Archives of “April 9, 2020” day

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OPEC said to seek as much as 5 mbpd in cuts from G20 nations. Will cut for 2 months

  
Analysis, Crude

OPEC wants help

The key detail here is how nicely they will ask and what the benchmark will be for others. Is this the US saying that it’s cut 2 mbpd because companies are going bankrupt? Or is it places like Alberta announcing mandatory curtailments?
The other detail that’s crossing is that this will be a two-month cut. That’s not long enough but it’s understandable because no one knows what the world will look like in two months. But if non-OPEC countries are still pumping flat out in 2 months does OPEC drop the hammer on them?
There are huge risks here and we’re not going to get all the answers today.
Here’s the 3-day chart in oil. The 20mbpd talk was the top tick.
OPEC wants help

Fed unleashes plan for $2.3 trillion in lending programs

  
  Analysis

Fed unleashes new plan

Powell
The Fed will provide up to $2.3 trillion in loans in a handful of new programs.
  • Main street facility could support up to $600B in loans
  • Municipal facility to offer up to $500B in loans
  • Expands primary and secondary corporate debt facilities and TALF
  • TALF collateral will include AAA-rated outstanding CMBS, New CLOs
Full announcement:

The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” said Federal Reserve Board Chair Jerome H. Powell. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

The Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit in the economy.

The actions the Federal Reserve is taking today to support employers of all sizes and communities across the country will:

  • Bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
  • Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 billion in equity to the facility;
  • Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and
  • Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

(more…)

Fitch estimates that China full-year growth to dip below 2% this year

  
Analysis, Economy

Fitch says China economic activity is to remain weak in 1H 2020

China
  • Projects China’s fiscal deficit to rise to 8% of GDP this year (2019 was 5.8%)
  • Says that much of China’s coronavirus policy response is still pending
I would take the headline estimate with a pinch of salt because I don’t think we will ever get the true figure of what China’s economic growth will be this year.
The fact that we may not get the usual NPC meeting to decide on the target shows that China may not present one to the world but instead focus on outlining more subjective economic achievements instead.
But we all know that whatever the case is, the economic damage is severe and will take a long time to recover. The fall in global demand because of shutdowns everywhere else will just compound more economic worries for China and also other countries this year.

India’s growth outlook worsens amid fears of extended lockdown

  
Analysis, Economy
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Growth forecasts for India’s economy, which before the Covid-19 global pandemic was projected to post a mild recovery, are getting bleaker as the government weighs whether to extend the 21-day nationwide lockdown.

Now, UK research consultancy Capital Economics projects India’s growth will slow to just 1 per cent in this fiscal year, the lowest pace in 41 years. “Coronavirus and measures to contain it will ravage the economy over the coming months,” said Capital Economics economist Shilan Shah. Fitch ratings agency, meanwhile, has slashed its 1920-21 growth projection to 2 per cent, a 30-year low.

On the domestic front, household spending and investment “is likely to collapse, with only a ramping up of government spending providing any support” while external demand will “weaken drastically too,” Shah said. The central bank’s responded with aggressive monetary loosening, but large-scale fiscal stimulus is also needed to prevent the drastic slowdown from “morphing into a contraction in annual output,” Shah said.

Capital Economics expects the lockdown, slated to end April 14, to be extended for up to three months and if so, “large parts of the manufacturing, construction, transport, retail, leisure and recreation sectors will grind to a halt.” US consultancy Boston Consulting Group also forecasts a protracted shutdown which it says India will only start lifting between end-June and second week of September.

The lockdown’s aimed at averting a catastrophic explosion of coronavirus cases — an Indian Council of Medical Research study suggests one unquarantined Covid-19 patient can infect 406 people in 30 days. But the shutdown’s also caused unprecedented disruption to India’s consumption-driven economy which even before the coronavirus shock was growing at six-year lows. Growth projections for 2019-20 range from around 4.5 per cent to 5.0 per cent. Gross Domestic Product growth for the 2019-20 third quarter, set for publication Friday, will be around 4.5 per cent, slightly ahead of the 4.3 per cent logged in the year-ago period, helped by a healthy crop output, economists say.

“The challenge for India versus its peers is starker if infections spread rapidly considering the higher density of population per capita and weaker health infrastructure,” UBS economist Tanvee Gupta Jain said. India looks to be a long way from the goal of “flattening the coronavirus curve” and preventing a surge that swamps the nation’s weak healthcare system. It took 59 days to reach the first 1,000 confirmed cases. But in just two days, the number of cases rose from 3,000 to 4,000 — and deaths from 75 to 100. The death toll in India stood at 111 Tuesday and coronavirus cases at 4,281, a 704 jump in 24 hours. Union Minister Prakash Javadekar said a decision on whether to extend the shutdown “will be declared at the right time.”

States favour shutdown extension

Many states are urging the government to extend the shutdown with Telangana’s chief minister K Chandrashekar Rao saying, “Economic recovery can come later. In the given situation, with India’s poor health infrastructure and big workforce, we have no other weapon.” India could face 100,000 to 1.3 million confirmed coronavirus cases by mid-May if the trend continues, according to a March 25 report by the COV-IND-19 Study Group. Already, tens of thousands of urban migrant workers have returned to their villages, potentially spreading the virus deep in India’s hinterland. (more…)

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