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Economy

PRESS DIGEST- Financial Times – April 1

March 31 (Reuters) – The following are the top stories in the Financial Times. Reuters has not verified these stories and does not vouch for their accuracy.

Headlines

– Domino’s Pizza appoints former Costa Coffee boss as chief on.ft.com/2UOUW48

– Carnival looks to raise $6bn to stay afloat on.ft.com/2xJasGz

– Regulator clears Flutter’s £10bn tie-up with Stars Group on.ft.com/3dMQZp1

Overview

– Domino’s Pizza UK has appointed the former head of Costa Coffee, Dominic Paul, as its chief executive after investors called for David Wild to step down as chief due to his perceived failure to placate franchisees.

– Carnival Corp is looking to raise $6 billion to stay afloat, which includes $3 billion of three-year bonds secured on part of its fleet of cruise ships, $1.75 billion of bonds that can convert into shares and $1.25bn in newly issued stock, as the company reels from the impact of coronavirus on its business.

– UK’s Competition and Market Authority has approved Flutter Entertainment’s £10 billion pound ($12.42 billion) merger with Stars Group. ($1 = 0.8053 pounds) (Compiled by Bengaluru newsroom)

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Economy

GLOBAL MARKETS-Stocks under pressure after biggest quarterly drop since 2008

* S&P 500 futures slide in Asia, Nikkei also falls

* U.S. coronavirus deaths top 700 in single day

* Pandemic threatens sharp global slowdown

* Yen gains after Federal Reserves new measures

By Herbert Lash

NEW YORK, March 31 (Reuters) – Asian shares faced another leg lower on Wednesday as the coronavirus sharply slows global growth, leading a gauge of world stocks to post its biggest quarterly decline in more than a decade and oil prices to trade near lows last seen in 2002.

Shares on Wall Street tumbled on Tuesday, with the Dow registering its biggest quarterly fall since 1987 and the S&P 500 its steepest quarterly drop since a decade ago on growing evidence of the massive downturn the pandemic will incur.

E-Mini futures for the S&P 500 traded 1% lower in after-hours trade, while Asian futures suggested the rout would continue.

FTSE China A50 futures in Singapore were down 0.85% and Japan’s Nikkei fell 1.86% in early trade.

The first-quarter decline was the biggest on record for the S&P 500 as consumers hunkered down at home, leading businesses to announce massive staff furloughs and to shut temporarily.

U.S. economic activity is likely to be “very bad” and the unemployment rate could rise above 10% because of efforts to slow the spread of the coronavirus, Cleveland Federal Reserve Bank President Loretta Mester told CNBC.

The United States marked 700 deaths in a single day from COVID-19 for the first time on Tuesday, lifting total U.S. fatalities from the disease to more than 3,700.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.35% in early trade.

MSCI’s gauge of stocks across the globe shed 0.48% following modest gains in Europe. The index fell nearly 22% for the quarter.

Bucking the broader decline, Australian shares opened higher as a slowdown in new coronavirus cases brightened investor sentiment while rising iron ore prices gave miners a lift.

Australia’s S&P/ASX 200 index rose 1.59% after the benchmark fell 2% on Tuesday.

The number of coronavirus infections globally headed toward 800,000. Deutsche Bank analysts noted, however, that for two consecutive days the global growth in new cases was below 10%, having exceeded that rate for most of the past two weeks.

Health officials were much more cautious. A World Health Organization official warned that even in the Asia-Pacific region, the epidemic was “far from over.”

The dollar slid against a basket of currencies, pressured by the latest Federal Reserve measures to ensure sufficient liquidity in the global financial system.

The Fed is now allowing foreign central banks to exchange their holdings of U.S. Treasury securities for overnight dollar loans.

The dollar index fell 0.275% while the Japanese yen strengthened 0.12% versus the greenback at 107.44 per dollar.

Government bond yields held steady as investors remained cautious about buying riskier assets.

The benchmark 10-year U.S. Treasury note rose 15/32 in price to yield 0.6538%.

Crude oil benchmarks ended a volatile quarter with their biggest losses in history, with both U.S. and Brent futures hammered throughout March due to the pandemic and the eruption of the Saudi-Russia price war.

Global fuel demand has been sharply cut by travel restrictions due to the coronavirus. Forecasters at major merchants and banks see demand slumping by 20% to 30% in April, and for weak consumption to linger for months.

Crude futures ended the quarter down nearly 70% after record losses in March.

U.S. crude fell 31 cents to $20.17 a barrel and May Brent crude futures ended 2 cents lower at $22.74 a barrel ahead of expiration.

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Coronavirus: Fed will do 'whatever it takes' to help US economy likely in recession, says Daly

SAN FRANCISCO (REUTERS) – The Federal Reserve is ready to do more to help a US economy ground to a sudden halt as businesses shutter and people stay home to slow the coronavirus pandemic, San Francisco Fed president Mary Daly said on Tuesday (March 31).

“The Federal Reserve is prepared to do whatever it takes within our powers to ensure that we are part of the solution of shoring up people over the virus, shoring up the American economy and putting us in the best position to grow again once the virus recedes,” Daly said in an interview with Yahoo Finance.

“If we do the right thing and shelter in place and curb the spread of the virus, the economy will be in the best position to bounce back.”

With the coronavirus infecting tens of thousands of Americans and killing hundreds each day, three-quarters of the US population are under orders to stay home except for essential trips to slow the spread of the virus.

With businesses laying off millions of workers as demand dries up and states ordering non-essential businesses to close, the economy is likely already in recession, Daly said.

The Fed’s job, along with that of the US government that on Friday finalized a $2.2 trillion rescue package, is to provide the support to financial markets, businesses and people who are doing their duty to boost the public health, Daly said.

Once the pandemic threat has passed, the Fed’s programs and low interest rates will help drive the economic recovery, she said.

“The virus and its evolution will determine both the magnitude of the downturn and its duration,” Daly said, adding that Fed staff are working to manage programmes already under way and stand up new ones, including the to-be-launched Main Street Lending Facility.

“The virus will also determine the amount of action we have to take. These are unprecedented times and they call for unprecedented action.”

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CANADA FX DEBT-Canadian dollar rises with oil but set for big monthly decline

    * Canadian dollar rises 0.3% against the greenback
    * Price of U.S. oil increases 2.4%
    * For the month, the loonie is down 5.1%
    * Canadian bond yields fall across the curve

    TORONTO, March 31 (Reuters) - The Canadian dollar edged
higher against its U.S. counterpart on Tuesday as oil prices
rose and domestic data showed the economy grew in January, but
the loonie was on track for its biggest monthly decline in more
than five years.
    U.S. crude oil futures        were up 2.4% at $20.58 a
barrel on Tuesday after U.S. President Donald Trump and Russian
counterpart Vladimir Putin agreed to talks on stabilizing energy
markets.             
    Canada's economy gained 0.1% in January, driven largely by
higher manufacturing, Statistics Canada data showed.
            
    Still, Canada's economy could be hit particularly hard over
the coming months by the coronavirus outbreak. Household debt is
at record levels and the price of oil       , one of the
country's major exports, has collapsed since January.
    In an effort to support the economy, the Bank of Canada has
slashed interest rates in a series of emergency moves this
month, to 0.25%. It is likely to buy about C$200 billion of
government debt after announcing its first quantitative easing
program, bond strategists estimate.             
    At 11:47 a.m. (1547 GMT), the Canadian dollar          was
trading 0.3% higher at 1.4119 to the greenback, or 70.83 U.S.
cents. The loonie traded in a range of 1.4095 to 1.4350.
    For the month, the loonie was down 5.1%, its biggest decline
since January 2015.
    The U.S. dollar        gave up its earlier gains after
initially being supported by quarterly and fiscal year-end
demand from portfolio managers and Japanese firms.             
    Canadian government bond yields fell across a flatter yield
curve. The 10-year             was down 7 basis points at
0.699%.

 (Reporting by Fergal Smith
Editing by Nick Zieminski)

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UPDATE 1-Global airlines expect crisis to persist to late 2020

(Recasts, adds details)

By Tim Hepher and Alistair Smout

PARIS/LONDON, March 31 (Reuters) – Global airlines will not start to recover from their worst-ever crisis until the last quarter of this year and any rebound will be short-lived if there is a new winter wave of coronavirus, the industry’s trade group warned on Tuesday.

Many carriers, even those with strong finances, are struggling to survive for that long as the industry burns $61 billion in cash this quarter because of a 70% drop in traffic and revenue, the International Air Transport Association said.

Airlines are set to post a collective net loss of $39 billion this quarter as the majority of their aircraft are grounded to weather lockdowns and travel restrictions.

“These are numbers beyond anything we have ever had in our industry,” said Alexandre de Juniac, Director General of IATA, which urged governments to speed up bailouts for airlines facing estimated full-year revenue losses of $252 billion.

U.S. Congress passed legislation on Friday authorizing $25 billion for passenger airlines, as well as $4 billion for cargo carriers and $3 billion in cash for airport contractors.

IATA said it expected government fiscal measures and central bank action to feed through to higher travel demand from the fourth quarter, after a widespread second-quarter lockdown and continued weakness in the third.

But it warned that airlines were facing severe short-term difficulties, with the economy already tipping into recession.

“Everyone is eager to have cash and is running out of cash,” de Juniac said on a media conference call.

IATA’s Chief Economist Brian Pearce said growth in the fourth quarter and a strong 2021 were its base case scenario

“It’s really not clear that that is actually going to happen. It could be that it takes much longer for us to get through the issues with the virus,” he told reporters.

“It could be that the virus comes back, so we are exploring scenarios where we have a much longer period of weakness, and obviously the pressures on airlines are correspondingly larger”. (Reporting by Tim Hepher, Alistair Smout, Editing by Louise Heavens and Alexander Smith)

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UPDATE 1-China will make further targeted RRR cuts to cushion virus impact

(Adds details, quotes)

BEIJING, March 31 (Reuters) – China will make further targeted cuts in the reserve requirement ratio (RRR) for medium- and small-sized banks to help cushion the impact of the global coronavirus outbreak, state media reported on Tuesday, quoting a cabinet meeting chaired by Premier Li Keqiang.

“We need to strengthen the adjustment of fiscal and monetary policies in the face of new challenges from the domestic and international epidemic situation and rapid changes in the world economic and trade situation,” the cabinet was quoted as saying.

China will increase re-lending and re-discount quotas for medium and small banks by 1 trillion yuan ($140.85 billion) and will issue more local government special bonds, it said.

It will also let financial institutions issue 300 billion yuan in bonds to support small firms and aims to increase corporate credit bond issuance by 1 trillion yuan from the previous year, the cabinet said.

China will issue more quotas on local governments’ special bonds, supporting key projects, and all regions should strive to complete the issuance in the second quarter, it said.

The government will extend subsidies for new energy vehicle (NEV) purchases and extend NEV’s purchase tax exemption for two years, it said.

The government has already rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and reserve requirements, and low-cost loans for some firms, as the pandemic weighs on demand at home and abroad.

Last week the ruling Communist Party’s Politburo called for expanding the budget deficit, issuing more bonds, guiding interest rates lower, delaying loan repayments, reducing supply-chain bottlenecks and boosting consumption.

Data on Tuesday showed factory activity in China unexpectedly expanded in March from a collapse the month before, but analysts caution that a durable near-term recovery is far from assured.

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Australia fires 'warning shot' on foreign takeovers amid coronavirus weakness

SYDNEY (BLOOMBERG) – Australia on Monday (March 30) announced that foreign investments, regardless of size, must seek approval by the nation’s investment review board.

Treasurer Josh Frydenberg said the new rules were “temporary and are designed to protect Australia’s national interest” as the coronavirus outbreak continues.

The tighter scrutiny on foreign takeovers is to protect domestic firms from getting picked up at times of weakness, according to Deutsche Bank.

“It’s not a blanket ban but really just firing a warning shot out there,” Alex Cartel, head of investment banking coverage for Australia at Deutsche Bank, said in a phone interview. “From their perspective, it’s about ensuring we come out the other side of this phase in the same position as we went in as much as we can.”

While Frydenberg stressed that it’s not an investment freeze, the new measure is set to deter any foreign suitor looking to take advantage of what could be Australia’s first recession in 30 years, with some companies already tapping credit lines and selling new shares to raise funds. It also underscores the government’s efforts to reassure corporate confidence after local asset prices plunged due to the coronavirus pandemic.

Frydenberg said he will continue to review foreign investment proposals against the national interest on a case-by-case basis and will apply conditions to address identified risks when appropriate.

The change will effectively put all foreign investors under the same scrutiny applicable to overseas governments, said Malcolm Brennan, a Canberra-based partner at law firm King & Wood Mallesons. The measures could potentially lead to a backlog of deals for reviews, while transactions that could save jobs or even boost employment will likely be fast-tracked, he said.

The government said on Monday that it will prioritize urgent applications for investments that protect and support Australian businesses and jobs, while the review board will extend timeframes for reviewing applications from 30 days to up to six months.

“Proposals like internal reorganizations where you’re just reshuffling the deck chairs for a slightly better tax outcome, they will now take six months or FIRB might even tell you to come back later,” Brennan said.

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GLOBAL MARKETS-Asia shares make cautious gains, investors eye China PMI

* Asian stock markets : tmsnrt.rs/2zpUAr4

* Shares supported by month-end demand, gains modest

* China factory survey expected to show improvement

* Oil prices steady for now after steep drop

By Wayne Cole

SYDNEY, March 31 (Reuters) – Asian share markets managed a tentative rally on Tuesday after European and U.S. equities stabilised, though buying for month and quarter-end book balancing likely flattered the gains.

There were also hopes a survey of Chinese manufacturing due later would show a sizable improvement for March as factories began to re-open.

Forecasts are that the China’s official purchasing manufacturers’ index will bounce to 45.0, from a record-low 35.7 in February.

Analysts cautioned the result could even be higher given that the index measures the net balance of firms reporting an expansion or contraction in activity.

If a company merely resumed working after a forced stoppage, it would read as an expansion without saying much about the overall level of activity.

In any case, calmer markets globally helped MSCI’s broadest index of Asia-Pacific shares outside Japan rise 0.7%. Japan’s Nikkei edged up 0.2% and South Korea 1.4%.

E-Mini futures for the S&P 500 added another 0.3%, supported by talk of book-keeping demand.

“It’s month-end rebalancing, whereby balanced funds now underweight equities versus fixed income given this month’s valuation destruction, need to buy stocks to get back into balance,” analysts at NAB said.

Healthcare had led Wall Street higher, with the Dow ending Monday up 3.19%, while the S&P 500 gained 3.35% and the Nasdaq 3.62%.

News on the coronavirus remained grim but radical stimulus steps by governments and central banks have at least provided some comfort to economies.

Infections in hard-hit Italy slowed a little, but the government still extended its lockdown to mid-April. California reported a steep rise in people being hospitalised, while Washington state told people to stay at home.

Trade ministers from the Group of 20 major economies agreed on Monday to keep their markets open and ensure the flow of vital medical supplies.

OIL PRICES OVERWHELMED

Portfolio management also played a part in the forex market where many fund managers found themselves over-hedged on their U.S. equity holdings given the sharp fall in values seen this month, leading them to buy back dollars.

That saw the euro ease back to $1.1030, from a top of $1.143 on Monday, while the dollar index bounced to 99.207, from a trough of 98.330.

The Japanese yen continued to attract safe-haven demand of its own, which left the dollar at 108.08 and off last week’s peak at 111.71.

Oil prices plunged to the lowest in almost 18 years on Monday as lockdowns for the virus squeezed demand even as Saudi Arabia and Russia vied to pump more product.

In a new twist, U.S. President Donald Trump and Russian President Vladimir Putin agreed during a phone call on Monday to have their top energy officials meet to discuss slumping prices.

“However, the reality is that the level damage to demand is likely to overwhelm any production cut agreement between major producers,” wrote analysts at ANZ in a note.

“The lockdown of cities around the world and the shutdown of the aviation industry will cause a fall in demand the industry has never seen before.”

Prices did at least try and steady early Tuesday, with U.S. crude up 56 cents to $20.64. Brent crude futures gained 25 cents to $23.01 a barrel.

In the gold market all the talk has been of a rush of demand for the physical product amid shortages in coins and small bars. Flows into gold-backed ETFs have ballooned by $13 billion so far this year, the most since 2004.

The metal was holding at $1,616 an ounce, well up from a low of $1,450 touched early in the month.

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World's biggest sovereign wealth fund dragged closer to forced asset sales

OSLO (BLOOMBERG) –Norway’s US$950 billion (S$1.35 trillion) sovereign wealth fund – the world’s biggest – is about to make history as it prepares to liquidate assets to cover government withdrawals.

The crisis triggered by the coronavirus pandemic is playing out very differently for the giant investor than the 2008 great recession. Back then, Norway’s wealth fund used the global sell-off to buy up cheap stocks. This time, the fund will probably need to offload a sizable chunk of its bond portfolio.

Norway faces its worst economic shock in half a century. With petroleum revenue sharply down, the government has much less income to use on crisis measures. That means it will need to withdraw historic sums from its wealth fund to make ends meet.

While past withdrawals were easily covered by the fund’s cash flow, that’s no longer the case. Companies it invests in are now suspending dividends en masse, in response to the crisis.

Chief executive officer Yngve Slyngstad has already said cash flow this year will be “significantly lower” than previously expected. In 2019, the fund got 243 billion kroner (S$30.9 billion). Meanwhile, calculations by Bloomberg News show that Norway’s government will need to pull at least 266 billion kroner from the fund this year (assuming oil prices stay at current levels through 2020).

The situation is quickly deteriorating, and the numbers remain subject to change. A week ago, it looked like government withdrawals would reach just 150 billion kroner.

Meanwhile, a rule requiring the fund to rebalance its portfolio is likely to be triggered on Tuesday (March 31), after the equity portion fell about 5 percentage points below a 70 per cent target last week. In that case, withdrawals would need to be covered by bond sales, Slyngstad said.

The contrast to 2008-2009 is striking. In the first quarter of 2009, the fund bought 136 billion kroner’s worth of cheap stocks, laying part of the foundation for its spectacular ascent during the decade-long rally that followed. What’s more, Norway’s petroleum income peaked in 2008, and the government deposited surplus cash into the fund.

Slyngstad, who is due to step down this year after running Norway’s wealth fund for 12 years, has described the period right after the 2008 financial crisis as the “hardest – but also in retrospect best” of his tenure.

Norway’s fund was set up in the 1990s and invests in stocks, bonds and real estate abroad. The Nordic country has a self-imposed rule to limit spending of oil wealth to 3 per cent of the fund’s value over annual budgets in the long run. This year, that’s likely to be at least 3.9 per cent, the government said in fresh estimates on Monday.

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MAS warns of job losses, slower wage growth as recession looms

The Monetary Authority of Singapore (MAS) expects increasing job losses and fewer pay rises this year as the economy heads into its worst recession on record.

The central bank said the job market will worsen amid a sharp drop in both economic activity and demand for goods and services at home and abroad.

“The resident unemployment rate is expected to rise and wage growth ease,” MAS said in its monetary policy statement yesterday.

“A degree of labour market slack could emerge as firms pull back on their hiring plans, even as the scale of retrenchments is mitigated by the Jobs Support Scheme,” it said.

MAS noted the “economy will enter a recession”, and will shrink by 1 per cent to 4 per cent this year.

In the fourth quarter of last year, the seasonally adjusted unemployment rate had risen to 2.3 per cent, up from 2.1 per cent in the last three months of 2018.

Unemployment among Singaporean citizens was even higher at 3.3 per cent, up from 3 per cent in the same quarter of 2018.

Retrenchments had also crept up in the fourth quarter of last year to 2,700 persons, compared with 2,470 in the third quarter of 2019.

Even more troubling is the fact that the job vacancy to unemployment ratio has stayed below 1.0 since the second quarter of last year – suggesting there were more unemployed persons than vacancies available.

United Overseas Bank economist Barnabas Gan, in a research note yesterday, compared the current labour market trends to previous periods of crisis, and noted that unemployment rates had risen then despite government intervention.

Singapore’s unemployment rate increased to 4.8 per cent in the third quarter of 2003 during the severe acute respiratory syndrome (Sars) outbreak, up from 3.6 per cent the previous year.

Similarly, during the global financial crisis (GFC), the unemployment rate rose to 3.3 per cent in the third quarter of 2009, up from 2.3 per cent in the second quarter, despite the introduction of the $20.5 billion Resilience Package then.

“Coupled with the initial stress seen in Singapore’s labour market prior to the Covid-19 outbreak, the pandemic will likely further weaken Singapore’s labour market in 2020,” Mr Gan said.

“As such, we pencil Singapore’s unemployment rate to rise to 3.5 per cent in 2020, similar to the impact seen during Sars and GFC.”

However, Mr Gan pointed out, the level of government support announced this time around – a total of $55 billion – is more than twice the level of support given during the global financial crisis and should help mitigate some of the negative impact of the crisis.

Weak labour market conditions and consumer sentiment, however, may lower inflation, capping costs for businesses and prices for consumer goods.

MAS lowered its 2020 forecast range for both core inflation, which excludes the costs of accommodation and private road transport, and overall consumer price inflation to minus 1 per cent to 0 per cent.

Core inflation fell last month into negative territory for the first time in a decade as the pandemic’s damage to demand outweighed price pressures from supply disruptions.

MAS expects external sources of inflation to weaken in the near term amid the global downturn and, in particular, due to the sharp slide in oil prices, which are expected to stay low for an extended period.

“However, supply chain disruptions arising from worldwide measures to contain Covid-19 could put some temporary upward pressure on imported food prices,” it said.

Maybank economist Chua Hak Bin, in an e-mail reply to questions yesterday, said imported inflation can also rise due to hoarding of staples by some of the leading food exporters.

Vietnam, for example, halted overseas shipments of the commodity from Tuesday to Saturday last week to ensure its own food security.

“Food prices may see a temporary increase in March and April due to the supply chain disruptions, but will not offset the broad-based decline,” Dr Chua said.

MAS expects rentals to be broadly flat as demand for accommodation eases in line with the reduced inflow of foreign workers.

Dr Chua said businesses are focused on survival and staying afloat, as revenue topline is collapsing and margins are coming under pressure.

On the other hand, consumers stuck at home will cut back on discretionary spending and holidays.

“Severe job losses in the coming months could see consumers delaying big-ticket items, including cars and housing,” he said.

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