The Economist USA - 28.03.2020

6 The EconomistMarch 28th 2020
The world this week Business

In an unprecedented move the

Federal Reserve said it would

buycorporate bonds,

including new issues and the

riskiest investment-grade

debt, action that it shied away

from during the financial crisis

a decade ago. The central bank

is using a subsidiary of Black-

Rock to manage the invest-

ments. It is also buying govern-

ment debt (unlimited

quantitative easing), reviving a

facility that enables it to absorb

securities backed by student,

car and credit-card loans, and

has pledged to help small

businesses.

Animal spirits

Marketshad another manic

week, as investors swung

between despondency and

optimism. On March 24th the

s&p 500rose by 9.4%, its big-

gest one-day gain since Octo-

ber 2008. The nasdaqwas up

by 8% and the Dow Jones

Industrial Average by 11.4%.

The ftse 100and German dax

recorded similar leaps.

Easing the pressure on big

banks, the Bank of England

cancelled its annual stress

tests. This came after the cen-

tral bank cut its benchmark

interest rate to 0.1%, the lowest

in its 326-year history.

Responding to plummeting oil

prices, Saudi Arabiaunveiled a

package of aid for the king-

dom’s businesses worth $32bn

and raised its debt ceiling from

30% of gdpto 50%.

A measure of business activity

compiled by ihsMarkit fell to

record lows for America, Brit-

ain and the euro zone. Worse is

yet to come. The survey was

taken before many of the more

stringent lockdowns on com-

panies and personal move-

ment were introduced.

With passenger numbers down

by 70% on Britain’s railways

the government suspended for

at least six months the fran-

chise system through which

train companies operate on

routes. The Department for

Transport is doing this so that

it can take on all the revenue

and cost risk, in effect nation-

alising any losses. Train com-

panies will continue to run

services for a small fee.

The International Air Tran-

sport Association increased its

estimate of revenue losses for

the airline industrythis year

to $250bn. Global carriers have

asked governments to bail

them out, but environmental-

ists want this linked to swifter

action on carbon emissions.

Virgin Australiareportedly

asked Australia’s antitrust

authority to investigate public

comments made by Alan Joyce,

the chief executive of Qantas,

Virgin’s arch-rival. Mr Joyce

has suggested that Virgin

should not receive state aid

during the crisis, implying that

it is “badly managed”, and has

said he wants his airline to be

the “last man standing”. Re-

ports suggest Virgin is worried

that Qantas is using the crisis

to reduce competition. Mean-

while, and despite stretched

credit markets, Qantas was

able to raise A$1.1bn ($635m) in

bank loans.

Norwegian Air, which was

already struggling before

covid-19 grounded flights,

received its first cash injection

from Norway’s government

after securing a rescue package

for the country’s airlines.

Under the deal, commercial

lenders provide 10% of loan

guarantees and the govern-

ment the remaining 90%.

Boeingsuspended production

at its factory near Seattle for

two weeks. Washington state

has been hit particularly hard

by covid-19 and dozens of

Boeing’s workers have con-

tracted the disease; one man

has died. Airbusreopened its

plants in France and Spain

after a four-day hiatus, but

reduced their output.

Workers at several Amazon

warehouses in America tested

positive for covid-19, forcing

some of them to close while

they were cleaned. Amazon is

hiring 100,000 more people to

cope with a surge in online

shopping, but hundreds of

employees have signed a peti-

tion urging the company to do

more to protect them.

A sales update from Target

provided a glimpse into the

impact of coronavirus on large

retailers. Total sales were up by

more than 20% in March so far

compared with the same

month last year, and by 50% for

food and household essentials.

Clothing sales were down by a

fifth, however.

Nikerevealed that 80% of the

stores that sell its products in

China have reopened, after

closing in February soon after

the start of the virus outbreak.

SoftBankannounced a sale of

up to ¥4.5trn ($41bn) of assets

to fund a share buy-back plan

and reduce its debt. The trou-

bled Japanese conglomerate’s

share price soared after the

announcement. That was not

enough to stop Moody’s from

cutting its rating for SoftBank’s

bonds by two notches.

Frozen

Just in time for the family

lockdown, Disney+ launched

in Britain, Germany, Italy,

Spain and several other Euro-

pean countries. Being stuck

indoors has led to a surge in

streaming, which has caused

Netflix, Amazon Prime and

others to reduce their playback

quality in Europe to ensure

films don’t stutter.