Category: Economy

U.S. lawmakers urge 90-day-plus deferral of tariff collections to aid businesses

WASHINGTON, March 26 (Reuters) – A bipartisan group of U.S. lawmakers urged Treasury Secretary Steven Mnuchin on Thursday to order the U.S. Customs and Border Protection agency to defer collections of U.S. tariffs for at least 90 days to ease coronavirus pressures on U.S. businesses.

Eight prominent Democratic and Republican members of the Senate and House of Representatives said in a letter that the deferral should be kept in place “until the crisis passes” to relieve “extreme cash flow problems due to the ongoing coronavirus crisis.” (Reporting by David Lawder; Editing by Cynthia Osterman)

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U.S. House sets Friday debate for coronavirus aid bill

WASHINGTON, March 26 (Reuters) – The U.S. House of Representatives will begin a two-hour debate on a sweeping, $2.2 trillion coronavirus aid bill at 9 a.m. (1300 GMT) on Friday but it was not clear whether the measure would be able to pass on a voice vote, the House Majority Leader’s office said late on Thursday.

While most House members are in their home districts because of the coronavirus outbreak, those able and willing to travel to Washington for a vote should arrive by 10 a.m. (1400 GMT), according to the House advisory.

There have been discussions of a possible roll-call vote if a voice vote is blocked by dissenters. (Reporting by Richard Cowan and Patricia Zengerle; Editing by Sandra Maler)

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GLOBAL MARKETS-Stocks up on $2 trillion stimulus Wall St rally; dollar takes a hit

* U.S. stimulus bill clears Senate; Fed’s Powell speaks to Main St

* U.S. jobs claims spike to a record 3.3 million

* Yen firms, EM currencies catch a break

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh (Updates prices, adds U.S. data, adds byline, dateline)

By Rodrigo Campos and Tom Wilson

NEW YORK/LONDON, March 26 (Reuters) – A Wall Street rally powered global gains in stocks on Thursday despite a record number of new unemployment filings in the United States, as traders focused on the unanimous passage of a $2 trillion coronavirus relief bill in the U.S. Senate and the possibility that there is more stimulus to come.

The legislation is intended to flood the country with cash in a bid to stem the crushing impact the epidemic has already had on the world’s largest economy. Nearly 3.3 million Americans filed for unemployment benefits over the past week, eclipsing the previous record of 695,000 set in 1982. The bill is heading for the House of Representatives for a vote on Friday.

“In less than two weeks, we have moved from full employment to a number of job destruction we have never experienced in a period of peace,” wrote Christopher Dembik, head of macro analysis at Saxo Bank.

Earlier on Thursday, Federal Reserve Chair Jerome Powell said the U.S. economy is likely in recession already but that reopening businesses should be dictated by the control of the virus’ spread, in contrast to the urging by some of President Donald Trump’s advisers for a faster reopening. The president himself has said he wants the economy to be “roaring” by Easter, in a little over two weeks.

Mnuchin said the central bank would lend “aggressively” to ensure the economy can withstand the sudden sharp drop in activity, with an expected $424 billion commitment from the U.S. Treasury to cover any losses, allowing the Fed to unleash perhaps $4 trillion for credit to “Main Street.”

The astronomical number of jobless filings left some wondering if the stimulus package, despite its size, would be enough.

“If these numbers continue for three or four weeks, there will be demand for more fiscal support,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

She said the stock market reaction would suggest “that market participants expect a larger stimulus package or fiscal package from the government than the $2 trillion that has been agreed upon.”

The Dow Jones Industrial Average rose 1,115.19 points, or 5.26%, to 22,315.74, the S&P 500 gained 118.5 points, or 4.79%, to 2,594.06 and the Nasdaq Composite added 303.84 points, or 4.11%, to 7,688.13.

The pan-European STOXX 600 index rose 0.66% and MSCI’s gauge of stocks across the globe gained 3.56%.

Global markets have lost about a quarter of their value in the last six weeks of virus-driven selling.

While markets have found a measure of sustenance as governments and central banks launch unprecedented support measures, investors have struggled to work out how bad the coronavirus impact would be.

“No-one is sure how long things are going to be locked down for, how wide the virus will spread in the U.S., what the death toll and hit on the economy will look like,” said Salman Baig, portfolio manager at Unigestion.

The combination of the massive jobless claims and stimulus dragged the dollar lower.

The dollar index fell 1.222%, with the euro up 1.19% to $1.101.

The Japanese yen strengthened 1.52% versus the greenback at 109.57 per dollar, while Sterling was last trading at $1.2075, up 1.60% on the day.

“Although the latest Fed measures have helped calm markets, as long as the COVID-19 crisis continues and the world economy is effectively in lockdown, we would expect markets to remain in turmoil,” foreign exchange analysts at Bank of America said in a report on Thursday.

The softer greenback buoyed emerging market currencies, with MSCI’s index touching a one-week high.

Oil fell as fears of plunging demand outweighed expectations of support from the U.S. stimulus.

U.S. crude recently fell 4.08% to $23.49 per barrel and Brent was recently at $27.16, down 0.84% on the day.

Prices on U.S. Treasury bonds rose but yields traded relatively tightly and within the week’s range, suggesting the market had already priced in expectations for abysmal data.

Benchmark 10-year notes last rose 14/32 in price to yield 0.8128%, from 0.856% late on Wednesday. The 30-year bond last rose 43/32 in price to yield 1.37%, from 1.421% late on Wednesday.

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World's biggest economies must take firm measures to combat coronavirus – Saudi king

DUBAI, March 26 (Reuters) – Saudi Arabia’s King Salman, addressing a virtual summit of G20 leaders, said the world’s biggest economies must take firm measures on several fronts to combat the coronavirus pandemic, state news agency SPA said on Thursday.

He reaffirmed full support for the World Health Organization’s coordination of efforts to fight the virus, adding “the G20 must assume the responsibility of reinforcing cooperation in financing research and development for therapeutics and a vaccine”.

“We must also strengthen the global preparedness to counter infectious diseases that may spread in the future,” he said. (Reporting by Yousef Saba and Alaa Swilam; Editing by Toby Chopra)

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UPDATE 2-German yields fall to 10-day low; Italy sells off as stimulus in focus

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices)

By Yoruk Bahceli

LONDON, March 27 (Reuters) – German bond yields fell to 10-day lows and Italian yields rose on Friday as bond markets focused on monetary and fiscal solutions from the euro zone to address the economic fallout from the coronavirus outbreak.

EU leaders were unable to agree on Thursday on the scale and scope of their economic response to the coronavirus pandemic, giving themselves two more weeks to work out details in a dispute between the ailing south and fiscally conservative north.

Germany and the Netherlands blocked a call from Italy, Spain and France to issue joint debt. There was also disagreement on the timing of granting standby credit to governments via the European Stability Mechanism.

Germany’s 10-year bond yields fell to a 10-day low at -0.50%, before rising slightly to end the session at -0.48%, still down 11 basis points on the day.. Spanish and Portuguese yields fell similarly. .

German yields had risen to 10-month highs at -0.14% last week on expectations of fiscal stimulus.

They have come down since as Germany, one of the states where the ECB is thought to be approaching its self-imposed issuer limit, is expected to be one of the main beneficiaries of its removal.

“Even though there are expectations for fiscal policy, and that will have an effect on issuance, the ECB’s presence is the main driver,” said Mizuho strategist Peter McCallum.

In Italy 10-year bond yields were up 9 basis points to 1.33% . Data on Thursday showed that the number of new cases and deaths from coronavirus had risen in the country, dashing hopes for a retreat.

Despite the delay to a coordinated euro zone response to the crisis, the gap between Italy and Germany’s 10-year yields – a key gauge of credit risk on the former – is only up 30 basis points compared to late February, when the spread of the virus started to drive its bond market, at around 177 bps .

“This means absolutely no risk premia are being priced into account for the fallout from the virus,” said Richard McGuire, head of rates strategy at Rabobank.

Without the issuance of joint debt, Southern European governments will be liable for their own fiscal stimulus efforts, adding even more debt to the euro zone’s most indebted balance sheets, which has led some analysts to see the market as mispriced.

The ECB’s new programme has “the flexibility to deploy its firepower to up purchases to contain any spread widening, but it does nothing to address the structural root cause of fragmentation, which remains the lack of liability sharing,” Rabobank’s McGuire said.

While other states are accelerating their issuance plans, a rise in borrowing costs has halted Greek plans to tap bond markets again this year.

A key gauge of long-term euro zone inflation expectations rose above 0.90% for the first time in two weeks and was set to end the day at 0.95%. (Reporting by Yoruk Bahceli; Editing by Toby Chopra and Ken Ferris)

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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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Worldwide dollar crunch raises red flags in parts of Asia debt market

SINGAPORE (BLOOMBERG) – As a US dollar crunch sweeps the globe, cracks are starting to show up in Asia’s emerging markets, despite the hefty foreign reserve cushions built up over the years.

South-east Asian governments and corporates as well as India, which have reduced their US dollar debt in the past year to US$25.1 billion (S$36.3 billion) due in 2020, will face a 67 per cent jump in payments to US$41.9 billion in 2022, according to Bloomberg data. Dollar payments are expected to reach a peak of US$44.4 billion in 2024.

While the US Federal Reserve has ventured into unchartered territory to fight a slowdown in the world’s largest economy, Indonesia, Malaysia, and India are raising red flags for analysts as the coronavirus outbreak shutters large parts of their economies, currencies plunge and governments push to widen their fiscal deficits. It’s all a wake-up call for emerging Asia, which has been seen as relatively sheltered compared to peers globally, given flush foreign reserves, current-account surpluses in many countries and regional swap lines to tap on in crisis.

“No one is facing imminent balance of payments pressure here,” said Christian de Guzman, senior vice president at Moody’s Investors Service in Singapore. “But given the way markets are right now the option of refinancing for them may be a bit difficult. There’s already some pressure on their local currencies. The cost of funding may have actually increased.”

Indonesia and India are of particular concern, given the twin deficits on their budget and current accounts, which make them more reliant on foreign inflows than peers.

INDONESIA

Fiscal pressures are building in Indonesia, where the government is considering lifting its deficit cap to 5 per cent of GDP from 3 per cent. The central bank is predicting the current account deficit will come in at 2.5 per cent-3 per cent of GDP this year, and foreigners own 35 per cent of Indonesian local-currency government bonds, among the highest in Asia based on available data.

The rupiah has taken a beating, weakening about 16 per cent against the US dollar so far this year, making it the worst-performing currency in Asia. That will put pressure on companies refinancing their dollar debt, said Xavier Jean, senior director for corporate ratings, at S&P Global Ratings in Singapore.

“The credit quality of Indonesian companies as a whole has been steadily declining over the past three years because of steady capital spending, growing debt, intense competitive pressure and more challenging operating conditions, especially in the real estate sector,” he said.

Almost one-third of the credit ratings in the Indonesian corporate sector, excluding state-owned firms, are on negative outlook — signaling further deterioration in their credit profile over the next three to 12 months, Jean said. That’s the highest level since the global financial crisis, he added.

The yield on Indonesian state oil and gas firm PT Pertamina Persero’s dollar bonds due July 2029 surged 205 basis points this month to 5.21 per cent. Similarly, the rate on Malaysia’s Petroliam Nasional Bhd’s dollar debt due October 2026 jumped 132 basis points to 3.29 per cent.

INDIA

In India, similar pressures are building. Global funds have sold net US$7 billion of rupee-denominated debt so far this month through March 23, based on data compiled by Bloomberg. The rupee has plunged to an all-time low and stocks fell by a record Monday after the government moved to lock down the country of 1.3 billion people.

The market sell-offs show both Indonesia and India as being the “most, and increasingly, troubled,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. Currency plunges and external debt servicing are problems that could compound one another, he said.

The central banks in both countries have been accelerating steps to shield the economy from the market fallout. Indonesia has cut interest rates twice this year, increased intervention in the currency market and purchased bonds from the secondary market. The Reserve Bank of India has pumped liquidity into the banking system.

MALAYSIA

Natixis highlights risks around Malaysia, assessing it as one of the least liquid of 11 economies in the region, according to a March 18 note by chief Asia-Pacific economist Alicia Garcia Herrero and emerging Asia senior economist Trinh Nguyen.

Malaysia’s high reliance on foreign income — including commodities exports that account for 15 per cent of GDP, and shipments of intermediate goods that are 49.5 per cent of GDP – make it particularly vulnerable, according to Natixis.

“Beyond the immediate liquidity squeeze coming from the global credit crunch via the capital account, the decline of commodity prices is adding another pressure,” the Natixis analysts wrote. For commodity-reliant economies like Malaysia, “the contraction of earnings and USD will impact these exporters and the economy.”

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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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REFILE-GLOBAL MARKETS-Asia stocks rally, Fed launches limitless QE against economic reality

(Clarifies Goldman Sachs forecast refers to output in paragraph 11)

* Asian stock markets : tmsnrt.rs/2zpUAr4

* S&P 500 futures bounce in Asia, Nikkei jumps

* Investors relieved as Fed pledge eases bond market stress

* Treasury yields fall, drag down yields globally

* Dollar off its peaks, supported by liquidity flows

By Wayne Cole

SYDNEY, March 24 (Reuters) – Asian stocks rallied on Tuesday as the U.S. Federal Reserve’s sweeping pledge to spend whatever it took to stabilise the financial system eased debt market pressures, even if it could not offset the immediate economic hit of the coronavirus.

While Wall Street seemed unimpressed, investors in Asia were encouraged enough to lift E-Mini futures for the S&P 500 by 1.9% and Japan’s Nikkei by 4.9%.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.2%, though that followed a drop of almost 6% on Monday. South Korea and Australia also recouped a little of their recent losses.

In its latest drastic step, the Fed offered to buy unlimited amounts of assets to steady markets and expanded its mandate to corporate and muni bonds.

The numbers were certainly large, with analysts estimating the package could make $4 trillion or more in loans to non-financial firms.

“This open-ended and massively stepped-up programme of QE is a very clear signal that the Fed will do all that is needed to maintain the integrity and liquidity of the Treasury market, key asset-backed markets and other core markets,” said David de Garis, a director of economics at NAB.

“COVID-19 developments remain the wild card, as is the development of government policies to support cash flow and the economy.”

The Fed’s package helped calm nerves in bond markets where yields on two-year Treasuries hit their lowest sine 2013, while 10-year yields dropped back sharply to 0.77%.

Yet analysts fear it will do little to offset the near-term economic damage done by mass lockdowns and layoffs.

Speculation is mounting data due on Thursday will show U.S. jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million.

Goldman Sachs warned the U.S. economy could contract by 24% in the second quarter, two-and-a-half times the pace of the previous postwar record.

A range of flash surveys on European and U.S. manufacturing for March are due later on Tuesday and are expected to show deep declines into recessionary territory.

While governments around the globe are launching ever-larger fiscal stimulus packages, the latest U.S. effort remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.

The logjam combined with the stimulus splash from the Fed to take a little of the shine off the U.S. dollar, though it remains in demand as a global store of liquidity.

“The special role of the USD in the world’s financial system – it is used globally in a range of transactions such as commodity pricing, bond issuance and international bank lending – means USD liquidity is at a premium,” said CBA economist Joseph Capurso.

“While liquidity is an issue, the USD will remain strong.”

The dollar eased just a touch on the yen to 110.90 after hitting a one-month top at 111.59 on Monday, while the euro inched up to $1.0754 from a three-year trough of $1.0635.

The dollar index stood at 102.120, off a three-year peak of 102.99.

Gold surged in the wake of the Fed’s promise of yet more cheap money, and was last at $1,564.51 per ounce having rallied from a low of $1,484.65 on Monday.

Oil prices also bounced after recent savage losses, with U.S. crude up 64 cents at $24.00 barrel. Brent crude firmed 53 cents to $27.56.

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South Korea doubles coronavirus rescue package to $115.7b

SEOUL (REUTERS) – South Korea on Tuesday (March 24) doubled a planned economic rescue package to 100 trillion won (S$115.7 billion) to save companies hit by the coronavirus and put a floor under crashing stocks and bond markets.

The package includes 29.1 trillion won in loans to small- and medium-sized companies, while another 20 trillion won will be used to buy corporate bonds and commercial paper of companies facing a credit crunch, President Moon Jae-in said in an emergency economic policy meeting.

The announcement follows similar moves by governments and central banks globally as the world economy buckles under the weight of national shutdowns. On Monday, the US Federal Reserve, in a drastic move, pledged to back purchases of corporate bonds and buy unlimited amount of Treasury bonds for the first time to ensure credit flows to corporations and local governments.

“We will make sure that companies don’t go bankrupt from the COVID-19 shocks. Normal, competitive companies will never be shut just because of a temporary liquidity shortage,” Moon said in a meeting with finance chiefs and Bank of Korea Governor Lee Ju-yeol.

South Korean companies are racing to secure lifelines as encouraging self-isolation hits restaurants, airlines, hotels and the entertainment industry in Asia’s fourth largest economy.

Investors are dumping their holdings of commodities, stocks and riskier bonds, leading to funding constraints for companies.

South Korea reported 76 new coronavirus cases on Tuesday, maintaining a downward trend in new infections, which raised hopes that Asia’s largest outbreak outside China may be slowing.

The daily tally brought the country’s total infections to 9,037, according to the Korea Centers for Disease Control and Prevention (KCDC). The death toll rose by two to 120.

It marked the 13th straight day the country has posted new infections of around 100 or less. South Korea on Monday reported its lowest number of new cases since with the peak of 909 cases recorded on Feb. 29.

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