in the Financial Times, is trying to create a broader picture of a company's value beyond existing accounting. Just as the Great Depression ushered in GAAP — generally accepted accounting principles — and independent audits of public companies, the creators of the project argue that these now should be broadened to include the environmental and social impact of firms, or "generally accepted impact principles." Read the counterargument here. ?? Here's what people are saying.

?? Editors' Picks: Must-read articles ??

Each week, editors at LinkedIn select thought-provoking articles that are sparking discussion among financial services professionals on the platform. Join the conversation by reading and commenting on them here.

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With Cate Chapman, Riva Gold, Jordyn Dahl, Laura Lorenzetti, Yunita Ong, Gianna Prudente, Siobhan Morrin, Lynn Chouman, Alexander Besant, and Richard J. Chang.

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