23rd March 2020 Today’s Round-Up of Economic News

Coronavirus is set to plunge the world into its biggest peacetime slump since the era of the Great Depression, according to alarming new forecasts.

The brutal recession triggered by the Covid-19 outbreak is likely to shrink the world economy by at least 4pc this year, the Centre for Economics and Business Research has warned.

Such a decline would represent some $3.6 trillion (£3trn) in lost output. If the CEBR’s forecast is correct – and it cautions there is a “huge margin of error” – the fall would represent the worst year for global growth since 1931 outside of wartime according to the think-tank.”

https://www.telegraph.co.uk/business/2020/03/22/warning-biggest-peacetime-economic-slump-since-great-depression/


As the coronavirus continues to spread, there is no question the U.S. economy is taking a major hit.

“Economists at Goldman Sachs warn GDP will collapse at a 24% rate… “We are in a global recession,” Allianz’s Mohamed El-Erian said on Yahoo Finance’s On The Move. “We’re in a global recession because of what economic sudden stops do.””

https://finance.yahoo.com/news/coronavirus-us-gdp-recession-economists-forecast-140600768.html


“We went from full throttle to 90% revenue loss in three weeks,’’ said CEO David Seelinger. “We’ve been through 9/11. We’ve seen recessions. We’ve never seen anything like this.’

“Seelinger spent last Sunday laying off 750 of his 900 employees.”

https://www.nytimes.com/aponline/2020/03/22/business/ap-us-virus-outbreak-economic-whiplash.html


Trump: “”WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF. AT THE END OF THE 15 DAY PERIOD, WE WILL MAKE A DECISION AS TO WHICH WAY WE WANT TO GO!”

“With so much economic carnage and the risk of financial dislocations causing a severe and permanent impact on the world economy, these are distressing times for central banks and governments everywhere.”

https://www.forexlive.com/news/!/us-president-trump-we-cannot-let-the-cure-be-worse-than-the-problem-itself-20200323


NB: The UK was teetering on the brink of recession with 0% GDP growth in Q4 of 2019 before the pandemic:

The coronavirus outbreak could drag the UK into a recession even more severe than the financial crash of 2008, according to new forecasts published today.”

https://www.cityam.com/coronavirus-could-drag-uk-to-recession-worse-than-2008-financial-crash/


As was Germany:

…the German government forecast that the coronavirus pandemic would lead to the biggest output contraction in more than a decade while it grappled with how to prevent containment efforts tearing at the social fabric.”

https://www.bloomberg.com/news/articles/2020-03-22/germany-expects-gdp-to-shrink-by-5-this-year-bild-says


Italian Prime Minister Giuseppe Conte, whose country now has the most deaths from COVID-19, is asking the European Union to use its bailout rescue fund to mitigate the economic impact of the pandemic.”

https://www.cnbc.com/2020/03/20/italy-conte-calls-for-eu-crisis-fund-as-coronavirus-death-toll-rises.html


Covid-19 has created not just a health emergency but a financial crisis. It could not have come at a worse time for India, already in the middle of a slowdown… Covid-19 is pushing an already battered Indian economy into the ICU…”

https://economictimes.indiatimes.com/news/economy/finance/covid-19-crisis-how-the-deadly-virus-hints-at-a-looming-financial-crisis/articleshow/74752200.cms


The oil price collapse of the last two weeks has reached near-record territory, according to World Oil’s analysis of historical prices in constant dollars.”

http://www.worldoil.com/news/2020/3/20/world-oil-analysis-research-shows-current-oil-price-collapse-near-record-proportions


The current price war in oil markets will only hasten the moment when the unsustainable nature of Gulf economies faces a brutal reckoning…”

https://www.bloomberg.com/opinion/articles/2020-03-22/saudi-russia-oil-price-war-heralds-end-to-gulf-luxury-lifestyle


Shanghai copper prices dropped to their lowest in nearly 11 years on Monday as more shutdowns and restrictions imposed to curb the coronavirus outbreak deepened worries about a slowdown in global economic growth.”

https://uk.reuters.com/article/global-metals/metals-shanghai-copper-drops-to-lowest-since-2009-on-demand-concerns-idUKL4N2BG105


Canada has become the first country to warn that it won’t send its athletes to the Tokyo Olympics unless they are postponed for a year, as pressure builds to delay the Games due to the coronavirus pandemic. The Canadian Olympic Committee said holding the Games as planned would threaten the health of its athletes…”

https://www.theguardian.com/sport/2020/mar/23/tokyo-2020-olympics-in-doubt-as-canada-becomes-first-team-to-pull-out-over-coronavirus


Asian shares sank on Monday as a rising tide of national lockdowns threatened to overwhelm policymakers’ frantic efforts to cushion what is likely to be a deep global recession.

““Further deterioration in the COVID-19 outbreak is severely damaging the global economy,” warned analyst at Morgan Stanley.”

https://www.reuters.com/article/global-markets/global-markets-stocks-stagger-as-more-nations-self-isolate-against-virus-idUSL4N2BG0TL


The most brutal stretch for global markets since the financial crisis likely isn’t over yet, say investors and analysts who believe it is too early to assess the possible scale of economic damage from the coronavirus. In just a few weeks, U.S. stocks have lost roughly a third of their value…”

https://www.wsj.com/articles/the-worst-of-the-global-selloff-isnt-here-yet-banks-and-investors-warn-11584877018


Central banks have offered trillions of dollars of support to markets in recent days to keep them from freezing up, as investors worried about the economic damage from the coronavirus and made a chaotic dash for the exits.”

https://www.reuters.com/article/us-health-coronavirus-markets-liquidity/central-banks-deploy-record-sums-to-break-financial-logjam-but-may-need-more-idUSKBN21A0EQ


This week has seen an unprecedented 39 interest rate cuts globally, with monetary-policy heavyweights like the Federal Reserve and the Bank of England to more peripheral central banks in Mongolia and Trinidad and Tobago slashing their benchmarks in emergency moves aimed at combating the economic meltdown from the coronavirus pandemic.”

https://finance.yahoo.com/news/week-central-bank-superlatives-sees-092639712.html


a sustained, epochal downturn lies in wait. And a depression would mean an almost exact repeat of the same period one hundred years ago, when a deeply divided society and soaring stock markets during the 1920s gave way to a tortuously slow return to economic health during the 1930s in the wake of the 1929 stock market crash.”

https://www.theguardian.com/business/2020/mar/21/100-years-on-another-great-depression-coronavirus-fiscal-response


“…History offers us another alternative in such situations: a debt jubilee.

“This slate-cleaning, balance-restoring step recognizes the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts.”

https://www.washingtonpost.com/opinions/2020/03/21/debt-jubilee-is-only-way-avoid-depression/


Read the previous ‘Economic’ thread here and visit my Patreon page here.

20th March 2020 Today’s Round-Up of Economic News

A worldwide credit crunch triggered by the coronavirus will set in motion a wave of corporate bankruptcies that will make the global financial crisis look like “child’s play”, investors have warned.

“With the world’s most advanced economies all entering a shutdown that could last months, companies that have gorged on cheap money for the past decade face going out of business thanks to a huge spike in borrowing costs on international money markets.”

https://www.theguardian.com/world/2020/mar/20/coronavirus-crisis-could-lead-to-new-credit-crunch-as-companies-struggle-with-debt


As corporations draw down on revolving credit lines to combat the expected adverse effects on earnings of the coronavirus pandemic, the ability of US and global banks to provide liquidity has come into question.

“The decision to borrow typically undrawn financings has echoes of the 2008 financial crisis when companies drew down on unfunded credit lines, taking the banks by surprise, and putting a significant strain on their deposits.”

https://www.reuters.com/article/ford-motor-loan/banks-face-liquidity-strain-as-corporations-tap-revolving-credits-idUSL1N2BC2NT


David Stockman warns the pandemic is exposing risky speculation and shaky market fundamentals.

““Wall Street is toast,” he told CNBC’s “Trading Nation” on Thursday. “It’s going to end as a financial crisis because the illusion that central banks always have your back and the economy would keep expanding and growing forever and ever … was complete nonsense.””

https://www.cnbc.com/2020/03/19/stockman-coronavirus-sparking-financial-crisis-wall-street-is-toast.html


I don’t think anybody’s really ready for shock that’s coursing through the United States economy right now, thanks to the coronavirus. Last week, 281,000 Americans filed for unemployment, an increase of 33 percent.

“On Thursday morning, the New York Times reported that more than 629,000 had done so this week in just 15 states.

“Now, Goldman Sachs is estimating that more than 2.25 million people will apply for jobless benefits this week.”

https://slate.com/business/2020/03/economy-coronavirus-unemployment-bad-bad-bad.html


…millions of US households don’t have even $400 in savings to draw on in an emergency like this.

“Those households will now have to struggle even more to pay rent or keep the lights on which, in turn, means even fewer customers for a wider array of businesses. The vicious cycle of recession has begun.”

https://edition.cnn.com/2020/03/19/perspectives/cash-payments-economic-disaster/index.html


US consumers’ confidence in the economy is tanking as the coronavirus strangles spending activity and closes business throughout the country

“A drop in consumer comfort threatens to suppress the economy’s biggest driver. Consumer spending accounts for two-thirds of economic activity, and the virus’ hit to demand will likely create revenue shocks across a wide range of sectors.”

https://markets.businessinsider.com/news/stocks/economic-outlook-consumer-confidence-plunges-financial-crisis-coronavirus-recession-fears-2020-3-1029013996


At a special Monetary Policy Committee (MPC) meeting held today, the members voted unanimously to reduce the Bank of England Rate by 15 basis points to 0.1%. This is the lowest ever level in the history of the Bank.

“This comes just over a week after the Bank cut rates from 0.75% in an attempt to support the economy in the wake of the coronavirus crisis.”

https://www.yourmoney.com/saving-banking/bank-of-england-cuts-bank-rate-to-lowest-ever-0-1/


The sums promised by central banks in a succession of announcements over the last two weeks are likely to increase significantly, economists believe.

“They predict that the cash injections needed over the next three months will ultimately dwarf those made a decade ago during the banking crisis.”

https://www.theguardian.com/world/2020/mar/19/europes-economic-rescue-packages-worth-combined-17tn


Italy’s prime minister has demanded the EU use “the full firepower” of its €500bn rescue fund to confront the continent’s economic crisis, as he warned against relying on monetary policy to counter a “global shock that has no precedents”.

“His call for Europe to tap the bailout fund it established for the eurozone debt crisis came as central banks around the world attempted to calm fearful markets with a fresh round of aggressive rate cuts and bond buying.”

https://www.ft.com/content/5b8205ac-6a06-11ea-800d-da70cff6e4d3


Deputy President of the Senate, Senator Ike Ekweremadu, has said the global pandemic, Coronavirus and the dwindling oil price will hit Nigeria most hard

“…because the country operates a mono economy, dependent only on oil.”

https://www.vanguardngr.com/2020/03/oil-slump-nigeria-worst-hit-with-mono-economy-ekweremadu/


What are heavily oil/commodity dependent nations like, for example, Nigeria, Iraq, South Africa, Argentina and Chile supposed to do? They will have both the coronavirus and crashing oil and commodity prices to deal with. Their currencies are already tanking. They can’t initiate helicopter money and bail outs without hyperinflating their currencies and causing their borrowing costs to rise.

“Between plummeting oil prices, political deadlock and reduced global appetite for a bail-out, Iraq is on the cusp of financial calamity that could force austerity measures and renew anti-government protests.”

https://thearabweekly.com/iraq-faces-financial-crisis-after-crude-crash


Copper languished near four-year lows on Thursday as the spread of the coronavirus intensified fears about global economic growth and demand for industrial metals.

“Economic activity in top consumer China and other major economies has been shredded by government measures to contain the virus…”

https://af.reuters.com/article/metalsNews/idAFL4N2BC314


The global spread of coronavirus has sent airlines reeling but the expansive supply chains that make their operations possible are facing an even more acute and uncertain future.”

“I don’t think anyone has processed the shock that’s about to go through,” said the Chief Executive of one such large supplier to the worlds airlines.

https://theaircurrent.com/supply-chain/the-financial-crisis-brewing-in-the-supply-chain-underneath-the-worlds-airlines/


In terms of economic health — which is inextricably intertwined with personal health and life — we face the extraordinarily difficult challenge of balancing a terrifying health crisis with a virtually inevitable financial one.

“In the long-term, that financial crisis may be the greater of the two.”

https://thehill.com/opinion/finance/488383-from-viral-infection-to-financial-armageddon-could-a-recession-kill-more-than


The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread, according to economists polled by Reuters amid a raft of central bank stimulus actions this week.”

https://uk.reuters.com/article/uk-health-coronavirus-global-economy-pol/global-economy-already-in-recession-on-coronavirus-devastation-reuters-poll-idUKKBN21701J


What’s worse: a steep recession or falling prices? Answer: A steep recession AND falling prices. That’s is the underlying reality that is shaking markets to the core right now.

“When conditions become intolerable, as they are today, something’s gotta break. And it will, soon.”

https://seekingalpha.com/article/4332991-recession-deflation-real-panic


Read the previous ‘Economic’ thread here and visit my Patreon page here.

19th March 2020 Today’s Round-Up of Economic News

World leaders raced to shore up panic-stricken global markets on Thursday, pouring liquidity into the financial system as investors everywhere dumped assets, switching to dollars in cash amid the escalating coronavirus pandemic.

“Policymakers in the United States, Europe and Asia resorted to emergency action as the pandemic left their economies virtually comatose, with quarantined consumers, broken supply chains, paralyzed transportation and depleted shops.”

“South Korea warned of a global credit crunch and said it was setting up crisis funds to stabilize its financial markets…

“…nearly every stock market in Asia was in the red, with Seoul, Jakarta and Manila hitting daily loss limits that trigger the suspension of trade. At one point the Philippines bourse was down 24%. In currency markets, everything except the dollar and the euro collapsed.

“J.P. Morgan economists forecast the U.S. economy to shrink 14% in the next quarter, and the Chinese economy to drop more than 40% in the current one, one of the most dire calls yet on the potential scale of the fallout.

““We’re in this phase where investors are just looking to liquidate,” said Prashant Newnaha, senior interest rate strategist at TD Securities in Singapore.”

https://www.reuters.com/article/us-health-coronavirus/world-leaders-rush-in-to-shore-up-panic-hit-global-financial-system-idUSKBN2160ZP


“A couple of weeks ago… we compared the coronavirus’s economic effect to the credit crisis, saying that stopping the flow of people would devastate economies as badly as, if not worse than, stopping the flow of credit. Now that this thesis has proved alarmingly true, it seems also to be causing one of those original credit crises, involving, you know, credit.

Businesses and banks are scrambling for cash, and investors are dumping their winners to cover their losses… the market could… be pricing in deflation.”

https://www.bloomberg.com/opinion/articles/2020-03-18/coronavirus-crisis-starts-to-look-like-a-financial-crisis


A sell-off in the supposedly safe government bond market this week has unnerved investors looking for a haven amid the risk-asset storm. A slump in open positions in bond futures suggests a rush to meet margin calls may be partly responsible.”

https://www.bloomberg.com/news/articles/2020-03-19/enormous-de-leveraging-in-bond-market-smacks-of-margin-call-rush


Deutsche Bank is now forecasting euro-area GDP to plunge at a 24% annual rate in the second quarter and 13% drop in the U.S.

“The declines are unprecedented. The previous record quarterly drop for the U.S. was 10% in the first quarter of 1958.”

https://www.marketwatch.com/story/severe-global-recession-will-take-place-in-the-first-half-of-the-year-deutsche-bank-forecasts-2020-03-18


Treasury bill yields turn negative on fear – “The yield on the one-month Treasury bill maturing in April slipped to minus 0.003 per cent.”

https://www.ft.com/content/317bbb84-694f-11ea-800d-da70cff6e4d3


Interesting that the FDIC should feel the need to reassure people:

“Yes, these are scary times. But that doesn’t mean you should head to the bank, drain your accounts and put your cash under your mattress…

“First and foremost, the FDIC points out that any deposits with a bank will continue to be protected up to at least $250,000. European countries operate similar deposit guarantees, although the maximum insured amounts differ.

“The safest place for your money is inside a bank. Banks will continue to ensure that their customers have access to funds either directly or electronically,” the FDIC said.”

https://edition.cnn.com/2020/03/18/economy/banks-cash-coronavirus/index.html


The Fed is throwing all of its fire power at markets, and yet interest rates continue to rise, a troubling sign when the economy looks set to slow down dramatically.

“Rising rates could increase borrowing costs for all kinds of loans for businesses and individuals .The credit and rates markets also are the direct target of the Fed’s stimulus programs.”

https://www.cnbc.com/2020/03/18/interest-rates-are-rising-a-bad-sign-as-the-economy-slides-toward-recession.html


…the one major central bank that has no arrangement in place to swap dollars with the Fed is the People’s Bank of China. At the heart of the global financial system today, this is the basic faultline

“In handling the pandemic, the rivalry between the US and China has been destructive enough. Let us hope that it does not prove even more damaging in dealing with the financial fallout.”

https://www.prospectmagazine.co.uk/economics-and-finance/coronavirus-economic-crash-recession-banks-trump-us


Bank stocks in Europe plumbed fresh mutli-decade lows despite the release of a hurriedly improvised one-paragraph announcement by the ECB pledging to do just about whatever it could take to keep the banking system in tact….

“The message may have been intended to reassure investors, calm market jitters, and stop the sell-off of sovereign bonds and bank shares but if anything, it had the opposite effect.”

https://wolfstreet.com/2020/03/18/as-european-banks-face-financial-crisis-2-shares-plunge-to-1988-low/


The British pound fell to its lowest level against the dollar in 35 years, a reflection of the U.K. economy’s unique exposure to the disruptions ripping through the global economy because of the coronavirus pandemic.”

https://www.wsj.com/articles/british-pound-falls-to-lowest-level-since-1985-11584537813


The North Sea oil and gas industry is in a “paper-thin” position as global oil markets plummet towards 18-year lows amid the UK’s economic emergency, according to a report.

“An industry trade body said investment in the ageing oil basin, which supports about 250,000 jobs in the UK, was expected to slump by almost a third because of the market collapse.”

https://www.theguardian.com/business/2020/mar/19/north-sea-oil-gas-prices-plunge-market-collapse-uk-economic-crisis


Experts described the historic krone collapse as a “fire sale” as it recorded the biggest single day fall in modern times. The Norwegian krone was already at record low against the US Dollar when the currency market hit the panic button on Wednesday.

““The financial markets are about to melt down. The markets almost don’t work,” says Magne Østnor, currency strategist at DNB Markets.”

https://www.lifeinnorway.net/norwegian-krone-collapses-amid-coronavirus-crisis/


Oil’s plunge has stung currencies across emerging markets, and there’s probably worse to come… Such has been the panic in global markets that even the currencies of net oil importers have tanked.”

https://www.iol.co.za/business-report/economy/this-is-how-the-oil-crash-is-hitting-emerging-market-currencies-45127921


The nightmare in the oil industry keeps getting worse.

“It’s now facing the weakest oil price since the first term of President George W. Bush. Intensifying recession fears drove US oil prices down a staggering 24% Wednesday to $20.37 a barrel. That’s the lowest level since February 2002.”

https://edition.cnn.com/2020/03/18/business/crude-oil-prices-coronavirus/index.html


West Texas Intermediate crude in Midland, Texas, tumbled the most in three decades.

“The grade, pumped in the heart of the Permian Basin, traded as low as $16.24 on Wednesday, the weakest level since 1999. That’s less than the cost of a ribeye at Midland’s local Outback restaurant.”

https://www.cbs7.com/content/news/BLOOMBERG-Permian-oil-is-selling-for-less-than-a-discount-steak-in-Midland-568911401.html


Checks from the government might help people buy food and pay rent, but they won’t fill concert halls, restaurants or photo booths—especially when shelter-in-place restrictions are still in place.

““If people get $1,000 but can’t leave their house,” Williams, of PianoFight, says, “what good is that?””

https://time.com/5805526/coronavirus-economy-layoffs/


“The 2007-08 global financial crisis — let’s call it GFC1 — was a supply shock to the liquidity mechanism, which caused a subsequent demand shock in the real economy. But this crisis, GFC2, is a supply shock to the real economy that has triggered a massive precautionary demand shock for more liquidity…

“…policymakers’ knee-jerk reaction to cut rates ever lower only makes the situation worse by encouraging the demand for debt, while simultaneously destroying the supply of liquidity by stripping banks’ margins and reducing the incentive to lend, thanks to growing counterparty risks.

Too much debt is the shadow that loomed large over the previous crisis. And this one too.”

https://www.ft.com/content/bd8686f8-6919-11ea-a3c9-1fe6fedcca75


Read the previous ‘Economic’ thread here and visit my Patreon page here.

18th March 2020 Today’s Round-Up of Economic News

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.”

https://www.cnbc.com/2020/03/17/credit-markets-signal-the-us-could-be-heading-towards-financial-crisis.html


…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.”

https://www.cnbc.com/2020/03/17/even-with-1-trillion-stimulus-hit-to-economy-and-employment-will-be-big.html


“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.

https://www.nytimes.com/2020/03/16/opinion/coronavirus-economy-debt.html


“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.”

https://www.ft.com/content/cefa96d6-686a-11ea-800d-da70cff6e4d3


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.”

https://www.centralbanking.com/central-banks/financial-stability/7506796/central-banks-grapple-with-dollar-funding-crunch


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.”

https://www.nytimes.com/reuters/2020/03/17/business/17reuters-health-coronavirus-boe-funds.html


Morale among German investors has fallen through the floor amid the coronavirus outbreak, a survey showed today, as a global recession becomes increasingly likely.”

https://www.cityam.com/german-investor-morale-collapses-on-coronavirus-epidemic/


The echoes of the eurozone debt crisis are perhaps even more worrying: Greek, Portuguese and Spanish bonds have weakened out of sympathy with Italy.”

https://www.ft.com/content/3e372b66-684a-11ea-800d-da70cff6e4d3


“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.””

https://www.nytimes.com/2020/03/17/business/italy-banks-coronavirus.html


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.”

https://www.bloomberg.com/news/articles/2020-03-18/european-car-sales-are-off-to-the-worst-annual-start-since-2013


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…”

https://www.japantimes.co.jp/news/2020/03/18/business/economy-business/japans-exports-fall-imports-china-slump-coronavirus-impact-widens/#.XnHiUKj7TIU


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.”

https://economictimes.indiatimes.com/markets/stocks/news/goldman-cuts-q1-gdp-estimate-for-china-sees-9-contraction/articleshow/74671306.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst


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…”

https://finance.yahoo.com/news/oil-extends-slump-virus-spread-221919655.html


“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.””

https://business.financialpost.com/pmn/business-pmn/rotors-spinning-for-helicopter-money-mike-dolan


“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.”

https://www.japantimes.co.jp/news/2020/03/18/business/economy-business/global-powers-trillions-dollars-coronavirus/#.XnHhqaj7TIU


Read the previous ‘Economic’ thread here and visit my Patreon page here.

17th March 2020 Today’s Round-Up of Economic News

“The COVID-19 virus is pushing an economy that was already approaching a cliff. Will it go over the edge?

Probably. And the Federal Reserve lifeline is wearing thin… As the old saying goes, you can’t get blood from a turnip. What happens when millions of debtors suddenly can’t make their loan payments?

“That’s not a crazy idea. It’s entirely possible if the US has as much trouble controlling the coronavirus as China did, putting people out of work for weeks.

“Keep in mind, about 40% of US adults can’t handle a $400 unexpected expense. If you are, say, a restaurant worker or flight attendant who gets laid off because people are staying home and not travelling, you’ll lose that much income pretty fast. Many of those affected will fall behind on their debts.

“Banks assume a certain number of loans will default. They have reserves for that purpose. But because the banks themselves are also in debt, too many defaults in a short time can burn through the reserves. Then what?

“In China, the government is allowing (or perhaps ordering) banks to ignore the problem, and stop recognizing bad loans.

“Could that happen here? Maybe. I can imagine regulators giving banks more “flexibility” to manage their loan portfolios. The Federal Reserve can also loan money to banks that need it.

“But such measures won’t change reality. The debt will still be there. Someone will eat the losses. Who?

“The rest of us may be headed toward something like the 2008 financial crisis, with a highly leveraged bank industry holding mass numbers of nonperforming consumer and business loans. But this time…

  • The Fed can’t cut rates much unless it wants to go negative.

  • Any fiscal stimulus will add to an already-gargantuan federal deficit.

  • Everyone may be dealing with a giant healthcare crisis, on top of a recession.

  • People of all political persuasions dislike bank bailouts and won’t want to do it again.

“And all this will unfold in an already-contentious election year.

“I don’t know where this is going. Maybe the Fed will pull a rabbit from its hat. Maybe the virus fears are overblown and this will all pass quickly.

“But if it doesn’t, we are going to have a problem.”

https://www.forbes.com/sites/patrickwwatson/2020/03/16/how-covid-19-leads-to-2008-style-bank-crisis/#68a144455b77


“Financial markets imploded again on Monday, as increasingly alarmed investors feared that the global economy could experience a downturn rivaling the cataclysmic recession after the financial crisis a decade ago.

“Even President Trump’s boundless enthusiasm for the American economy has wilted in the face of what promises to be a widespread economic slowdown…”

https://www.nytimes.com/2020/03/16/business/stock-market-coronavirus-federal-reserve.html


“Volatility in US government bonds has reached its highest level since the 2008 financial crisis as coronavirus ricochets through markets.”

https://www.ft.com/content/a8cb729e-6772-11ea-a3c9-1fe6fedcca75


“A measure of fear in stocks just topped the levels during the financial crisis more than a decade ago.

“The Cboe Volatility Index, known as the VIX, surged nearly 25 points, or almost 43%, to close at a record high of 82.69, surpassing the peak level of 80.74 on Nov. 21 2008.”

https://www.cnbc.com/2020/03/16/wall-streets-fear-gauge-hits-highest-level-ever.html


Worth noting that the repo markets were malfunctioning before the pandemic:

“A day after a dramatic move in interest rates, the Federal Reserve on Monday increased the amount of liquidity it’s offering in short-term lending to the financial industry. In a mid-day announcement, the New York Fed said it will conduct a $500 billion repo operation this afternoon, another move targeted at keeping money flowing through the system.”

https://www.cnbc.com/2020/03/16/fed-says-it-will-offer-an-additional-500-billion-in-overnight-repo-funding-markets.html


“Investors don’t think the Fed’s moves are enough. What’s missing is massive fiscal stimulus, which has yet to take place. And there are real obstacles to that — trillion-dollar deficits and intense partisanship that has prevented what used to be slam-dunk bipartisan reforms.

“Fiscal irresponsibility, toxic politics and a Fed that was too afraid to offend stock investors have combined with the coronavirus, a black swan if there ever was one, to create the current crisis whose resolution right now looks murky.”

https://www.marketwatch.com/story/a-feckless-fed-huge-deficits-and-poisonous-politics-bring-us-to-a-crisis-2020-03-16


“The coronavirus shockwaves rippling through U.S. stocks are forcing investors to contemplate outcomes more dire than a recession, including several quarters of declining economic activity, a credit crisis or even a depression.”

https://www.reuters.com/article/us-health-coronavirus-stocks-economy-usa/d-word-rears-head-as-coronavirus-hit-markets-brace-for-recession-idUSKBN2140IC


As Italy and much of the region probably now faces a technical recession, all eyes are on whether the fiscal and monetary measures being introduced will prevent a health emergency from becoming an economic emergency, with companies and households unable to pay their debts.”

https://www.theguardian.com/commentisfree/2020/mar/17/italy-europe-covid-economy-ecb-coronavirus


Higher-risk European bank debt tumbled in price on Monday, as investors scrambled to offload bonds that are first to be hit if financial institutions run into serious trouble.”

https://www.ft.com/content/29988546-67a6-11ea-800d-da70cff6e4d3


Bank of Japan propping up Japanese stock markets:

“Japanese shares staged a mild recovery on Tuesday, sidestepping a historic rout on Wall Street overnight, with suspected buying by the Bank of Japan and public pension funds lending broad support.”

https://economictimes.indiatimes.com/markets/stocks/news/japan-stocks-edge-higher-suspected-boj-and-pension-buying-buoys-topix/articleshow/74670000.cms


“…with the virus now affecting economic activity in Europe and the US as well, China is likely to see further impacts to its economy from slowing demand elsewhere.”

https://qz.com/1818960/china-economy-set-to-see-first-contraction-since-1989/


Leaders of the G7 industrial powerhouses pledged Monday to join forces to halt economic freefall in the wake of the coronavirus pandemic, which they called “a human tragedy.”

“As the outbreak caused more countries to shut down and brought the global economy to a screeching halt, the leaders stressed the need to join forces and move quickly to address the damage.”

https://news.abs-cbn.com/business/03/17/20/whatever-it-takes-g7-pledge-to-safeguard-world-economy


Major countries should deliver greater fiscal stimulus than during the 2008 global financial crisis to prevent a global slowdown resulting from the coronavirus crisis, the International Monetary Fund said Monday.”

https://www.nippon.com/en/news/yjj2020031601135/imf-wants-fiscal-stimulus-above-global-financial-crisis-level.html


As fears grow that the coronavirus pandemic will cause a global recession, a radical proposal is gaining traction. If central banks – or governments backed by central banks – gave money directly to households, could that help to prevent a crisis turning into a depression?

https://www.opendemocracy.net/en/oureconomy/helicopter-money-answer-looming-economic-crisis/


Right now, it looks like we will get lots of money flung at the problem. And the problem is going to get worse before it gets better.

“At some point, the virus will ease (if it doesn’t, then I guess you won’t be getting many more emails from me, because I’ll be out wrestling in the aisles for the last toilet roll in Sainsbury’s, so we’ll park that question for now).

“Will we see inflation? Possibly. Will we see a lot more inefficient capital allocation? I’m guessing so. Will we need to start looking at a refresh of the system? I suspect we might.”

https://moneyweek.com/economy/global-economy/600991/helicopter-money-is-coming-very-soon-but-what-form-will-it-take


Economists at the Institute of International Finance write, “Corporate debt is already very high relative to earnings — and earnings prospects are deteriorating: At nearly $75 trillion, the fast-growing mountain of global corporate debt (ex-financials) is around 93% of global GDP.

“That’s significantly higher than the level of corporate debt in the run-up to the 2008 global financial crisis (75% of GDP).”

https://www.axios.com/debt-recession-financial-crisis-coronavirus-10930783-08da-4fb9-a9d1-0d9fc9a3dc71.html


Read the previous ‘Economic’ thread here and visit my Patreon page here.

16th March 2020 Today’s Round-Up of Economic News

The world economy has fallen into recession, suffering from a “wicked cocktail” of coronavirus and the dramatic action to limit its spread, according to four former IMF chief economists.

“As the virus has spread from China to the rest of the world, economists no longer feel they have to wait for data to confirm the world is in recession, even though official forecasts remain more optimistic… “The IMF defines a global recession as being when growth — normally about 3.5 to 4 per cent a year — falls below 2.5 per cent. Not all of the IMF alumni believe this definition is sensible in the circumstances but all said the conditions for a global recession were met regardless of the precise definition…

To help offset the slowdown Profs Obstfeld and Rajan called for cash help to vulnerable households while Prof Blanchard said it was necessary to “prepare fiscal measures, including transfers and backstops to banks”. He concluded: “Do whatever it takes.”

“…Danny Blanchflower, a Dartmouth College professor, said: “The worst is yet to come . . . I assume consumer confidence is going to collapse.”

https://www.ft.com/content/be732afe-6526-11ea-a6cd-df28cc3c6a68


The United States is suffering the most abrupt and widespread cessation of economic activity in its history… 

“…hurtling toward a recession that could mean lost jobs, income and wealth for millions of Americans.”

https://www.washingtonpost.com/business/2020/03/14/recession-economy-coronavirus-jobs/


The Federal Reserve, saying “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” cut interest rates to essentially zero on Sunday and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.”

https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html


Didn’t work – central banks really pushing on a string now:

Investors were unassuaged by news that the Federal Reserve is cutting interest rates to near zero. US stock futures dropped 5% Sunday evening, hitting the “limit down,” meaning they can’t fall any further.”

https://edition.cnn.com/2020/03/15/investing/stock-futures-global/index.html


Bankers, companies and individual investors are dashing to stock up on cash and other assets considered safe in a downturn to ride out the chaos. This sudden flight to safety is causing havoc in markets for bonds, currency and loans to a degree that hasn’t been seen since the financial crisis of a dozen years ago.

“The key concern now, as in 2008, is liquidity…”

https://www.reuters.com/article/us-health-coronavirus-markets-crisis-ana/the-plumbing-behind-worlds-financial-markets-is-creaking-loudly-idUSKBN2120NJ


“With France, Spain and Italy in lockdown, a sharp eurozone recession looks inevitable – despite shock emergency action by the US central bank on Sunday night. And while falling share prices captured the headlines last week, analysts believe a corporate debt crisis is building as global growth goes into reverse.

Fears of a cashflow crunch are also rising as self-isolating consumers shun shops and restaurants, and travel links are curbed.”

https://www.theguardian.com/business/2020/mar/15/markets-face-more-turmoil-as-fears-for-global-economy-grow-coronavirus


Companies have spent the years since the global financial crisis binging on debt. Now, as the coronavirus pandemic threatens to push the world into recession, the bill could come due — exacerbating damage to the economy and feeding a meltdown in financial markets.”

https://edition.cnn.com/2020/03/14/investing/corporate-debt-coronavirus/index.html


The [UK] economy could “easily” contract in the coming weeks by as much as it did in more than a year during the financial crisis, a senior forecaster has warned…

“…one in five Britons will be unable to work in the coming weeks and policy countermeasures such as last week’s interest rate cut, mean 2020 will be a “write-off” for the economy.”

https://www.telegraph.co.uk/business/2020/03/14/biggest-gdp-drop-since-financial-crisis-predicted-uk-economy/


Singapore’s prime minister warned on Saturday that the negative economic effects of the coronavirus outbreak will likely be deeper and more prolonged than the 2008 financial crisis.”

https://www.reuters.com/article/us-health-coronavirus-singapore-economy/singapore-pm-virus-hit-to-economy-likely-worse-than-2008-crisis-idUSKBN2110KQ


China has suffered even deeper economic damage from the coronavirus pandemic than predicted

““Judging by the data, the shock to China’s economic activity from the coronavirus epidemic is greater than the global financial crisis,” Zhang Yi, chief economist at Zhonghai Shengrong Capital Management told Reuters.”

https://www.theguardian.com/world/2020/mar/16/coronavirus-deals-chinas-economy-a-bigger-blow-than-gfc


Due to the coronavirus pandemic, most airlines in the world will be bankrupt by the end of May and only a coordinated government and industry action right now can avoid the catastrophe, said global aviation consultancy firm CAPA in a note on Monday.”

https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/most-airlines-may-go-bankrupt-by-may-without-govt-action-on-coronavirus/articleshow/74647567.cms


Global oil consumption is in free-fall, heading for the biggest annual contraction in history, as more countries introduce unprecedented measures to fight the coronavirus outbreak.”

https://www.livemint.com/news/world/global-oil-use-heads-for-record-annual-drop-as-virus-spreads-11584318485306.html


“…oil companies, airlines, and the hospitality and healthcare sectors have been urgently drawing down credit lines… The last time there was this level of mayhem in the markets, banks such as Northern Rock and Bear Stearns were teetering on the brink of collapse…

“The IMF warned last autumn that, given fragile earnings and high levels of indebtedness, 40 per cent of the world’s corporate bonds — or $19tn in aggregate — would not be serviceable even in a meltdown that was only half as severe as 2008. Financial crisis is starting to look like a real possibility.”

https://www.ft.com/content/be0892cc-6583-11ea-b3f3-fe4680ea68b5


Read the previous ‘Economic’ thread here and visit my Patreon page here.