ECB rebuts attacks as Visco signals it can buy Italian debt
The European Central Bank signaled it’s ready to buy more debt of nations such as Italy to calm mounting financial panic, and pushed back against political criticism of President Christine Lagarde’s handling of the coronavirus crisis.
A day after Lagarde sent Italian bonds into a tailspin and stirred memories of turmoil by saying the ECB’s job isn’t to rein in yields, her colleagues went on the counterattack. Italian Governing Council member Ignazio Visco told Bloomberg Television that officials can skew purchases toward the worst-hit countries — such as his.
“We can frontload, we can concentrate on particular jurisdictions according to the circumstances,” Visco said in the interview. “There is no question that if there are movements in the spreads caused by fears about the effects of coronavirus, this will make more difficult our provision of liquidity and the impetus we are giving to the economy.”
Italian bonds erased losses after Bloomberg’s interview with Visco on the prospect of the ECB front loading purchases of Italian debt. The rate on 10-year bonds fell 18 basis points to 1.58% as of 11:41 a.m. in London, after earlier rising as much as 19 basis points.
”Lagarde wasn’t so clear about a possible ECB purchase of bonds, so the ECB is trying hard now to convince market that it stands ready,” said Joost Beaumont, senior fixed-income strategist at ABN Amro. “Visco’s remarks go in this direction and his clarification seems to be working.”
Surging bond spreads — the difference between yields on debt of stressed nations and safer options such as Germany — were a hallmark of the euro zone’s 2012 debt crisis that almost broke up the currency bloc.
The ECB’s view is that the market misinterpreted Lagarde’s comments, and that if spreads are driven by liquidity needs or a flight to safety, that’s absolutely the central bank’s job. Despite 2.6 trillion euros ($2.9 trillion) of asset purchases so far and hundreds of billions more to come, it doesn’t see any imminent risk of breaching European Union law banning it from financing governments.
“We will not tolerate any risks to the smooth transmission of our monetary policy in all jurisdictions,” ECB Chief Economist Philip Lane wrote in a blogpost. “We clearly stand ready to do more and adjust all of our instruments, if needed to ensure that the elevated spreads that we see in response to the acceleration of the spreading of the coronavirus do not undermine transmission.”
“Lagarde didn’t offer the broad-spectrum stimulus that financial markets may have wanted, but she’s taken appropriate action to deal with the shock at hand. Her comments on spreads were ill-judged and have required a lot of subsequent clarification, but markets should take her advice — don’t “overinterpret” her.”
Lane added that officials will cut interest rates if needed. Bank of France Governor Francois Villeroy de Galhau declared earlier that the ECB will use all the flexibility it has to combat fragmentation in the euro area if necessary.
“We will use our full firepower, with maximum agility and all possible flexibility,” Villeroy told France’s Radio Classique. We can “buy more of certain country debt and less of others.”
Policy makers unexpectedly opted not to cut rates, instead pledging to spend an extra 120 billion euros on quantitative easing by the end of the year. The ECB will also start a new program to make it easier for banks to support smaller companies hit by cashflow disruptions.
In rare swipes at the central bank, French President Emmanuel Macron and Italian Prime Minister Giuseppe Conte both rebuked the decision. Macron said he didn’t think it’ll be enough, and Conte said the task of the ECB is “not hindering but facilitating.”
The ECB was so keen to roll back Lagarde’s remarks, that it even included a rare addendum in its official transcript of its press conference, referring to comments she made afterward in an interview with CNBC.
Spanish Governing Council member Pablo Hernandez de Cos said in an interview in Madrid that Lagarde was misinterpreted and is the best person to spearhead the crisis. “What do we need to focus on? On the clarification she gave afterward,” he said.
Still, the ECB has repeatedly said that it can’t combat the virus impact alone, and governments need to do more. The mood may be shifting — Germany pledged to spend whatever is needed to dull the economic impact of the coronavirus, while the European Commission said it’s ready to give a green light to widespread fiscal stimulus if the situation deteriorates.
German Finance Minister Olaf Scholz said that his country would spend billions of euros to cushion the economy, and called the situation “very serious.”
US should give citizens $1,000 a month to limit coronavirus impact on economy, strategist says
The US should follow Hong Kong’s lead and give a cash handout to its citizens amid the coronavirus pandemic, a strategist said.
“This is not a financial crisis,” Andrew Freris, CEO of Ecognosis Advisory, told CNBC’s “Capital Connection.” “It is a crisis about the real economy.”
He noted that in 2008, central banks used stimulus to respond to the collapse of the US mortgage market — but he said nothing of the kind was happening right now.
“The concern here is what’s going to happen with the real economy,” he said. “Now I’m afraid pumping in more money to support the financial sector does absolutely nothing where the real problem is.”
Although he said it was good news to see central banks like the US Federal Reserve take steps to support financial markets, Freris added that lowering interest rates would do “absolutely nothing” to address the core cause of the current economic turmoil.
Central banks around the world, including the Fed, Bank of England and Norges Bank have cut their key interest rates in an attempt to offset some of the economic damage being wreaked by the coronavirus pandemic.
“Hong Kong, however much it’s been criticized, they did something quite right — they gave money to the people, 10,000 Hong Kong dollars ($1,287) for all its individual citizens,” Freris said.
“The United States has got 330 million people. If they start giving $1,000 per month to every single American, within three months they would have done about a billion plus, and they will still have plenty of money still to come — and this is money that will go straight into consumption.”
Hong Kong’s government announced in late February that it would be giving every resident over the age of 18 a cash payout of 10,000 Hong Kong dollars, part of a package of measures aimed at reducing the financial blow to the territory from the COVID-19 outbreak and months of protests. At the time, the city’s Financial Secretary Paul Chan said the move could boost Hong Kong’s economy by around one percent.
The global economy is expected to take a significant hit from the coronavirus pandemic this year, with the Institute for International Finance warning global gross domestic product (GDP) could be as low as one percent this year — far below last year’s 2.6 percent growth.
Meanwhile, financial markets around the world have suffered huge losses in recent weeks. The pan-European Stoxx 600 recorded its biggest one-day loss ever on Thursday, while the Dow Jones industrial average suffered its worst session since the “Black Monday” market crash in 1987.
While Freris praised Hong Kong for its cash handout initiative, some strategists claimed it would do little to encourage consumer spending amid the coronavirus crisis.
Speaking to CNBC’s “Capital Connection” following Hong Kong’s budget announcement, David Webb, editor of webb-site.com, noted that the amount the government had budgeted for its cash handout initiative had some implications for how effective it might be.
“They’re budgeting 71 billion, that implies 7.1 million people over the age of 18, but in fact there’s only about 5.5 Hong Kong permanent residents in Hong Kong,” he said. “So that indicates there’s about 1.6 million overseas. Once you are born in Hong Kong to (a) Hong Kong Chinese parent, you have permanent residency for life basically and you can be living in Birmingham or Vancouver and still claim your 10,000 dollars. So it’s rather a wasteful way of returning the reserves to the public and not at all targeted in terms of need.”
Meanwhile, Alicia Garcia-Herrero, chief economist for Asia at Natixis, told CNBC’s “Street Signs Europe” earlier this month that she was skeptical the “helicopter money” would have the desired result.
Hyundai Motor America, an advocate for making things better for its
customers, is reinstating its job loss protection program to support
customers affected by the situation created by the coronavirus pandemic, yahoo.com reported.
Philippine economy to grow 6% under worst scenario
The Philippine economy will expand about six percent under the worst scenario of the coronavirus pandemic, the central bank governor said, pledging to use all tools needed to address risks to growth and financial markets.
“Even under the worst possible scenario, the Philippines can still grow this year and in the medium term by about six percent,” Governor Benjamin Diokno said in a mobile-phone message, Bloomberg reported.
Bangko Sentral ng Pilipinas, which regulates lenders, has granted temporary rediscounting relief measures to financial institutions affected by the outbreak, Diokno said.
Central banks all over the world are stepping up to contain the fear brought about by the rapidly spreading virus, as currencies and stocks plunged this week.
Bangko Sentral ng Pilipinas will deliver another 25 basis point interest-rate cut next week, according to Bloomberg Economics, joining the global wave of easing.
There has been an unusually heavy withdrawal of cash from the central bank by some lenders, and this irrational behavior, similar to consumers hoarding goods, is based on fear and not fact, he said.
Here are other comments by the governor:
The country has ample fiscal and monetary space.
Deb-to-gross domestic product ratio is low and falling, inflation is muted and within the target range.
The peso is steady, supported by hefty reserves.
The banking industry is sound and adequately capitalized.
Indian carriers may ground 40-50 aircraft on weak demand
Indian carriers could see between 40 and 50 of their aircraft being grounded due to weakening passenger demand and cancelation of visas by Indian authorities.
This is the consensus that seems to be developing at Wings India, the air show here which was inaugurated this morning. At the moment, no Indian carrier has given an official figure on the number of aircraft that have been grounded, thehindubusinessline.com reported.
With airlines canceling flights and passengers facing inconveniences, the Directorate General of Civil Aviation issued an advisory saying “it would be appropriate if airlines support their passengers in this tough time by waiving off cancelation/rescheduling charges or by providing any other incentives.”
In a presentation at the air show, Boeing said that flights in the Asia Pacific have been cut by half in the recent past. Boeing officials said that while it will be difficult to give the exact number of flight reductions, the daily number of flight departures in China had come down five times to 3,000 from around 15,000 earlier.
Arvind Singh, chairman of Airports Authority of India, said the country had seen a dip of about 20 percent in arrivals at airports. “Traffic has come down significantly. The impact on international tourist arrivals is more,” he said, adding that while Mumbai airport has seen a drop of almost 30 percent, there has been a decline of 25 percent plus at Delhi airport. Delhi and Mumbai are the busiest airports in the country.
Jagannarayan Padmanbhan, director, practice leader and transport infrastructure advisory of Crisil, feels there has been a 30-40 percent fall in footfalls not revenues at the major metro airports since the outbreak of the virus. Meanwhile, Vistara plans to reduce more flights as a result of the coronavirus and India withdrawing visas to various countries.
“There are likely to be more cut backs. A meeting is scheduled to take a view. It is an evolving situation,” an airline spokesperson said on the sidelines of Wings India 2020.
“There is temporary capacity rationalization in domestic as well as international network due to drop in demand. We have waived off cancelation charges for all domestic tickets booked on or before March 1 and for all international tickets booked on or before March 12,” said spokesperson.
Till date Vistara has withdrawn 27 round trips. A trip from Delhi to Chennai and then back to Delhi is counted as a round trip.
Meanwhile, Air India announced a further curtailment of its flights. It also extended the restoration of flights from India to Rome and Kuwait till April 30. Flights curtailed include one flight on the Delhi-Chennai-Delhi sector and its international flights linking Delhi to Tel Aviv, Delhi to Frankfurt and Mumbai to Frankfurt.
Kapil Kaul, chief executive officer of Center for Aviation (CAPA), said that he has not seen any Indian airline either canceling or deferring its aircraft orders due to decline in passenger traffic demand as on date. But this may happen depending on how long this situation continues.