Wednesday4 March 2020 ★ FINANCIAL TIMES 3
B R E N DA N G R E E L E Y— WASHINGTON
C O L BY S M I T H— NEW YORK
A N D C H R I S G I L E S— LONDON
Before yesterday’s US markets opening,
the finance ministers and central bank
governors of the G7released a statement
following the OECD’s forecasts on Mon-
day that suggested the global economy
was heading for recession.
The statement contained few specific
commitments, unlike its decisive
response to the 2008 financial crisis, but
pledged fiscal support to ensure health
systems could respond to thecoronavi-
rus outbreak and to tide economies over
during what policymakers now believe
is likely to be a serious slowdown for at
least a few months.
Financial market observers, however,
predicted that other central banks and
finance ministries would now come
under serious pressure to follow the
Federal Reserve’s decisive move to cut
interest rates by 50 basis points.
With interest rates lower in Japan, the
eurozone and the UK than in the US,
David Page, senior economist at AXA
Investment Managers, said the Fed’s
move, “presents something of a chal-
lenge for other international central
banks”, but they were more likely to
stick to scheduled meetings.
Andrew Kenningham of Capital Eco-
nomics, said the European Central Bank
would have to respond and predicted it
would cut its deposit rate by 0.1 percent-
age points next week, putting it further
into negative territory at -0.6 per cent.
Fed chairmanJay Powell yesterday
said it was in touch with“central banks
around the world on an ongoing basis”.
One central bank to take action earlyin the day was the Reserve Bank of Aus-
tralia. It said the outbreakwas having a
“significant effect” on the country’s
economy as it cut rates by a quarter of a
percentage point to 0.5 per cent.
Australia also confirmed yesterday
that it was preparing a “targeted and
measured” fiscal stimulus package
amid growing concerns among policy-
makers thatthe country could face its
first recession in almost three decades.
“The coronavirus outbreak overseas
is having a significant effect on the Aus-
tralian economy at present, particularly
in the education and travel sectors,” said
Philip Lowe, RBA governor.
The Fed’s move “raises the question
whether they know something the mar-
ket doesn’t know”, said Torsten Slok,
chief economist at Deutsche Bank Secu-
rities. “We literally have no economicdata to hang our hat on yet. They cer-
tainly don’t want to be blamed for being
behind the curve.” Mr Slok added that
the time between signalling a rate cut
andcutting was “extremely short”.The Fedforeshadowed a possible cut
on Friday, in a rare statement outside of
a scheduled meeting. In its statement,
the US central bank had included the
phrase “act as appropriate”, one it has
usedbefore to signal an intention to cut.
As recently as last week, investors had
seen no chance f any cuts at the Fed’sonext meeting on March 18, according to
an analysis of short-term interest rate
futures by the CME Group. By Monday,
that likelihood had risen to 100 per cent
as short-termrates went into freefall.
“Given the wording on the economy
that accompanied the emergency
action, there is a real worry unfortu-
nately that the 50 basis point cut will be
viewed not only as the markets again
forcing the hand of the Fed but also as
yet another communication slippage on
the part of the Federal Reserve,” said
Mohamed El-Erian, chief economic
adviser at Allianz.
“It makes it even more important that
this action be framed in the context of a
co-ordinated global policy effort and
not just a correlated one,” he added.
As evidence of the spread of the coro-
navirus grew in the US, some analystswondered whether the blunt instru-
ment of monetary policy was the best
response to the economic fallout of a
potential pandemic.
“The Fed obviously views this as a
potentially substantial demand shock to
the economy and wants to get ahead of
the damage if possible,” said Tim Duy, a
monetary economist at the University
of Oregon. “The risks to early and large
movement are minimal in a low-
inflation environment. The Fed remains
focused like a laser on preventing a
recession.”
Additional reporting by Richard Hender-
son and Jennifer Ablan in New York
Editorial Commentpage 8
Notebookpage 8
Opinion age 9p
Companies age 12p
See MarketsC O L BY S M I T H— NEW YORK
Markets dropped after the US Federal
Reserve delivered an unscheduled
interest rate cut to help soothe the fall-
out of the coronavirus, indicating inves-
tors believe a lot more action may be
needed to stave off the worst financial
effects of the spreading illness.
US equities fell after the US central
bank cut its main policy rate by half a
percentage point in response to “evolv-
ing risks” from the coronavirus out-
break — its largest cut since the financial
crisis. After initially surging in early
New York trading, the S&P 500 stock
index quickly fell by more than 1 per
cent alongside the Dow Jones Industrial
Average and Nasdaq Composite.
Since the demise of Lehman Brothers
in 2008, the Fed has repeatedly come to
the rescue of stressed markets. Now,
this pullback shows just how much force
policymakers need to use to prop up
asset markets and calm financial condi-
tions after more than a decade of aggres-
sive monetary policy support, with the
focus now falling on whether the central
bank takes further steps at its next
scheduled meeting later this month.
“This raises the question of what the
Fed does in March, especially if the jobs
report on Friday shows no signs of the
US economy slowing down,” said Ajay
Rajadhyaksha, head of macro research
at Barclays in New York. “Do they con-
tinue to react to market pricing or do
they draw a line in the sand?”
In part, the drab market reaction
reflects the fact that investors had antic-
ipated the Fed’s move before it came;
Fed chairman Jay Powell saidlast week
that he was prepared to act as appropri-
ate — a stance since echoed by other key
central banks around the world. Stocks
had already picked up this week after
last week’s ugly declines.
In addition, investors are sceptical
that interest rate cuts are sufficient to
protect against a slowdown due to the
coronavirus, especially after Mr Powell
acknowledgedafter the rate cut
announcement that it was not clear how
long the impact of the virus wouldlast.
Eric Stein, a portfolio manager at
Eaton Vance, said he thought another
half-point rate cut was possible at the
Fed meeting scheduled for March 18.
“They could have cut [0.75 percentage
points] today, but they probably felt
that another couple of weeks wouldmake the impact of the virus clearer,” he
said. “They were conservative with their
response in case they need to step up
easing if the situation gets worse.”
Other markets repeated the pattern
set by stocks. Oil, which has been one of
the hardest hit asset classes due to the
direct impact on travel and fuel
demand, also gave up most of its gains
following the announcement of the Fed
cut, after rebounding strongly in the
past two days. Brent crude, the interna-
tional oil benchmark, was up 0.5 per
cent at $52.17 a barrel, but well off its
earlier high of $53.90.
US government bonds rallied to new
heights, with the yield on the bench-mark 10-year note falling below 1 per
cent for the first time ever to a record
low of 0.999 per cent. Bonds stand to
benefit from the Fed’s new stance as the
haven assets are boosted both by rate
cuts and by nerves over economic risks.
Some investors believe the Fed’s rapid
response to the virus opens up moral
hazard, with funds growing increasingly
confident that the central bank will
always come to their aid.
“I think the Fed cut has been a policy
mistake,” said Davide Serra, founder of
London-based investment firm Alge-
bris, which manages around $13bn in
assets. “Here, only the World Health
Organization, the Centers for DiseaseControl and Prevention and fiscal [pol-
icy] matter. Not central banks.”
Still, Seth Carpenter, chief US econo-
mist at UBS and a former US Treasury
official, said it might have been more
dangerous for the Fed to wait for greater
economic fallout.
“There is no way that coronavirus will
make the US economy stronger. It’ll
either be a small negative or a big nega-
tive. If you cut and it’s not that bad then
no problem. If it ends up being really
bad and you didn’t cut, then it could
take a lot longer to recover,” he said.
Additional reporting by Eva Szalay, Lau-
rence Fletcher, Joe Rennison and David
SheppardQ I A N E R L I U— SHENZHEN
S U E- L I N WO N G— HONG KONG
A group of female nurses about to be
dispatched to fight the coronavirus
outbreak are filmed having their heads
shaved by a team of male barbers.
Some shed tears as their hair is shorn,
and the women afterwards raise their
clenched fists in a Communist party
salute. Their only male colleague does
the same — except he has escaped the
barber’s clippers.
China’s propagandists hoped the video
would whip up feelings of patriotism
and self-sacrifice among Chinese
women. Instead, it had the opposite
effect, triggering anger among social
media users who labelled it sexist and
cruel, and said it undermined their owl
trust in the government’s ability to tell
the truth about the outbreak.
The spread of the virus has forced the
Chinese Communist party to open up a
small window to permit criticism and
allow people to vent their frustrations
online over the handling of the crisis by
local officials, especially those at the
centre of theoutbreak n Wuhan. Asi
part of this, female voices that are rarely
heard in authoritarian China, where
criticism of the government brings
harsh penalties, have come to the fore.
“Stop using women’s bodies as propa-
ganda tools,” demanded a post on
WeChat n response to the video. It wasi
viewed more than 100,000 times, the
maximum number displayed by the
app, before being blocked. “The corona-
virus outbreak has led to the largest-
scale backlash against the propaganda
machine since Xi Jinping became presi-
dent,” said Fang Kecheng, an assistant
professor at the Chinese University of
Hong Kong.
Li Sipan, a feminist activist, said
many women had been “disgusted by
the onslaught of traditional propaganda
tropes. On top of that, there has been a
particularly strong backlash from
female social media users as we see a
growing belief in the importance of gen-
der equality.”
Chinese propagandahas sought to
highlight the importance of women in
the fight against the virus, playingto
their traditional roles as carers.
The same day that the nurses videowent viral, the Communist party’s
Youth League ought to stir up patriotics
fervour by launching two virtual social
media influencers on their Weibo
account.But the efforts backfired.
The male avatar, whose name roughly
translated as “Red flag flutters freely”,
was unveiled alongside his female coun-
terpart Jiangshanjiao — “The country is
beautiful” — who quickly became the
target of social media outrage.
Almost immediately, a post asking
“Jiangshanjiao, do you get your period?”
went viral. This was a reference to the
Communist party’s dismissive response
when it emerged that medics on the
front lines of the outbreak were strug-
gling to find sanitary products. The post
was liked 800,000 times in less than 10
hours before being blocked.
Ai Xiaoming, a retired gender studies
professor, said that while Jiangshanjiao
was supposed to spread the communist
spirit and connect with young people
“the public totally rejected the party’s
efforts”.
But she also warned against overesti-
mating the impact of this new wave of
Chinese feminism. TheCommunist
party ontrols public discussion across ac
range of topics, and online debate about
the role of women during the outbreak
was no exception.
“It may appear that there has been a
lot of debate” about women, said Ms Ai.
“But behind the scenes there is an invisi-
ble hand that ultimately controls the
discussion.”Global central banks poised to follow US move
Finance ministries likely to come under pressure to follow Fed’s decisive action to cut interest rates by 50 basis points
US. inancial effectsF
Markets sceptical about Fed’s cut to quell illness impact
Central bank pullback shows
force needed by policymakers
to calm financial conditions
Party criticism
Beijing stokes ire with use of women in videos
C L I V E C O O KS O N— LONDON
A M Y K A Z M I N— NEW DELHIThe World Health Organization yester-
day made a new plea for governments
and companies to increase supplies of
personal protective equipment and
suppress soaring prices.“We are concerned that countries’ abili-
ties to respond are being compromised
by the severe and increasing disruption
to the global supply of PPE, caused by
rising demand, hoarding and misuse,”
Tedros Adhanom Ghebreyesus, WHO
director-general, told the organisation’s
daily teleconference in Geneva.
His comments followed India’s deci-
sion to restrict the exports of 26 drugs
and vitamins, including paracetamol,
progesterone, and a wide range of anti-
biotics, amid growing concerns about
the disruptions to drug supplies from
the coronavirus outbreak.
Dr Tedros said: “Shortages are leaving
doctors, nurses and other frontline
health workers dangerously ill-
equipped to care for Covid-19 patients,
due to limited access to supplies such as
gloves, medical masks, respirators, gog-
gles, face shields, gowns and aprons.
Prices of surgical masks have increased
six-fold, N95 respirators have more
than trebled and gowns cost twice as
much.”
He estimated that personal protective
equipment supplies needed to be
increased by 40 per cent. “We have
called on governments to developincentives for manufacturers to ramp
up production. This includes easing
restrictions on the export and distribu-
tion of personal protective equipment &
other medical supplies.”
India is a major drug exporter, selling
$17bn worth of mostly generic drugs to
overseas markets, including the US and
Europe. But it depends on China for
nearly 70 per cent of the raw materials
— or active pharmaceutical ingredients
— that it uses for its drug formulations.Cipla, one of India’s biggest drugmak-
ers, had warned last month that Indian
pharmaceutical companies would start
to face disruptions if their Chinese
suppliers were not able to resume
production by early March.
India’s new export restrictions were
imposed a day after health officials con-
firmed two new cases of coronavirus,
one in New Delhi— in a patient returned
from Italy— and one in Hyderabad, in a
patient that had returned from Dubai.
Sudarshan Jain, secretary-general of
the Indian Pharmaceutical Alliance,
which represents India’s domestic drug
companies, said companies that wanted
to export drug consignments would be
required to obtain prior governmentapproval for their shipments, demon-
strating genuine demand.Pharmaceuti-
cal companies have already complained
of a sharp rise in raw ingredients prices
for medicines such as paracetamol.
“We are trying to prevent speculation
and hoarding,” Mr Jain said. “People
should not take advantage of Covid-19.”
In the search for a drug to combat the
virus, a senior US official warned it
would be at least a year until a coronavi-
rus vaccine could be widely deployed.
Anthony Fauci, director of the
National Institute of Allergy and Infec-
tious Diseases, told a Senate committee
hearing: “One [vaccine candidate] will
likely go into clinical trials in a Phase
One study within about two months, or
maybe even six weeks. That would be a
record— however, that is not a vaccine,
because it will take about three months
or more to show that it is safe. And then
if you show that it’s safe, you’ve got to
put it into what’s called a Phase Two trial
to show that it works.”
Dr Fauci has predicted a jump in the
number of US cases of Covid-19, which
have so far exceeded 100. “When you
have a number of cases that you’ve iden-
tified and they’ve been in the commu-
nity for a while, you’re going to wind up
seeing a lot more cases than you would
have predicted,” he told CNN.
The US is embarking on a programme
of mass testing for Covid-19, with
authorities claiming it is possible that
close to 1m people will be screened by
the end of this week.Supply concerns
WHO appeals for more protective equipment
The Fed’s move ‘raises the
question whether they
know something themarket doesn’t know’
Jay Powell, Fed
chairman,
announces the
cut yesterday in
response to
‘evolving risks’
from the virus
outbreak
AndrewHarrer/BloombergCO R O N AV I R U S
Cutting remarks: the shaving of
nurses’ heads prompted criticism‘Prices of surgical masks
have increased six-fold
[and] N95 respiratorshave more than trebled’
Big Fed moves since
Federal funds target rate ( )Sources: Refinitiv; BloombergUS Treasury yields take a tumble
-year government bond yields ( )Feb
Feb Mar Feb
Feb Mar ... while the S&P ticks up
Index valueWeak economy/ attacks CoronavirusAftermath of Lehman’s collapseSubprime fearsStock market crash‘I think the
Fed cuthas been
a policymistake’
Davide Serra,
AlgebrisMARCH 4 2020 Section:World Time: 3/20203/ - 19:00 User:david.owen Page Name:WORLD2 USA, Part,Page,Edition:USA, 3, 1