Category: Economy

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Economy

US joblessness set to spike as Covid-19 takes toll on businesses

WASHINGTON (AFP) – With streets in major cities barren, and shops and restaurants forced to close due to the coronavirus pandemic, economists warn of a record explosion of Americans filing for unemployment benefits.

The Labor Department on Thursday (March 26) will release its weekly data on first-time applications for jobless benefits covering the week ending March 21 – the first to show the epidemic’s impact on the US economy.

“Whatever the number, it will be horrific,” said Ian Shepherdson of Pantheon Macroeconomics.

The data have been mundane for the past two years amid a very strong US labor market, but the situation has changed for this lowly report on the frontlines of the virus fallout.

Last week’s report showed jobless claims surged to their highest level since September 2017, especially with a jump in applications from hotel and restaurant workers.

But that was just the tip of the iceberg.

“The consensus for today’s first post-apocalypse jobless claims number (1.5 million), looks much too low,” Shepherdson said, adding that he is expecting a staggering 3.5 million.

White House economic adviser Larry Kudlow acknowledged the report would show a jump, but said the market is expecting it.

“It’s going to be a very large increase,” he said on Fox Business Network.

But economists cautioned that forecasting data in unprecedented times is dicey at best.

The models “are based on prior experience and we have no prior experience of an economy that has largely been shut down,” said Rubeela Farooqi of High Frequency Economics.

“These are extraordinary times that will result in extraordinary outcomes.”

Reports from states and even data on Google searches show that unemployment offices have been overwhelmed in recent days and may have to estimate their totals.

Shepherdson noted that New York alone reported receiving 1.7 million calls last week, “though it’s not clear if all of these calls led to a formal claim.”

Economists are projecting the pandemic’s shutdown could lead to a staggering 14 per cent contraction of the US economy, and the Conference Board on Wednesday said unemployment could rise to as high as 15 per cent later in the year – far beyond the 10 per cent peak hit in October 2009 during the global financial crisis.

Congress is pushing through a massive $2 trillion rescue package to dampen the blow to the economy, which includes a huge expansion in unemployment insurance, boosting the weekly payment by US$600 and extending the benefits to workers who would not normally qualify.

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Economy

South Korea central bank to infuse cash via 'unlimited' repos for first time

SEOUL (REUTERS) – South Korea’s central bank said on Thursday (March 26) it will temporarily offer an unlimited amount of money for three months through repo operations, an unprecedented move to funnel cash to money markets hammered by the coronavirus pandemic.

Repo auctions will be held every week, where a wider range of financial institutions will be able to borrow funds at the repo rate of no higher than 0.85 per cent, the BOK said in a statement.

The BOK also said it would accept a wider range of collateral including notes issued by state-run companies in the repo auctions – where central banks lend money to commercial banks and brokerages who can deposit government debt as collateral.

Thursday’s news follows similar policy moves by central banks around the world as policymakers race to bolster stimulus to tackle the economic and financial impact of the coronavirus.

On Monday, the US Federal Reserve pledged to back purchases of corporate bonds and buy unlimited amounts of Treasury bonds for the first time to ensure credit flows to corporations and local governments.

The BOK too is entering unchartered territory by pledging to offer an ‘unlimited demand’ for liquidity from domestic markets, after slashing interest rates by 50 basis points to 0.75 per cent on March 16 in its largest policy easing since the global financial crisis.

It is also working in tandem with the government, after President Moon Jae-in on Tuesday doubled a planned economic rescue package to 100 trillion won (S$118 billion) to save companies hit by the coronavirus and put a floor under crashing stocks and bond markets.

“Through this (repo operations), we will be supplying enough money to the government’s 100 trillion won rescue package programmes,” the BOK said.

The cost of raising US dollars by swapping the South Korean won surged to the highest since the global financial crisis earlier this month while the spread between corporate bonds and treasury debt has been widening, in a sign of tightening money market conditions.

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Fed spigots help restore U.S. Treasury liquidity

NEW YORK/BOSTON, March 25 (Reuters) – The $17 trillion U.S. Treasury market perked up on Wednesday, after chaos over the last few weeks, as a decline in the so-called bid-ask spread on prices for notes and bonds pointed to increased liquidity and trading activity.

The market though remains a long way off from normalcy.

Liquidity in Treasuries diminished in recent weeks, resulting in spikes in volatility as the fallout from the coronavirus pandemic escalated.

The bid-ask spread on benchmark U.S. 10-year Treasury notes had widened as much as 200 basis points on March 20, but narrowed to within a range of six basis points or less on Wednesday, according to Refinitiv data. That is near the typical levels of three basis points or less seen before the coronavirus crisis, reflecting more market participants and making it easier for dealers to hedge risk.

Analysts and traders attributed improved market conditions to the Federal Reserve’s aggressive interventions, which include buying corporate bonds, mortgage-backed securities, and Treasuries.

A roughly $2 trillion U.S. stimulus package that was agreed between Republicans and Democrats to help consumers and companies affected by the coronavirus pandemic, also added to more positive market sentiment.

“It is nice to have a period of calm amidst the chaos we endured at the beginning of the contagion, but we will still be subject to swings in the market as the nation’s ability to stem COVID-19 (coronavirus) is put to the test and news on state of the health of the American public continues to filter through,” said Susan Estes, chief executive officer of OpenDoor Securities, a trading platform for off-the-run U.S. Treasuries and TIPS (Treasury Inflation-Protected Securities).

Off-the-runs are older Treasuries, which represent almost 99% of the total outstanding debt, but make up only about 25% of daily trading volume.

OpenDoor produces liquidity scores for all 350-plus Treasury securities, measuring the bid-offer spread on each individual issue based on a number of factors.

Estes said she had seen an improvement in the liquidity scores on Wednesday over all previous days since the crisis began.

The Fed has been buying $75 billion per day in Treasuries and by the end of the week it will have purchased nearly $700 billion since it launched its Treasury purchase program in mid-March.

Fed purchases have already been more than twice as large as the $270 billion in U.S. Treasuries held by primary dealers, Barclays said in a research note.

Priya Misra, head of global rates strategy at TD Securities in New York, said the better liquidity reflects Fed efforts that reduce the need for investors to sell everything they can.

“We are not at fully normal levels yet – think it will take some more time for risk assets to stabilize and dealer balance sheets to be less constrained,” she added. (Reporting by Gertrude Chavez-Dreyfuss in New York and Ross Kerber in Boston; Editing by Tom Brown)

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Economy

'Survival mode' – oil patch workers let it all hang out in post-crash Dallas Fed survey

March 25 (Reuters) – Texas oilworkers are not known for being genteel, and the market’s crash this month brought out some colorful takes as the drama unfolded, visible in the Dallas Federal Reserve Bank’s survey of economic activity in the oil patch.

The bank’s quarterly survey of economic activity released on Tuesday illustrates how swiftly things turned. The numbers are bad. The comments are dire.

“We will likely shut down drilling next month, pay an early termination penalty to our rig contractor, and liquidate excess hedges to pay down debt. We are in survival mode now,” wrote one of the survey respondents, who was from an exploration and production firm.

The Dallas Fed’s survey fell from minus-4.2 in the fourth quarter (not great, not awful), to minus-50.9 in the first quarter (worst ever). The survey apparently arrived as the price war between Saudi Arabia and Russia erupted and the coronavirus pandemic worsened, so it caught producers and service companies at a notable moment of panic.

“The administration talks about their great relationship with Russia and Saudi Arabia. Why won’t they place one of their ‘perfect’ phone calls to help negotiate the end of this oil war?” one respondent wrote.

That comment was one of many referencing a need for government intervention, a view that has made the rounds among even larger producers in recent days – and a departure from the oil industry’s traditionally jaundiced view on the role of government.

But tough times make for strange bedfellows. It was only last week when a Texas oil regulator floated the notion of making a deal with OPEC, which had generally been anathema to oil producers.

The United States produces nearly 13 million barrels of oil per day, about half from the Dallas Fed’s coverage region, which includes all of Texas, northern Louisiana and southern New Mexico. Estimates for the crash in demand have gone from bad to worse, with some firms now saying consumption will fall as much as 20% in the next quarter.

“I am shutting in everything I can and cutting general and administrative expenses to minimal levels to try and ride out the storm. Those who are in debt will not survive,” another respondent said.

The twin shocks of supply and demand come at a time when the shale industry was already struggling to make good on returns desired by investors and is now facing a months-long economic calamity.

Some, at least, were more droll in their view of the decline.

“What is the difference between a Texas oilman and a pigeon? The pigeon can put down a deposit on a new Mercedes. For those of us in the distressed-asset side of the oil patch, things are looking up,” they wrote. (Reporting by David Gaffen in New York Editing by Matthew Lewis)

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UPDATE 2-Brazil's Treasury to issue more short-term bills as risk aversion rises

(Recasts, adds Treasury official quotes)

By Marcela Ayres and Jamie McGeever

BRASILIA, March 25 (Reuters) – Brazil will issue more short-term bills to meet demand from increasingly risk-averse investors, and has put any plans to issue a 20-year bond this year on the back burner due to global market volatility, a senior Treasury official said on Wednesday.

The Treasury may also redraw its 2020 Annual Financing Plan due to the market and economic crisis sparked by the coronavirus outbreak, although this does not necessarily mean it will issue more debt this year.

Speaking to reporters in Brasilia after publication of February’s update of the country’s debt securities market, Luis Felipe Vital, public debt manager at the Treasury, also said the Treasury’s auction process could be changed to a single price from a multiple price system.

“In order to meet the market’s preferences for shorter-dated paper, the Treasury will start to operate from tomorrow (Thursday) with two LFT maturities. One for September 22 (this year) and the other for March 26 (next year),” Vital said.

LFT notes are floating rate bills. Amid the surge in volatility in recent weeks that has pushed rates at the long end of the interest rates futures curve close to 10%, Vital said investors are now clamoring for shorter maturities.

In a summary accompanying February’s update of the country’s debt securities market, the Treasury said “extreme” market volatility this month has hampered price discovery and normal trading activity.

The Treasury said it will continue intervening in the bond market to counter high volatility and ensure the market operates smoothly. It could also alter the date of scheduled debt auctions and announce unscheduled auctions.

“The Treasury will continue carrying out its government bonds repurchase program, acting whenever it sees dysfunctional markets, with the aim of mitigating adverse effects on this and related markets,” it said in its latest monthly report on the debt market.

“During periods of high financial market volatility, the Treasury may hold extraordinary repurchase auctions of government securities to support the smooth functioning of the market,” it added.

The Treasury canceled bond auctions this month due to adverse market conditions and announced it would intervene in the market to provide liquidity and reduce volatility in conjunction with the central bank.

Brazil’s federal public debt rose to 4.281 trillion reais ($856 billion) and the stock of domestic public debt securities rose to 4.057 trillion reais, the Treasury said on Wednesday. (Reporting by Jamie McGeever and Marcela Ayres; Editing by Sandra Maler, Alistair Bell and Diane Craft)

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UK changed its approach after ventilator demand estimate doubled, doctor says

LONDON, March 25 (Reuters) – Britain toughened its approach to the coronavirus outbreak after estimates of the number of people who would need invasive mechanical ventilation in intensive care doubled, a top epidemiologist who advised the government said on Wednesday.

“The revision was basically that the proportion of patients requiring invasive ventilation, mechanical ventilation, which is only done on a critical care unit, roughly doubled,” Neil Ferguson, a professor of mathematical biology at Imperial College London, told a British parliamentary committee.

Intensive care estimates were initially too optimistic so were revised, Ferguson said, after a variety of research including an analysis of the outbreak in Italy.

Ferguson led a study that helped convince the British government to impose more stringent measures to contain COVID-19, painting a worst case picture of hundreds of thousands of deaths and a health service overwhelmed with severely sick patients.

“Since we did that initial analysis, the NHS have refined their ICU surge capacity estimates, those have more than doubled,” he said. “This current strategy being adopted now, we think in some areas of the country ICUs will get very close to capacity but it won’t be breached at the national level.” (Reporting by Guy Faulconbridge; editing by Kate Holton)

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Bank of Japan sees deeper economic pain, even after emergency easing

TOKYO (REUTERS) – The coronavirus pandemic could plunge Japan into deep economic stagnation, the country’s central bankers warned at last week’s emergency monetary policy meeting with one seeing room for more stimulus, a summary of their discussion showed on Wednesday (March 25).

The Bank of Japan expanded monetary stimulus in an unscheduled policy meeting on March 16 to ease corporate funding strains and calm financial markets jolted by the health crisis.

A summary of opinions expressed at last week’s rate review showed the deep concern shared among the nine-member board over the huge blow the coronavirus outbreak could inflict on an economy, already reeling from last year’s sales tax hike.

“Japan’s economy may continue to stagnate even after overseas economies recover, as the impact of the virus could be enormous,” one board member was quoted as saying.

“I’m doubtful of the view Japan’s economy will stage a strong rebound once the virus is contained,” another opinion in the summary showed.

One board member said the BOJ can continue to respond flexibly to risks, through measures such as another emergency policy meeting or ramping up government bond purchases, as recession fears heighten, the summary showed.

The summary, typically released about a week after the BOJ’s policy meeting, does not disclose the identity of the board member who made the comments.

The pandemic has become a global economic crisis with travel restrictions, event cancellations and supply chain disruptions raising the chance Japan will slip into recession, keeping policymakers under pressure to deploy huge fiscal and monetary stimulus.

Confirmed coronavirus cases around the world exceeded 377,000 across 194 countries and territories as of early Tuesday, according to a Reuters tally, more than 16,500 of them fatal.

With the March monetary easing intended as a stop-gap move to address immediate strains in markets, the BOJ will focus more on how to address the economic fallout from the virus when it next meets for a rate review on April 27-28.

A senior ruling party lawmaker on Wednesday called on the government to compile a record stimulus that would be bigger than the 57-trillion-yen (S$745 billion) package deployed during the global financial crisis.

The BOJ also stands ready to expand stimulus again in April if the pandemic leads to cuts in jobs and capital expenditure big enough to derail prospects of an economic recovery, sources have told Reuters.

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US retailers plan to stop paying rent to offset coronavirus hit

NEW YORK (BLOOMBERG) – Major US retail and restaurant chains, including Mattress Firm and Subway, are telling landlords they will withhold or slash rent in the coming months after closing stores to slow the coronavirus, according to people familiar with the situation.

In a brewing fight, chains are calling for rent reductions through lease amendments and other measures starting in April, said the people, who asked not to be named because the discussions are private.

These moves mark the next phase in virus fallout: What happens to billions in rent owed for businesses that have been closed? The stakes are high. Retail has a slew of big chains in turnaround mode. And if they do withhold payments, there would be a ripple effect. Landlords can’t afford to stop collecting rent for long, with many property owners sitting on loads of debt.

The situation is likely to get messier. The US relief packages being considered don’t directly address rents. But the Federal Reserve’s actions may give banks the leeway to defer mortgage payments, allowing property owners to delay rent. It’s also unclear if retailers can declare a so-called “force majeure,” a contract clause that covers highly unusual events, and if landlords could then make the same case to insurers.

“The court system is just going to get flooded with a million of these disputes between tenants and landlords,” said Vince Tibone, an analyst at Green Street Advisors. “If the government doesn’t step in in any form or fashion, it could get ugly. They need to respond quickly.”

‘MORE DRASTIC’

Mattress Firm, with about 2,400 stores, sent landlords a letter last week saying it would cut rent in exchange for longer leases and offering two options to do so. This week, it sent a more urgent note revoking its earlier offer.

“The decline in revenue and forced store closures across the nation are more drastic, compressed and immediate than we originally anticipated,” the company wrote in a letter reviewed by Bloomberg. “Our need is now more severe,” the firm said, invoking the virus as a force majeure event that “will prevent or prohibit us” from paying rent.

After being contacted by Bloomberg, Mattress Firm confirmed that it has requested a temporary suspension of rent.

“We appreciate our landlord partners, and the responses have been encouraging so far,” Randy Carlin, chief real estate officer for Mattress Firm, said in a statement. “We will continue to do everything we can to maintain business continuity and to ensure there are jobs available for our people to return to when this crisis ends.”

Hennes & Mauritz AB said it’s also reaching out to landlords in areas hit by the virus.

“Negotiations of rents is an ongoing part of our business, but due to the current effect on the economy, we have and will approach our landlords in the affected markets,” a spokesperson said. The Swedish retailer has shuttered about two-thirds of its more than 5,000 stores around the world and on Tuesday warned it may need to lay off a significant portion of its staff because of the virus.

Subway Restaurants, which has more than 20,000 US locations, sent out a letter to landlords last week saying that it might cut or postpone rental payments due to the virus, according a person with knowledge of the situation. The Real Deal, a real estate trade publication, reported on the communication earlier.

SOME HELP

In a statement, Subway said it was looking at ways to help franchises mitigate the virus fallout.

Some landlords have recognized they need to help smaller tenants. Irvine Company Retail Properties, based in Irvine, California, is allowing rent to be deferred for 90 days and then paid back with no interest over a year starting in January, according to a document reviewed by Bloomberg. The firm confirmed the practice without further comment.

Bedrock, a Detroit developer, said it will waive rent and other fees for three months for its smaller retail and restaurant tenants.

Retail real estate investment trusts may need to provide leeway on rent, Bank of America said this week after downgrading several Reits. The bank sees store closings lasting through May and the possibility of some locations going away as more fragile retailers are forced into bankruptcy.

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Dutch finance minister: EU should spend more on coronavirus

AMSTERDAM, March 24 (Reuters) – In a break with traditional Dutch scepticism about spending by the European Union, Finance Minister Wopke Hoekstra said on Tuesday the EU should spend more to counter the economic fallout from the coronavirus outbreak.

“My plea is, go on and free up money in the here and now, the current budget, for territories that are especially stricken by corona(virus),” he told RTL in a televised interview. “I’m thinking in particular on the financial-economic side, but also in the new multi-year budget, please think about this kind of crisis scenario.”

Eurozone finance ministers are due to meet by video conference on Tuesday to discuss the possibility that governments could apply for a credit line from the EU’s bailout fund. (Reporting by Toby Sterling Editing by Gareth Jones)

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UPDATE 1-Trump, Pence held call with investors on economy – admin. official

(Adds detail from source)

WASHINGTON, March 24 (Reuters) – U.S. President Donald Trump and Vice President Mike Pence held a conference call on Tuesday with Wall Street investors to discuss the U.S. economy, the Federal Reserve and other issues, an administration official said.

The list of senior executives included, but was not limited to, Dan Loeb of Third Point, Stephen Schwarzman of Blackstone Group, Robert Smith of Vista Equity, Jeff Sprecher of ICE/NYSE, Paul Tudor Jones of JUST Capital and Citadel Chief Executive Ken Griffin.

Pence led the call, according to a source familiar with the matter, adding that Vista’s Smith told Trump and Pence that small businesses did not have enough liquidity to survive the crisis without help, and that they needed more government support.

Trump and Pence have met with a wide range of business executives in recent weeks as the administration looks for ways to slow the spread of the coronavirus and halt the rapid economic downturn. (Reporting by Steve Holland and Greg Roumeliotis; Editing by Sandra Maler and Richard Chang)

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