The swift hit to the U.S. economy from efforts to stop the spread of the coronavirus has created a crunch in credit markets that threatens to turn an economic downturn into a financial crisis.“
“Companies have rushed to raise cash by drawing down credit lines and other borrowing, as they face a sudden shortfall in revenues. The ripple effect has been a whammy to credit markets, sending many spreads wider across the markets and even stalling out the commercial paper market, where the highest rated companies go for cash.
““We’re speeding towards one. We need to deal with this. This is real now. All the red flags are raised,” said Diane Swonk, chief economist at Grant Thornton.”
“…even with proposed stimulus, the view of economic forecasters has become more dire in recent days as companies seeking cash strain credit markets and the shutdown of business activity sends shock waves across the economy.”
“The dystopian reality of deserted airports, empty trains and thinly occupied restaurants is already badly hurting economic activity.
“The longer the pandemic lasts, the greater the risk that the sharp downturn morphs into a financial crisis with zombie companies starting a chain of defaults just like subprime mortgages did in 2008.“
“Supermarket shelves are being cleared and in financial markets, cash is the only precious commodity.
“The hoarding of cash by banks, investors and companies illustrates the vast wave of deleveraging that is taking place across financial markets with the echoes of 2008 getting louder and louder.”
Central banks are facing the possibility of having to deal with a liquidity crunch in dollar funding markets, as cash-strapped firms draw down credit lines in the face of the coronavirus shock.”“
“Banks borrowed the largest amount of six-month sterling funds from the Bank of England on Tuesday since the run-up to the 2016 Brexit referendum, a sign of demand for cash as the coronavirus crisis hammers financial markets.”
Morale among German investors has fallen through the floor amid the coronavirus outbreak, a survey showed today, as a global recession becomes increasingly likely.”“
“The echoes of the eurozone debt crisis are perhaps even more worrying: Greek, Portuguese and Spanish bonds have weakened out of sympathy with Italy.”
“If the downturn persists, many Italian companies could find themselves short of the profits needed to repay their loans. That could weaken bank balance sheets to the point of crisis.
““It’s likely that banks will need to be rescued,” said Nicola Borri, a finance professor at Luiss, a university in Rome. “The economy has basically been stopped. We are probably going to see massive defaults. Clearly, Italian banks will be badly hit.””
This was prior to lockdowns:
“European car sales fell 7% in February. The sales decline means car sales in Europe are off to their worst start to a year since 2013 and are poised to deteriorate further after automakers across the region shuttered plants to counter the coronavirus pandemic.”
Japan’s exports slipped for a 15th straight month in February as U.S. and China-bound shipments declined, suggesting a cooling of business activity in the world’s third-largest economy due to the coronavirus outbreak. “
“Imports from China fell at their fastest pace since 1986 after the virus…”
“Goldman Sachs cut its estimate for China’s first quarter gross domestic product to a year-on-year contraction of 9 per cent from a previous forecast of 2.5 per cent growth, citing “strikingly weak” economic data in January and February.”
The supply and demand shocks have hammered Wall Street’s outlook for oil. Goldman Sachs Group Inc. said consumption is down by 8 million barrels a day and cut its Brent forecast for the second quarter to $20 a barrel. “
“Standard Chartered Plc predicted the low for the global benchmark crude will likely be well below $20 next quarter, while Mizuho Securities warned prices could go negative…”
“I can’t believe I am saying this, but if the situation worsens significantly this could be the time to launch a time-bound universal basic income program,” Desai said in a research note. “
““This would offer income security to workers in the most precarious positions – wait staff at restaurants for example – acting as a bridge to when the economy normalizes.””
“The world’s richest nations prepared more costly measures on Tuesday to combat the global fallout of the coronavirus… But even with the promised cash splurges, world stock markets and oil prices were unable to shake off their coronavirus nightmare…
“A global recession beckons, with parallels to the 2008 financial crisis.”