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Equities drop as evidence mounts of deep global recession

NEW YORK (Reuters) – World equity markets began the new quarter with steep losses on Wednesday as evidence mounted that the coronavirus pandemic was sending the global economy into a deep recession.

Traders headed for the safety of government bonds, the dollar [USD/] and gold [GOL/] following sharp slowdowns in manufacturing activity in Japan and Germany, one day after data showed U.S. consumer confidence fell to 3-year lows.

The pan-European STOXX 600 sank 2.7% [.EU], while MSCI’s gauge of stocks across the globe shed 1.11%. Tokyo’s Nikkei slumped 4.5% after the worst plunge in factory activity in almost a decade.

On Wall Street, major benchmarks opened sharply lower after President Donald Trump warned late Tuesday that maintaining social distancing guidelines for the next 30 days would be a “matter of life and death.”

The Dow Jones Industrial Average slumped 755.87 points, or 3.45%, to 21,161.29, the S&P 500 lost 89.48 points, or 3.46%, to 2,495.11 and the Nasdaq Composite dropped 209.88 points, or 2.73%, to 7,490.22.

“President Trump’s warning about two dreadful weeks ahead and 100,000 – 240,000 deaths in the coming months is definitely putting a negative tone on the market,” said Societe Generale strategist Kit Juckes. “It is pretty risk-off out there. It is definitely a day of lower bonds yields, falling equity indexes and tin hats.”

U.S. markets ended the first quarter on Tuesday, marked by the largest quarterly fall since 1987 for the Dow Jones and the steepest for the benchmark S&P 500 since the financial crisis. The fact it all happened in a month and from record highs made it feel all the more brutal.

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. [L1N2BO2UT]

In currency markets, the dollar’s safe-haven appeal saw it continue to rise.

“In my view, markets have still not fully priced in the damage from the coronavirus, with some people still talking about V-shaped recovery,” said Masahiko Loo, portfolio manager at Alliance Bernstein in Tokyo.

“The U.S. and Europe are hit by the first wave now, but as you can see in Asia, there could be more waves from re-imported cases. Human psychology also does not quickly recover either after an experience like this.”

Traders jumped toward the perceived safety of government bonds, pushing the yield on the benchmark 10-year U.S. Treasury note to 0.5957% from 0.699% late on Tuesday.

Commodity markets were much rougher. Brent crude fell nearly 6% at one point to as low as $24.80 per barrel as the United States, Russia, and Saudi Arabia jostled over a massive oversupply of oil. [O/R]

Crude oil benchmarks ended the first quarter with their biggest losses in history. Both U.S. and Brent futures got hammered throughout March by the pandemic and a Saudi-Russia price war.

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

Graphic: Global assets in 2019, tmsnrt.rs/2jvdmXl

Graphic: Global currencies vs. dollar, tmsnrt.rs/2egbfVh

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Coronavirus: BP counts cost of ‘brutal’ oil price slump

BP says it is facing the “most brutal environment” for the industry in decades as it counts the cost of the slump in the oil price amid the coronavirus crisis.

The UK-based energy giant said it was cutting 2020 spending plans by 20% to $12bn (£9.7bn) and expects to take a $1bn (£810m) hit to first quarter profits.

Oil prices fell by 65% in the first quarter of the year as a result of a sharp drop in demand following restrictions on movement imposed to try to restrict the spread of the virus.

A price war between top oil producers Saudi Arabia and Russia further weakened the sector as the two nations increase supplies to try to win market share.

Earlier this week, the price of a barrel of Brent crude hit its lowest level since 2002.

BP’s decision to cut investment spending is in line with moves announced by rivals.

It is also looking to achieve $2.5bn (£2bn) in savings by the end of 2021 though the company has stressed that no BP employees will be laid off during the next three months as a result of virus-related cost-cutting.

Rival Royal Dutch Shell warned on Tuesday that it expects to take a hit of up to $800m dollars (£650m) in the first quarter.

The London-listed companies are staples of many UK pension funds.

BP chief executive Bernard Looney said: “This may be the most brutal environment for oil and gas businesses in decades.”

He said the company was acting “quickly and decisively” to shore up its finances.

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Explainer: Euro zone mulls package to support economy against coronavirus

BRUSSELS (Reuters) – With the euro zone economy in need of help during the coronavirus epidemic, officials have until April 9 to design a package that satisfies members with completely opposing views: those calling for joint debt issuance and those fiercely against it.

Mutualising debt has always been a red line for Germany, the Netherlands, Finland and Austria, but France, Italy, Spain and six other countries have called for “a common debt instrument issued by a European institution” to fight the economic effects of the epidemic.

EU leaders failed to agree last Thursday what to do, and gave ministers two more weeks to work it out. Deputy finance ministers will debate options on Wednesday and Monday and the finance ministers themselves are to hold a teleconference on April 7.

A compromise might emerge by early next week that would include one or more of the following elements in a package:

1. BORROWING BY THE EURO ZONE BAILOUT FUND ESM

One of the main options. The European Stability Mechanism (ESM) is owned by euro zone governments, which are jointly responsible for the debt it issues to finance a government. The ESM could extend standby credit lines, worth up to 2% of GDP, to any euro zone country that asks for it.

The snag is that it would entail a debt sustainability assessment of the applicant — something highly-indebted Italy is loathe to submit to — and carry some conditions, even if focused only on the pandemic. Italy and Spain want no conditions.

2. BORROWING BY THE EUROPEAN INVESTMENT BANK

An option the EU is considering. The EIB, the investment bank of the EU, is owned by EU governments. It finances all kinds of projects supported by the 27-nation bloc and could support companies hit by the epidemic. The EIB raises money by borrowing cheaply on the market thanks to its triple-A rating.

The bank has already offered to immediately deploy close to 40 billion euros of additional funding to help fight the effects of the coronavirus. EIB head Werner Hoyer has also suggested that governments give the bank 25 billion euros in additional guarantees, which could then be used as leverage to mobilize 200 billion euros in additional financing to small and medium sized companies. EU finance ministers — its owners — could also agree to increase the EIB’s capital to further boost lending.

3. BORROWING BY THE EUROPEAN COMMISSION

The European Commission, which also has a triple-A rating, can borrow on the market against the collateral of the EU budget. It did so to raise 60 billion euros for the European Financial Stabilisation Mechanism (EFSM) — an emergency fund created in 2010 when the sovereign debt crisis started.

The EFSM lent money mainly to bail out Ireland and Portugal, but the fund could serve all EU members. There is currently 13 billion euros left. EFSM loans came with conditions.

The Commission could use the mechanism again if governments agreed to set aside EU budget guarantees this year and in the EU’s next long-term budget of 2021-2027.

4. UNEMPLOYMENT RE-INSURANCE

The European Commission has proposed a new state-supported, short-time working scheme to help people keep their jobs as the epidemic takes its toll on economies across the 27-nation bloc.

The scheme is clearly modeled on the German Kurzarbeit plan under which the government pays part of a worker’s wages so that jobs are not cut despite an economic slowdown. It is not yet clear where the money for that will come from.

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Factory activity plunges as coronavirus shock deepens

LONDON/TOKYO (Reuters) – Factories fell quiet across most of Europe and Asia in March as the coronavirus pandemic paralyzed economic activity, with evidence mounting that the world is sliding into deep recession.

Manufacturing activity has tumbled, purchasing managers’ index (PMI) surveys showed on Wednesday, with sharp slowdowns in export powerhouses like Germany and Japan overshadowing a modest improvement in China.

The virus pandemic has infected more than 850,000 people around the globe and forced factories, shops and schools to close amid government-imposed lockdowns.

This has upended supply chains and crushed demand for goods as consumers worried about job prospects rein in their spending and stay indoors.

In the euro zone, IHS Markit’s final March manufacturing PMI sank to lowest since mid-2012, when the currency union’s debt crisis was raging, and was well below the mark separating growth from contraction. [EUR/PMIM]

Data from the United States later on Wednesday is likely to show a sharp decline in factory activity there too as authorities enforce strict lockdown measures to control the spread of the virus. (reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=USPMI%3DECI poll)

U.S. consumer confidence has dropped to a near three-year low as the pandemic shakes people’s lives, with a record number of Americans filing for unemployment benefits.

Output from Britain’s factories shrank at the fastest pace since the debt crisis as the spread of coronavirus led to a spiraling of delays and hammered business confidence. [GB/PMIM]

“With consumers clamping down on all discretionary spending in the current uncertain environment, the manufacturing sector inevitably will struggle further,” said Samuel Tombs at Pantheon Macroeconomics.

Global fund managers polled by Reuters are convinced the world economy is already in recession, similar to economists’ assessments in another Reuters poll. [ASSET/WRAP][ECILT/WRAP]

As the prospect of a deep recession grows, traders on Wednesday made a fresh dart for the safety of government bonds, the dollar and gold <GOL/>.

CHINA HEALING?

Chinese factory activity improved slightly more than expected after plunging a month earlier, its PMI showed, but growth was marginal, highlighting the intense pressure facing businesses as domestic and export demand slumps.

While factories in China gradually restarted operations after lengthy shutdowns and a fall in virus cases allowed the country to start relaxing travel restrictions, activity in South Korea shrank at its fastest pace in 11 years as many of its trading partners imposed dramatic measures to curb the virus’ spread.

“If you look at the Korean numbers, they’re fairly bad … They’re likely to get worse still because Korea will be dependent on parts from Europe and the United States,” said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.

“(Policymakers) have to accept the inevitable that there is a massive global pandemic here, there is an outbreak in almost every country globally and certainly in our region, which is getting to levels that if they don’t take very dramatic action, it’s going to get much worse,” he said.

Japan’s factory activity contracted at the fastest pace in about a decade in March, adding to views that the world’s third-largest economy is likely already in recession.

A separate “tankan” survey by the Bank of Japan showed business sentiment soured to a seven-year low in the three months to March, as the outbreak hit sectors from hotels to carmakers.

“The tankan clearly shows a sharp deterioration in business sentiment and confirms the economy is already in recession,” said Yasunari Ueno, chief market economist at Mizuho Securities.

China’s Caixin/Markit PMI rose to 50.1 last month from February’s record low of 40.3 and just a notch above breakeven mark, while South Korea’s IHS Markit PMI plunged to its lowest since January 2009 when the economy was reeling from the global financial crisis.

In Japan, where the PMI fell to its lowest since April 2009, the ruling coalition has called on the government to secure a stimulus package worth at least 60 trillion yen ($553 billion).

“Things are likely to get a lot worse in the months ahead,” Alex Holmes at Capital Economics said in a note to clients, noting the survey period for the PMIs likely didn’t capture more recent lockdowns such as those in Malaysia and Thailand.

The consultancy expects global gross domestic product (GDP) to fall by more than 3% this year.

Policymakers across the globe have announced massive monetary and fiscal stimulus measures to try to mitigate the economic fallout from the pandemic, keep cash-starved businesses afloat and save jobs.

But many measures have been short-gap steps to deal with the immediate damage to corporate funding and shore up banking systems amid worries of a credit crisis.

The International Monetary Fund has said the pandemic was already driving the global economy into recession, calling on countries to respond with “very massive” spending to avoid bankruptcies and emerging market debt defaults.

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U.S. small businesses wait impatiently for government aid that could be slow to come

NEW YORK/WASHINGTON (Reuters) – As soon as New York officials began detailing their response to the coronavirus, Matt Preis knew his staff might be in trouble.

His Brooklyn-based pet company Chuck & Buddha’s cares for animals while their owners work or travel. But as his customers suddenly found themselves at home under government orders, business dried up.

“I have never seen anything like this in my lifetime,” said Preis, who employs three full-time workers and several others part-time. “Even the downturn in 2008 didn’t affect independent dog walkers too much, except there were a lot more of us all of a sudden.”

Like many other small-business owners who spoke to Reuters, Preis is hoping new government programs might keep him afloat.

But the application process can be confusing, with local, state and federal programs touting initiatives that do not immediately offer much-needed access to cash. And while the federal government wants to disperse funds quickly, logistical hurdles – including a lack of staff to vet mountains of applications – will be hard to overcome.

Over the past few days, Preis has contacted relevant agencies, his bank and financial advisers. As of Tuesday afternoon, he had been given just two hyperlinks and was working on applications.

“I don’t know what the future holds for many small companies, which include our mom-and-pop dog-walking operation,” Preis said.

Seeking to help millions of business owners who have seen their operations either shut down or dramatically curtailed by the coronavirus pandemic, Congress last week passed a $2 trillion stimulus package that includes $349 billion aimed at small firms through the Payroll Protection Program.

It covers eight weeks of payroll and some other operating expenses through a forgivable loan of up to $10 million for businesses that have roughly 500 or fewer employees.

The program is retroactive from Feb. 15 so employers who laid off workers can re-hire them through June 30, according to guidance provided by the Treasury Department on Tuesday. It appears to offer broad coverage, including for self-employed individuals, independent contractors, non-profits, military-veteran organizations and tribal groups.

“Speed is the operative word,” Jovita Carranza, administrator of the Small Business Administration (SBA), said in a statement. The SBA is the main agency through which money will flow from the Treasury Department.

But for many owners, relief may not come quick enough – their revenues and supplies gutted after many local and state governments ordered business closures in mid-March. Some authorities have also expanded restrictions since then.

Kelly Klein, CEO of Groennfell Meadery in Saint Albans, Vermont, whose business has basically shut down said she has not gotten clear information about the federal loan program, despite reading information online and talking to her banker.

Her five employees are waiting to hear if they remain employed after May.

“Without something we wouldn’t be able to keep our employees,” she said. “ My biggest goal is to keep them and of course make sure there’s a business for them to come back and work for.”

EASIER SAID THAN DONE

The SBA is sure to be overwhelmed. It issued $28 billion in loans last year, and will have to process more than 10 times that amount in just three months with limited staff, sources in Washington and in the banking industry told Reuters.

Many declined to be identified as they were not authorized to speak about it.

Complicating matters, the White House wants to be the clearinghouse for all information about the coronavirus, making it hard for agencies to help banks understand the program better, people briefed on the discussions about the program said.

Lenders must verify that borrowers had specific employees on their books at the time they claim, and that their other costs are legitimate, which can take time. They must also follow requirements to prevent fraud and protect customer information under the Bank Secrecy Act.

“This is the kind of program that in ordinary times would take a year to get started,” said Greg Baer, CEO of the Bank Policy Institute.

Banks have been telling customers to be patient and asking them to get relevant paperwork ready so that loans are processed quickly when it all comes together. Some expect cash to begin moving as soon as Friday.

Huntington Bancshares Inc (HBAN.O) CEO Stephen Steinour said he expects to have staff working seven days a week on extended shifts through the end of June and to hire outside contractors for additional support.

“There’s going to be an enormous flow,” he said.

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Occidential, Noble Energy making cutbacks due to coronavirus, dropping oil prices

Colorado’s top two oil and gas producers are cutting employees’ pay and hours and placing workers on furlough as they cope with an extraordinary drop in demand due to the coronavirus-fueled economic clamp-down.

Noble Energy, the state’s second-largest oil and gas producer, said Tuesday that it will place roughly 30% of its U.S. workforce on furlough or part-time starting April 6. Employees placed on unpaid furlough and those reduced to half-time will continue to receive full health benefits, company spokeswoman Paula Beasley said in an email.

The cutbacks are designed to be temporary, focusing on the next 90-180 days, Beasley said. Employees can use their accrued paid time off before starting their furlough.

Noble Energy, based in Houston, has a total of 2,300 employees. It was unclear how many of the 650  Colorado workers would be affected by the reductions. In February, when the company announced plans for capital spending in the U.S., it said 60% it was allocated for the DJ Basin.

The company initially stopped recruiting new employees and cut its contractor workforce by approximately 75%.

Houston-based Occidental Petroleum, the dominant player in Colorado’s Denver-Julesburg Basin, has notified employees of a number of measures to respond to “this unprecedented time impacting our industry, and the global economy,” spokeswoman Jennifer Brice said in an email. The measures include cutting pay, which Brice said will affect everyone, from the management team on down.

The company didn’t specify the size of the pay reductions or the other actions.

“We deeply value our employees and want to keep them working for the health of their families, the communities we serve, and the overall economy,” Brice said.

Occidental, which acquired Anadarko Petrolum in 2019 and took over the Colorado operations, has about 600 employees in the state.

Both companies announced earlier this month that they would significantly reduce spending in the face of plunging oil prices. Oil prices, already on the way down, plummeted 24% March 10, shaking the stock market, when a price war broke out between Saudi Arabia and Russia.

As a result, Saudi Arabia has flooded the saturated market with low-price oil, further depressing prices. Adding to the industry’s woes is the global impact of the coronavirus, which has driven down demand for oil.

“We have a demand collapse that is just unfolding. The worst is probably going to be in the quarter ahead,” Ed Morse, managing director and global head of commodity research with Citigroup said in a call with reporters Tuesday.

Oil prices, which are at about $20 a barrel, will likely drop more, added Morse, speaking on the call organized by the National Association for Business Economics. 

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Exclusive: KKR shelves $2 billion sale of Singapore-based Goodpack due to market slump: sources

SINGAPORE (Reuters) – KKR & Co (KKR.N) has shelved a plan to sell Singapore-based Goodpack, which provides shipping containers and logistics services, after the coronavirus outbreak hit valuations, sources with knowledge of the matter said on Wednesday.

The private equity group had received bids from a few consortiums after tapping more than a dozen potential buyers late last year, the sources said, adding that a deal could have valued Goodpack at about $2 billion.

“Till about six weeks ago, bidders were interested and a deal looked likely but there’s a lot of uncertainty in the current environment,” said one of the sources.

The sources declined to be identified as the shelving of the deal has not been made public. KKR declined to comment.

A successful deal would have ranked as one of the largest private-equity backed sales in Asia excluding Japan and Australia for the past few years, according to data from Refinitiv.

KKR acquired Goodpack for about S$1.4 billion ($985 million)in 2014 and delisted it from Singapore Exchange. Goodpack then changed senior management, expanded into new markets such as food and chemicals and set up offices in Europe and the United States.

Goodpack’s network is embedded in the supply chain of many multinational companies and its business is expected to weather any short-term downturn, the source said.

It also caters to global customers in the rubber and automotive sectors with operations across 80 countries and about 5,000 delivery and collection points.

The coronavirus pandemic has prompted governments around the world to impose social distancing and other containment measures that have brought many businesses to a near standstill.

The value of deals in Asia-Pacific fell 20% in the first three months of 2020 versus a year earlier, data from Refinitiv shows.

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Coronavirus: Big banks stop shareholder dividends until the end of 2020

Britain’s biggest banks are to halt billions of pounds in dividends to shareholders to free up more cash for the economy in the wake of the coronavirus crisis.

Barclays shareholders were expected to be paid £1.03bn on Friday, Lloyds shareholders would have pocketed £1.58bn while RBS had expected to pay its shareholders a total of £968m – £600m of which would have gone to the Treasury because of the government’s 62% stake in RBS.

Standard Chartered, NatWest, Santander, Nationwide and HSBC have also agreed to cancel dividends and share buybacks.

It follows a request from the Bank of England’s Prudential Regulation Authority (PRA) that they suspend all plans to return money to shareholders for the next nine months.

The PRA also said it expects banks not to pay any cash bonuses to their top members of staff.

The PRA said it “welcomes” the decisions of all the UK’s biggest banks to suspend dividends and share buybacks until the end of 2020, and cancel any outstanding payments.

It added: “Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption, alongside the extraordinary measures being taken by the authorities.”

Following the 2008 financial crisis the rules governing banks were tightened to make sure they retained more capital to mitigate against severe financial shocks.

The PRA said it believes Britain’s banks have enough capital to weather severe recessions caused by the coronavirus pandemic in both the UK and globally.

RBS chief executive Alison Rose said: “RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of COVID-19.”

Barclays chairman Nigel Higgins said: “These are difficult decisions, not least in terms of the immediate impact they will have on shareholders.

“The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now, and ensure that Barclays is well placed to continue doing what we can to help through this crisis.”

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Exclusive: U.S. plans to lease space to energy companies to store oil in emergency reserve

NEW YORK/WASHINGTON (Reuters) – The U.S. Department of Energy plans to announce as soon as Wednesday it will allow oil companies to lease space in the emergency oil reserve, as it seeks to comply with President Donald Trump’s directive to fill the facility to capacity, two industry sources said.

The Strategic Petroleum Reserve, or SPR, has the capacity to take another 77 million barrels of oil, a little less than the country uses in four days.

Trump ordered the Department of Energy, or DOE, on March 13 to take advantage of low oil prices and fill the reserve “to the top”, in an effort to help domestic drillers suffering from the global oil price drop. But carrying out the order has been tricky.

The DOE ditched an initial plan to buy 30 million barrels, after Congress did not fund the purchase in the $2 trillion stimulus package. That plan was aimed at helping small to mid-size drillers as it would only buy domestic oil from companies with up to 5,000 employees.

The SPR currently holds about 635 million barrels of oil in salt caverns on the Texas and Louisiana coasts.

It was not clear whether the DOE would require that companies leasing space in the caverns are based domestically, if the oil will have to be produced in the United States, or come from companies with less than 5,000 workers.

The DOE did not immediately respond to a request for comment.

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Singapore private home prices drop 1.2% in Q1 amid coronavirus outbreak

SINGAPORE – Singapore’s property market may have caught its first chill from the coronavirus with quarterly private home prices declining for the first time in a year.

According to flash data from the Urban Redevelopment Authority (URA) on Wednesday (April 1), prices of private residential properties dropped 1.2 per cent in the first three months of the year from the previous quarter.

Private home prices rose 2.7 per cent last year in a modest recovery from the July 2018 cooling measures, with prices rising 0.5 per cent in the final quarter of 2019.

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