The Real World is Here

The coronavirus has sent shockwaves rippling through U.S. stocks, forcing investors to contemplate outcomes more worrying than those of a recession, including several quarters of declining economic activity, a credit crisis or even a depression.

The rising global toll from the pandemic and uncertainty over how far it may spread has left investors and economists scrambling to gauge the financial fallout.

Forecasters at Goldman Sachs and other banks are now projecting a steep economic contraction in at least the second quarter, as governments in the United States and Europe start shutting restaurants, closing schools and calling on citizens to stay home.

“This market looks like it has already priced in most of a garden variety recession,” said Frances Donald, global chief economist at Manulife Investment Management. “It is now, on top of that, having to price in some probability of a credit crisis.”

But there is hope among some economists that the economy will start expanding again later this year – depending in part on efforts to contain the virus, known as COVID-19.

The S&P 500 on average has fallen 28% from peak to trough during recessions, according to an analysis of the past 70 years by Keith Lerner, chief market strategist at Truist/SunTrust Advisory Services. As of Monday’s close, the benchmark index had declined 29.5% from its Feb. 19 closing record high.

But the market’s plunge was much deeper over a decade ago during the financial crisis, with the S&P 500 tumbling more than 50%.

“A 2008-like financial contagion is not yet priced into this market,” Donald said, adding, however, that the market “probably won’t have any reassurance that we have avoided that 2008-type scenario completely until we see a calming of credit spreads and the pace of COVID-19 cases starts to decline.”

Stocks crumbled anew on Monday a day after the Federal Reserve took emergency action designed to cushion the economy, using tools similar to those the central bank deployed to help the country emerge from the 2007-2009 financial crisis.

Some $2.7 trillion in market value was wiped from the S&P 500 on Monday as it suffered its third-largest daily percentage decline on record. Over the past 18 days, the benchmark index has lost $8.3 trillion. World stocks have hemorrhaged over $15 trillion.

Global share markets and oil prices again struggled on Tuesday after coronavirus panic caused Wall Street’s worst one-day rout since the Black Monday crash of 1987.

Asia’s traders saw the Philippines become the first country to close its markets. Europe’s watched an early rebound get wiped out as the region’s battered airline and travel stocks suffered another 7% drubbing.

Data showed German investor morale at lows last seen in the 2008 financial crisis, and rating agency S&P Global warned the inevitable global recession this year would lead to a spike in defaults.

In Europe, early 1.5.% to 3% gains in London, Frankfurt and Paris were quickly wiped out as airline and travel stocks suffered a 6.5% drubbing.

The dollar recouped some lost ground against the safe-haven Japanese yen. Oil gave up attempted gains after Brent’s dropped below $30 a barrel on Monday. Financial markets cratered on Monday with the S&P 500 tumbling 12%. Emergency central bank rate cuts globally only added to the investor panic.

Tuesday’s stabilization saw Australian shares close 5.9% higher, their biggest daily percentage gain since October 2008, after plunging nearly 10% on Monday.

MSCI’s broadest index of Asia-Pacific shares and Japan’s Nikkei both finished steady. South Korea finished down 2.4%, however, and the Philippines became the first country to suspend all trading over the virus.

Prolonged slump? 

Joachim Fels, PIMCO’s global economic adviser, said in written commentary that a global recession appeared to be a “foregone conclusion” and that the task for governments and central banks was to ensure that the recession “stays relatively short-lived and doesn’t morph into an economic depression.”

Fels loosely defined a depression as “a combination of a prolonged slump of activity that lasts longer than just a few quarters, a very significant rise in unemployment, and mass business bankruptcies and bank failures.”

Data out of China, where the pathogen originated late last year, underscored just how much economic damage the disease had already done with industrial output plunging 13.5% and retail sales 20.5%.

At least one other big Wall Street name appears concerned that the current crisis could snowball into something bigger than a recession.

Billionaire investor Ray Dalio, whose main Bridgewater Associates LP hedge fund fell sharply amid the coronavirus-led market rout, is worried that the Fed and other central banks may have already expended a good deal of their firepower by cutting rates to near zero.

In a note on Monday, Dalio said he had been concerned that the next economic downturn would “lead to hitting the 0% interest rate floor with a lot of debt outstanding and big wealth and political gaps in the same way that configuration of events happened in the 1930s.”

Strategists at Deutsche Bank said in a note last week that the market’s recent volatility, marked by swings of over 3% in the S&P 500, was coming at “a frequency previously seen only in the Great Financial Crisis and the Great Depression.” Following the Fed’s action, Wall Street’s focus is now on what fiscal policies governments will enact and even more so, on what can be done to contain the virus.

“Nothing else matters if we can’t get this under control,” said Eric Winograd, chief U.S. economist at AllianceBernstein. The market’s pullback has taken the S&P 500 down to the level it was last at in late 2018 and mid-2017.

“I don’t think it is quite pricing in a prolonged depression scenario at this stagem and I think it is probably appropriate not to,” Winograd said. “That’s not the base case.” However, Winograd said, he is concerned the situation could turn into a “durable recession” that stems in part from distress in the banking sector. “If we end up in a multiple-quarter level decline, I would expect there still to be a significant downside for the market.”

Source: http://www.dailysabah.com

The Central Bank of the Republic of Turkey (CBRT) cut its key interest rate by 100 basis points on Tuesday in an earlier-than-scheduled policy meeting and took steps to support volatile financial markets to offset the negative impact of the coronavirus.

In its 7th consecutive rate cut in an aggressive easing cycle since July 2019 designed to boost economic growth, the bank cut its benchmark one-week repo rate to 9.75% from 10.75%.

The bank was set to meet Thursday, but with fears of the virus mounting and cases climbing worldwide, the meeting was moved ahead.

The bank’s Monetary Policy Committee (MPC) said that despite the recent slide in the Turkish lira, the sharp fall in international commodity prices combined with a broader economic slowdown will help lower Turkish inflation more than expected.

Inflation was a pressing issue for the economy in the second half of 2019 when it surged to a 15-year high above 25%. But it has since dropped gradually throughout last year and briefly touched single digits, going all the way down from 20.35% in January to 8.55% in October, thanks mostly to base effects from high volatility in exchange rates in 2018. It closed the year at 11.84% in December. In response to the hike, the CBRT had raised its policy rate to 24%, where it stayed until last July.

The consumer price inflation rose less than expected to 12.37% year-on-year in February. Month-on-month, consumer prices rose 0.35%, according to the Turkish Statistical Institute (TurkStat).

“In order to contain negative effects of the coronavirus pandemic on the Turkish economy, it is of crucial importance to ensure the healthy functioning of financial markets, the credit channel and firms’ cash flows,” the bank said.

The bank unveiled measures including the provision of lira liquidity with an interest rate 150 basis points lower than the benchmark one-week repo rate, through repo auctions with maturities up to 91 days.

These measures aim to boost predictability by providing banks with flexibility in the Turkish lira and foreign exchange liquidity management, offering targeted additional liquidity facilities to banks to secure uninterrupted credit flow to the corporate sector.

The bank said it would also provide banks with as much liquidity as they need through intraday and standing overnight facilities.

Central banks such as the U.S. Federal Reserve and the Bank of England (BoE) have also taken urgent measures to contain the fallout from the coronavirus. Economists said the Fed’s move opens the door for Turkey’s central bank to ease policy by even more.

Turkey identified 29 new cases of the coronavirus, bringing its total to 47, Health Minister Fahrettin Koca said on Monday, marking the highest daily rise since the country announced its first case last week, as the country embarked upon measures to mitigate its spread.

Last Wednesday, the country became the last major economy to report an outbreak after taking what the World Health Organization (WHO) described as “vigilant” measures to delay it.

Since then, the government has ramped up measures to halt the spread of the virus, closing schools and universities, holding sports events without spectators and halting flights to many countries.

On Monday the country imposed flight bans on six more countries including the U.K. and the United Arab Emirates, bringing the total number of countries to 20. The country also said it will temporarily close cafes, sports and entertainment venues and is suspending mass prayers in mosques to contain the spread of the coronavirus.

Treasury and Finance Minister Berat Albayrak on Monday said measures will be taken to ensure markets have access to liquidity, adding that support will be provided to all sectors of the economy beginning with those more affected.

President Recep Tayyip Erdoğan expected this week to announce new measures to reduce the economic impact of the virus.

Turkey is considering tax relief for businesses as one possible step to help the economy through a slowdown in the face of the spreading coronavirus, Reuters cited two sources as saying on Monday.

Adjustments to tax regulations may be on the agenda as the government decides how to help companies and small businesses especially in the export and tourism sectors seen as vulnerable, said the sources, who are aware of the planning.

“Some tax regulations may come on the agenda but a final decision has not been made,” said one of the two sources, who requested anonymity. The government will provide “serious support” to help businesses, the person added.

Debt repayments could also be delayed or deferred, said the two sources, adding that the central bank and BDDK financial regulator are expected to take steps.

The country is the world’s sixth-largest tourism destination but waves of travel restrictions and flight cancellations could pinch a sector that accounts for some 12% of the economy.

Separately, the central bank Monday lowered the remuneration rate on required reserves to 6% from 8%, effective on March 20

Source: http://www.dailysabah.com

UEFA today announced the postponement of its flagship national team competition, UEFA EURO 2020, due to be played in June and July this year. The health of all those involved in the game is the priority, as well as to avoid placing any unnecessary pressure on national public services involved in staging matches. The move will help all domestic competitions, currently on hold due to the COVID-19 emergency, to be completed.

All UEFA competitions and matches (including friendlies) for clubs and national teams for both men and women have been put on hold until further notice. The UEFA EURO 2020 play-off matches and international friendlies, scheduled for the end of March, will now be played in the international window at the start of June, subject to a review of the situation.

A working group has been set up with the participation of leagues and club representatives to examine calendar solutions that would allow for the completion of the current season and any other consequence of the decisions made today.

The decisions, taken by UEFA’s Executive Committee, followed videoconference meetings held today with the presidents and general secretaries of the 55 national associations, as well as representatives of the European Club Association, European Leagues and FIFPro Europe, convened by UEFA President Aleksander Čeferin, to find a coherent plan to break the logjam of fixtures building up due to the spread of the virus across the continent.

Announcing the decisions, Aleksander Čeferin said:

“We are at the helm of a sport that vast numbers of people live and breathe that has been laid low by this invisible and fast-moving opponent. It is at times like these that the football community needs to show responsibility, unity, solidarity and altruism.

“The health of fans, staff and players has to be our number one priority and, in that spirit, UEFA tabled a range of options so that competitions can finish this season safely and I am proud of the response of my colleagues across European football. There was a real spirit of cooperation, with everyone recognising that they had to sacrifice something in order to achieve the best result.

“It was important that, as the governing body of European football, UEFA led the process and made the biggest sacrifice. Moving EURO 2020 comes at a huge cost for UEFA but we will do our best to ensure that the vital funding for grassroots, women’s football and the development of the game in our 55 countries is not affected. Purpose over profit has been our guiding principle in taking this decision for the good of European football as a whole.

“Football is an uplifting and powerful force in society. The thought of celebrating a pan-European festival of football in empty stadia, with deserted fan zones while the continent sits at home in isolation, is a joyless one and one we could not accept to celebrate the 60th anniversary of the competition.

“I would like to thank the European Club Association, the European Leagues and FIFPro Europe for their great work today and for their cooperation. I would also like to thank from the bottom of my heart the 55 national associations, their presidents and general secretaries, and my colleagues from the Executive Committee for their support and wise decisions. The fine detail will be worked out in the coming weeks but the basic principles have been agreed and that is a major step forward. We have all shown that we are responsible leaders. We have demonstrated solidarity and unity. Purpose over profit. We’ve achieved this today.

“I would also like to thank Alejandro Domínguez and CONMEBOL, who have agreed to move CONMEBOL’s 2020 Copa America in order to follow the recommendations issued by the international public health organisations to enact extreme measures and as a result of EURO 2020 being postponed. This means that clubs and leagues in Europe will have as little disruption as possible in the availability of their players. These joint efforts and especially this coordinated and responsible decision, are deeply appreciated by the whole European football community.

“I would like to thank FIFA and its President, Gianni Infantino, who has indicated it will do whatever is required to make this new calendar work. In the face of this crisis, football has shown its best side with openness, solidarity and tolerance.”

UEFA EURO 2020 was scheduled to take place in 12 cities across Europe from 12 June to 12 July 2020. The proposed new dates are 11 June to 11 July 2021. UEFA would like to reassure existing ticket buyers and hospitality clients that if they cannot attend the tournament in 2021, the face value of their tickets and packages will be refunded in full. Within the next month, further information on the refund process will be communicated to existing ticket buyers via email and on euro2020.com/tickets.

Decisions on dates for other UEFA competitions, whether club or national team for men or women, will be taken and announced in due course.

Source: http://www.uefa.com

Turkey’s health minister announced on Friday another case of the coronavirus (COVID-19), only the second case seen in the country.

“He is from the immediate circle of our first patient, who was followed up as soon as the diagnosis was made,” Fahrettin Koca said on Twitter.

“We have taken the necessary measures to keep the possible spread of the virus within these limits. We will overcome this problem together,” he added.

Turkey’s first case was announced earlier this week, a man who had recently returned from Europe. The patient was completely isolated, along with monitoring of his family and those who came into contact with him.

After emerging in Wuhan, China last December, the novel coronavirus, officially known as COVID-19, has spread to at least 114 countries.

Source: http://www.dailysabah.com

Turkey confirmed on Tuesday its first coronavirus case and said the affected person was a Turkish man who had been put into isolation in hospital.

Health Minister Fahrettin Koca said in a press conference late on Tuesday that the person contracted the virus while traveling to Europe. He also urged Turkish citizens against traveling abroad and asked those returning to administer self-quarantine for 14 days. Family members of the patient are under observation, Koca said.

The minister urged people not to be alarmed by the diagnosis, saying the country had still steered clear of an outbreak. “The coronavirus is not strong enough to break through the measures taken by Turkey,” he added.

He also asked the public to take precautions against the virus in the coming month.

Earlier on Tuesday, Koca said he would meet with the country’s education minister in coming days and discuss temporally closing schools. “The Turkish presidency can publish a notice restricting civil servants’ international travel except in obligatory cases,“ he added.

The global death toll from the coronavirus is now over 4,000, with nearly 114,000 confirmed cases.

The virus originated in China but has since reached over 100 countries, with the WHO saying on Monday that the “threat of a pandemic has become very real.”

As part of efforts to contain the outbreak, some governments have closed borders and suspended land and air travel with the worst-affected countries.

Source: http://www.dailysabah.com

Italy has been put under a dramatic total lockdown, as the coronavirus spreads in the country. Prime Minister Giuseppe Conte announced that he is extending restrictions already in place in the north.

“All the measure of the red zones are now extended to all of the national territory,” Conte said at a press conference on Monday evening, also announcing a ban on all public events.

The Prime Minister said the move was taken in order to protect the population, and especially the most fragile individuals. His announcement came at the end of a chaotic day that saw prison riots across the country.

Ninety-seven people have died of the novel coronavirus since Sunday in Italy, bringing its total number of deaths to 463. The country has 9,172 cases so far, the most of any European country.

Over the weekend, blanket travel restrictions had been announced in just certain areas of Italy’s north. The rest of the country will now join the northern provinces under lockdown — one of the toughest responses implemented outside of mainland China to get the Covid-19 epidemic under control.

The coordinator for intensive care in the crisis unit for the northern Lombardy region told CNN that Lombardy’s health care system was “one step from collapse” despite efforts to free up hospital beds.

“We are now being forced to set up intensive care treatment in corridors,” Antonio Pesenti said. “We’ve emptied entire hospital sections to make space for seriously sick people.”

He described seeing “a tsunami of patients,” adding that there could be 18,000 patients in hospital by the end of the month if the virus continues to spread.

I’ve never seen anything like this,” he said. “Italians should be worried.”

Under the previous north-only lockdown, checks on compliance with the movement ban were to be carried out on main highways and along smaller roads by the Carabinieri (military police) and municipal police forces, while railway police, health authority workers and civil protection staff using thermoscan appliances will enforce the travel ban on the state’s railways. 

Travelers, including those departing or arriving in the containment regions by airplane, were to be checked to see if they have a self-declared travel exemption. 

Checks were also introduced for cruise ship passengers arriving in Venice, who will not be able to disembark to visit the city, but will only be able to return to their place of residence or country of origin.

Michele De Marsico told CNN at a Milan train station on Sunday that he was trying to work out how to return to southern Italy. “I was worried, so I came here to the train station to check out the situation,” said the 55-year-old.

Source: http://www.cnn.com

The New York Federal Reserve is pumping in tens of billions of dollars of extra cash into the financial system in a bid to ease severe stress gripping global financial markets because of the coronavirus pandemic.

The NY Fed announced Monday it is ramping up its overnight cash injections from at least $100 billion to at least $150 billion. The move, coming on a day when the Dow briefly plunged more than 2,000 points, or 8%, marks an acceleration of a rescue of the overnight lending markets that began last fall.

Authorities also more than doubled the amount offered during two-week term repurchase, or “repo,” agreements to at least $45 billion. During overnight repo operations, the central bank eases pressure and adds liquidity by purchasing Treasuries and other securities.

The NY Fed cited the coronavirus outbreak, which has forced Wall Street firms to consider how they will operate if New York City requires employees to work from home. 

The moves “should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus,” the NY Fed said in a statement.

In other words, the Fed wants to prevent borrowing rates from creeping higher during the market stress.

JPMorgan Chase (JPM), America’s largest bank, recently asked thousands of its employees to work from home for a day and is testing backup trading sites in case the outbreak disrupts its primary trading floors in New York and London.

The NY Fed first began pumping money into the overnight lending market in September in response to spiking borrowing rates. Although it gets far less attention than stocks and bonds, the overnight lending market is critical to the functioning of the global financial system. It allows banks, hedge funds and other financial institutions to cheaply and easily borrow money.

Analysts said unlike that rescue in the fall, Monday’s announcement was preemptive in nature, aimed at avoiding a similar surge in borrowing costs.

“The Fed wanted to send a signal that it sees what’s going on in markets and is being responsive,” said Mark Cabana, head of US rates strategy at Bank of America. “Why not? There is very limited cost for the Fed.”

Bailouts for airlines, cruise operators?

Overnight secured lending rates have been relatively stable during the recent turmoil. However, unsecured rates have been more volatile, reflecting rising economic concerns. 

Coronavirus fears, coupled with an historic collapse in oil prices, sent shockwaves through markets Monday. Selling was so intense that circuit breakers were triggered, forcing a 15-minute trading halt on the New York Stock Exchange. US stocks rebounded from session lows following the rare trading pause.

“I’m not sure that the Fed’s actions will help valuations, but it will prevent a banking reserve shortfall from compounding the risk-off tone in financial markets,” said Guy LeBas, managing director of fixed income strategy at Janney Capital Markets.

Last week, seeking to calm markets, the Fed announced its first emergency rate cut since 2008. Investors are betting the US central bank will need to further slash rates, perhaps all the way down to zero.

Wall Street is clamoring for more action from Washington, including potential fiscal stimulus in the form of tax cuts or spending packages. And the Fed is under pressure to provide more help as well.

“The market is looking for the Fed to do more,” said Cabana. 

Cabana said investors want the Fed to invoke its emergency powers to launch lending programs aimed at helping parts of the economy getting clobbered by the coronavirus pandemic.

“Investors are speculating about whether the Fed could lend to airlines, cruise operators, hotels and restaurants,” he said.

Source: http://www.cnn.com