E3: Fed rolls out $2.3tn stimulus as US jobless claims surge by 6.6m - business live
Rolling coverage of the latest economic and financial news as the US reports another 6.6 million in jobless claims amid the coronavirus lockdown
Q: What about the risk of higher inflation from QE?
Powell: Previous rounds of QE have not resulted in inflation.
It is not a first order concern for us today that too-high inflation is coming..
One thing I don’t worry about is inflation right now.
Q: Is there a limit on quantitative easing and loans?
Powell: We do this with consent of government. We are looking for places that are important to the real economy, to people’s lives.
We can keep doing that as long as those needs arise..
There’s no limit on how much of that we can do.
The second quarter will be very weak, Powell says.
He expects a big fall in GDP and big increases in unemployment.
Here is the link to Jerome Powell’s full speech.
Here’s his message of hope at the height of the crisis.
None of us has the luxury of choosing our challenges; fate and history provide them for us. Our job is to meet the tests we are presented. At the Fed, we are doing all we can to help shepherd the economy through this difficult time. When the spread of the virus is under control, businesses will reopen, and people will come back to work. There is every reason to believe that the economic rebound, when it comes, can be robust. We entered this turbulent period on a strong economic footing, and that should help support the recovery. In the meantime, we are using our tools to help build a bridge from the solid economic foundation on which we entered this crisis to a position of regained economic strength on the other side.
Powell says:
There is every reason to believe the economic rebound, when it comes, should be robust.
Powell says:
Powell says:
This is a different kind of crisis to previous ones because it is first and foremost a public health issue.
The Federal Reserve governor is awed by the emergency services.
Fed chair Jerome Powell is about to speak on the crisis via a webinar. Watch it here.
Here’s a breakdown of the Fed’s measures announced today (press release here) as part of its new $2.3tn stimulus package:
Scottish businesses are on the brink of collapse, costing thousands of jobs, because ministers in Edinburgh have failed to give them the same emergency funding as firms in other parts of the UK, Nicola Sturgeon has been warned.
Jackson Carlaw, the Scottish Tory leader, said the Scottish government had not matched the grants given to English firms, where a business gets £25,000 for every premises forced to shut during the lockdown.
That puts any firm in Scotland with more than one outlet at a huge disadvantage compared to those in England and Wales. Businesses on our high street are dealing with the reality not the theory of this crisis.
So every penny is being passed on, but we’re trying to do that in as fair a way as possible, that captures and provides assistance to as many businesses as possible. I’m acutely that there will be further support that businesses require in the period to come.
More from the NIESR report predicting a 15-25% contraction in UK GDP in the second quarter.
Here they explain how they came to their conclusion around such an unprecedented decline in productivity:
At present there is little reliable data to gauge the likely scale of economic contraction experienced so far. Surveys carried out in March report record contractions in activity, and with large parts of the economy closed an unprecedented decline in output is widely expected.
To provide a benchmark for future official data releases, we have calibrated the possible pace of decline largely by informed guesses on the scale of decline in the different industrial sectors of the economy assuming a shorter and a longer lockdown period.
Back home, the National Institute of Economic and Social Research (NIESR) says the UK could end up seeing GDP contract by as much as 25% in the second quarter.
OUT NOW: A once in a century event - Our latest #NIESRGDP Tracker suggests that the UK economy could now see growth decline by 5% in the first quarter of 2020, and if a #lockdown continues, by around 15% to 25% in the second quarter - Read here in full https://t.co/LcuMw4mItZ
US stocks opened in positive territory, as investors took comfort in the Fed’s latest stimulus measures.
Here’s how we’re looking at the open:
My colleagues Dominic Rushe and Michael Sainato have more details on the US labor department’s data:
Layoffs that started in the restaurant and leisure industries have now spread to include manufacturing, construction and even healthcare.
That wasn’t in our control. This is literally in our control. We are deliberately shutting down the economy.
Related: US unemployment rises 6.6m in a week as coronavirus takes its toll
If the numbers alone don’t grab you, this chart illustrates just how unusual the current jobless claims figures really are.
Another shockingly large increase in US unemployment insurance claims in the most recent week...
6.61 million pic.twitter.com/V9WCOZuiXm
Cumulative jobless claims for the past three weeks are now above 16 million.
Politico’s chief economic correspondent Ben White notes that it puts the US unemployment at around 14%:
The claims number over the last three weeks suggest the unemployment rate is RIGHT NOW at about 14%, higher than the 10% peak of the Great Recession. The key imperative now is getting cash to businesses and individuals FAST and the pace of rehiring after this is all over.
The stimulus package has helped push US futures positive territory, despite the dismal jobless figures:
And just as the US jobless claims were likely to roil markets, the American central bank has announced new stimulus measures aimed at small businesses and municipalities across the country.
That’s worth a whopping $2.3tn.
Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus.
The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.
Worth noting, too, that estimates for US jobless claims covering the previous week have been revised higher from 6.65 million to 6.87 million (I’ve revised that in the post below)
NEWSFLASH: More than 6 million Americans signed on for jobless benefit last week, laying bare the impact of the Covid-19 outbreak on the US economy.
The initial jobless claims figure, just out, shows that 6.6 million people across the US filed for unemployment support in the week to Saturday 4 April.
Minutes from the European Central Bank’s emergency meeting on 18 March show there were some hesitations around plans to scrap previous stimulus rules, as it set out to buy €1.1 trillion worth of debt this year to help struggling firms and governments.
It had been a notable u-turn for the ECB, which less than a week earlier had agreed to a relatively small increase in asset purchases while the central bank boss Christine Lagarde was widely seen as playing down the crisis. (You’ll remember that she argued it was not the central bank’s job to “close spreads.”)
There was unanimous agreement that bold and decisive action was needed to counter the serious risks posed by the rapidly spreading coronavirus for the monetary policy transmission mechanism, the outlook for the euro area economy and, hence, ultimately the ECB’s price stability objective.
Reservations were, however, expressed by some members with regard to the proposed communication on the issue share and issuer limits. It was recalled that these limits were one of the safeguards to ensure that the Governing Council acted within its mandate.
Account of the monetary policy meeting of 18 March 2020 https://t.co/eAW5IhBH57
The head of the International Monetary Fund has warned that all but a handful of the organisation’s 189 member states will suffer falling standards of living this year as a result of the worst global economic crisis since the 1930s.
Kristalina Georgieva said the sudden onset of the Covid-19 pandemic meant the IMF’s new forecasts for the world economy were going to be grim when released next week – and there was a risk that the impact could be even worse than currently expected.
Today we are confronted with a crisis like no other.
Covid-19 has disrupted our social and economic order at lightning speed and on a scale that we have not seen in living memory. The virus is causing tragic loss of life, and the lockdown needed to fight it has affected billions of people.
There is no question that 2020 will be exceptionally difficult. If the pandemic fades in the second half of the year – thus allowing a gradual lifting of containment measures and reopening of the economy – our baseline assumption is for a partial recovery in 2021. But again, I stress there is tremendous uncertainty around the outlook: it could get worse depending on many variable factors, including the duration of the pandemic.
Related: IMF chief flags up grim global economic forecast
Executives at insurer Prudential are the latest to take a pay cut due to coronavirus outbreak.
(Though by the looks of it, some of the sacrifices aren’t exactly huge...)
The odds of the US entering a recession is now 100%, according to a model put together by Bloomberg Economics.
It would confirm the end of the US economy’s longest-running expansion on record.
America looks starkly different from just a month ago. More than 11,000 in the country have died from Covid-19, while the number of infected was approaching 400,000 on Tuesday, the highest reported total worldwide. Social gatherings have been curbed and a majority of Americans have been directed to stay home. Restaurants, hotels, factories and a variety of other businesses have closed their doors.
The sudden stop in activity has many forecasters predicting the economy will experience its largest-ever contraction in the second quarter, and some analysts project about 20 million people will have lost their jobs by July.
Market jitters ahead of the US weekly jobless figures have caused the US dollar index to drop by around 0.16%.
But the dollar’s loss has been the pound’s gain, helping push cable to a one week high:
Without a deal between Moscow and Riyadh at today’s Opec+ meeting, oil prices could fall to $10 per barrel, according to some US shale producers.
It’s a strong warning from US energy executives who spoke to the FT (£) ahead of Thursday’s meeting:
If Opec and Russia do not agree a deal, oil prices will sink to $10 a barrel and US output will be almost halved — from 13m b/d to 7m, said Scott Sheffield, head of Permian producer Pioneer Natural Resources, one of Texas’s leading shale companies.
A deal would restore prices to $35 or more, but the producers would still struggle and the US would lose 3m b/d of supply, Mr Sheffield said.
For anyone craving new shows to binge under lockdown, Virgin Media is temporarily giving customers free access to more Sky channels.
Our media business correspondent Mark Sweney has the details:
Virgin Media is giving all TV customers access to 11 Sky channels for free until 9 May. Shows include Ballers and Grey’s Anatomy. Follows opening up of 18 channels with shows incl. Gavin & Stacey, War of the Worlds and Gold Rush until 2 May.
US stock futures suggest we won’t see the same market rally experienced by major indexes on Wednesday (when both the S&P and Dow closed higher by more than 3%).
British companies have scrapped £25bn of shareholder payouts, or one-third of the dividends, expected by investors during the rest of 2020, as they attempt to preserve cash during the coronavirus crisis.
An unprecedented number of firms, representing 45% of Britain’s biggest public companies, have already axed their scheduled investor payouts or are due to do so, according to the financial data firm Link Group.
Related: £25bn in dividends axed as UK companies hunker down
Around 1 in 4 Americans have either lost their jobs or taken a pay cut due to the coronavirus lockdown.
That’s according to a survey by CNBC released ahead of this afternoon’s weekly jobless figures, which are expected to show another 5 million having claimed unemployment assistance. That would bring the three week total to 15 million.
1 in 4 Americans have either lost their job or had pay cut from coronavirus shutdowns according to a survey. https://t.co/iXF7CR0asK pic.twitter.com/VNObGNrmNQ
Earlier this morning we got a readout of the UK GDP figure for February, and it makes for worrying reading.
While the UK economy expanded 0.1% over the three months to February, on a monthly basis, there was actually a 0.1% contraction following a rise in both December and January .
The hope had been that improved business and consumer confidence resulting from reduced uncertainties after December’s election – reinforced by the UK leaving the EU with a deal on 31 January – would fuel a clear pick-up in economic activity early on in 2020.
However, while confidence did pick up markedly, this failed to translate into significantly improved economic activity.
The economy obviously took a very substantial hit in March as the coronavirus outbreak increasingly impacted, with mounting restrictions on people’s movements and business activity, culminating in the lockdown on 23 March.
EY ITEM Club suspects the UK economy saw a substantial contraction in March (possibly up to 5%), resulting in GDP contraction of around 1.3% in the first quarter.
Time to check in on oil prices, which are up more than 3% or $1 per barrel at $33.87.
There’s some hope that the virtual meeting of Opec+ producers doesn’t result in demands for a significant cut in US shale output, in exchange for a cut in production by feuding oil giants Russia and Saudi Arabia. (It would risk compounding the economic pain caused by the coronavirus outbreak across the US.)
The market appears to be running on the view that OPEC is willing to give the US pass as members have by now come to the realisation the risk of credibility loss outweighs any semblance of saving face at this point.
However , the more important outcome from these meetings will be signalling constructive supply-side behaviour as the global economy and oil demand recover from the pandemic. A reliable agreement would imply front-loading cuts and an orderly ramp-up over the [second half of 2020] when the virus passes.
Meanwhile, former Greek finance minister Yanis Varoufakis has contrasted the UK’s direct financing arrangement with the EU’s failure (so far) to reach a deal on a coordinated coronavirus rescue package.
The Bank of England just announced it will finance the gvt directly. Meanwhile in the eurozone the tragi-comedy of errors, also known as the Eurogroup, will reconvene tonight to proclaim that the crisis is SO urgent that it will do NOTHING of macroeconomic significance.
There is understandably some surprise over the extension of the government’s overdraft, given that Bank of England governor Andrew Bailey batted away suggestions that the facility would be used in light of the outbreak.
There was also Bailey’s interestingly times op-ed in the FT at the start of the week, which quashed speculation as to whether the Bank would use monetary financing to directly fund the UK government.
Bailey on a call with journalists on the 18th March: the ways and means facility is an historical relic.
Bailey in an FT op-ed on 6th April: we won’t use monetary financing.
Bank today: ok, just a bit of monetary financing via the ways and means facility. But it’ll be temporary.
How significant is it that BoE will be able to lend money directly to Govt? On one hand it’s not unprecedented: happened in 2008 & it’s only for technical cash flow reasons. On other hand, it further muddies the waters of whether money is being printed to keep the govt solvent
The distinction between monetary (eg BoE) & fiscal (eg gilt auctions) financing of govt already a grey area. Esp when BoE is buying £200bn gilts. BoE insists it decides that independently. That’s a fig leaf of sorts. Important. But a fig leaf. And the leaf keeps getting smaller.
You can read the full story on the government’s emergency borrowing facility here:
Related: Bank of England to finance UK government Covid-19 crisis spending
The Treasury has announced it is to extend its overdraft facility at the Bank of England in a fresh sign of the mounting financial pressure on the government caused by the Covid-19 enforced lockdown of the economy.
Amid growing speculation that the quarantining will be extended next week, the Treasury said it needed extra firepower to support its cashflow and to ensure financial markets ran smoothly.
As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from Covid-19.
Any use of the W&M facility will be temporary and short term. As well as temporarily smoothing government cashflows, the W&M facility supports market function by minimising the immediate impact of raising additional funding in gilt and sterling money markets.
And European markets, which closed in the red last night, have taken their cues from Wall Street after both the Dow and S&P closed +3.4% higher.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors have more than enough on their plate on the last day before the Easter long weekend.
The sharp rise in unemployment levels across the world is a clear and present concern for some in the markets, who take the not unreasonable view that markets are underestimating the economic damage that is about to be unleashed on the US and the global economy.
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