The Economist - USA (2020-03-21)

8 The EconomistMarch 21st 2020
The world this week Business

TheFederalReservetookmore

emergencymeasurestobolster

short-termliquidityinmar-

ketsbyprovidingnewfunding

lifelinestobanks.It alsocutits

benchmarkinterestrateclose

tozeroandbegana newpro-

grammetobuycommercial

paper.Stockmarketswerein

freefall;tradingwashalted

againontheNewYorkStock

Exchangeaftersteepplunges

triggeredanautomatic“circuit

breaker”.TheS&P 500 hadits

worstdaysince1987,fallingby

12%.It hasnowshedallthe

gainsit madelastyear.

Sinking sterling

As investors turned to the

dollar for safety, the poundfell

to levels last seen during the

1980s, dropping below $1.15 in

trading. Uncertainty about

Brexit was an extra factor

weighing on panicky markets.

TheEuropean Central Bank

launched a €750bn bond-

buying programme that covers

government and corporate

debt. Banks in the euro zone

tapped €109bn in ultra-cheap

loans under a new facility.

China’scentral bank lowered

the amount of cash holdings

that banks are required to keep

in reserve, a measure intended

to free up loans to businesses.

Industrial output in China

shrank by 13.5% in January and

February compared with the

same two months in 2019, the

biggest drop on record. In

Britainthe government un-

veiled a £330bn ($380bn) loan

package for firms.

Andrew Bailey took over as

governor of the Bank of

England, a baptism of fire as

the central bank reacts to the

covid-19 crisis and continues

its preparations for Britain’s

withdrawal from the eu’s

financial provisions by the end

of the year. Mr Bailey said the

bank would seek to limit the

fallout from the crisis so that it

would be “disruptive” instead

of “destructive”. He added that

the bank was willing to pump

unlimited amounts of money

into the economy through the

government’s new covid

financing facility.

At an emergency meeting

Turkey’scentral bank cut its

benchmark interest rate by one

percentage point, to 9.75%,

causing the lira to slide. The

bank thinks a global slowdown

will cool inflation, which is on

the rise again in Turkey.

Commodity pricescontinued

to tumble amid gloomy fore-

casts for industrial demand.

Facing a double whammy of

reduced demand and a price

war started by Saudi Arabia, oil

prices plunged, with Brent

crude at a 17-year low of around

$25 a barrel. Gold prices, usual-

ly a haven in stressed markets,

dropped as investors cashed in

their holdings. Silver, which is

widely used in industrial

processes, was at its lowest

price since 2009.

The International Air Tran-

sport Association warned that

the forecast it provided only

recently about the hit to air-

linerevenues during the crisis

is now out of date. The associa-

tion is calling for governments

around the world to provide

carriers with direct financial

support, favourable loans and

tax relief, which it now reckons

could cost between $150bn and

$200bn. The situation is “total-

ly beyond the control of the

airlines”, it said.

Boeingalso asked for help,

requesting $60bn “in access to

public and private liquidity”,

including loan guarantees, for

the aerospace industry. Al-

ready battered by drawbacks in

getting the 787 maxto fly again,

its share price has slumped

since mid-February, and fell

sharply again this week when

Standard & Poor’s cut its credit

rating by two notches.

Amazondecided to employ an

extra 100,000 warehouse and

logistic workers in America to

help it cope with a surge in

online shopping. It is also

restricting space in its ware-

houses to household essentials

and medical supplies, leaving

little room for third-party

sellers. Although Amazon is

hiring, Steven Mnuchin, the

treasury secretary, reportedly

thinks America’s unemploy-

ment ratecould hit 20% if

drastic action isn’t taken.

The crisis is taking a heavy toll

on other retailers. Zara, a

fashion chain, temporarily

shut half its stores worldwide.

Laura Ashley, a purveyor of

textiles and other goods

themed in the English-

romantic style, was close to

collapse. It opened its first

shop in the 1960s.

Franceslapped a €1.1bn

($1.2bn) fine on Applefor

conniving with wholesalers to

suppress competition. Apple

said the decision, the biggest

antitrust penalty imposed on a

single company in France,

ignored 30 years of legal prece-

dent. The firm plans to appeal.

The mighty Quinn

hsbcappointed Noel Quinn as

its chief executive. Mr Quinn

was given the job on an interim

basis when John Flint was

defenestrated last August and

is ploughing ahead with a huge

restructuring at the bank.

Stepping up to the coronavirus

crisis in France, lvmh, the

world’s biggest maker of luxury

goods, switched its perfume

and cosmetic production lines

to make hand sanitiser, which

it is giving away to hospitals.

Sites that made Dior and Giv-

enchy scents are now churning

out hydroalcoholic gel.

Stockmarket volatility

Source: Datastream from Refinitiv

Cboe volatility index (VIX), % points

2017 18 19 20

0

20

40

60

80

100