The Federal Reserve swept into action on Sunday to save the U.S. economy from the fallout of the coronavirus, slashing its benchmark interest rate by a full percentage point to near zero and promising to boost its bond holdings by at least US$700 billion.
In remarks underlining the sense of urgency, Fed Chairman Jerome Powell told a hastily assembled press briefing by telephone that the disruption to lives and businesses meant second quarter U.S. growth would probably be weak and it was hard to know how long the effects would last. That left a clear role for fiscal policy to help cushion the blow.
“The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers, and we’ve seen some of that so that’s an important job,” he said. “We do know that the virus will run its course and that the U.S. economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit.”
The Fed pulled out some of the biggest weapons in its arsenal. It’s key rate is now zero to 0.25 per cent, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.
The central bank also announced several other actions, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent. In addition, it united with five other central banks to ensure dollars are available around the world via swap lines. Powell said that he did not think negative rates, which have been used in Europe and Japan, would be appropriate policy in the U.S.
President Donald Trump, who as recently as Saturday attacked the Fed for not lowering rates faster and further, quickly expressed support for the move.
Trump ‘Very Happy’
“It makes me very happy and I want to congratulate the Federal Reserve,” he said. “That’s a big step and I’m very happy they did it.”
Treasuries surged and U.S. equity futures tumbled at the start of another volatile week as investors responded to the rapidly escalating economic impact from the coronavirus and bet it will overwhelm the policy response. The Bank of Japan said it was bringing forward to Monday a meeting scheduled for later this week.
The Fed’s emergency action came as more and more evidence emerged that the U.S. economy is being hit hard by the virus. On Sunday alone, Ohio ordered all bars and restaurants closed indefinitely, Nike shuttered all its stores at least through March 27 and airlines announced drastic cuts to their international flight schedules. Businesses are instructing staff to work from home, and travel and entertainment are being particularly affected as people take steps to observe social distancing to avoid infection.
As the fallout spreads across the economy, the risk of a recession is mounting. Goldman Sachs slashed its GDP forecasts on Sunday. It’s now predicting zero growth in the first quarter and a five per cent contraction in the second.
Powell, who said he planned to do some telecommuting himself to set a good work-from-home example, told reporters on the call that the rate decision Sunday is in lieu of the Fed’s regularly scheduled meeting this week, planned for Tuesday and Wednesday.
No Dot Plot
He also said that the quarterly forecasts that would have been released at that meeting had been scrapped in light of the current uncertainty caused by the virus and would probably next be updated in June.
With Sunday’s announcement, the Fed is firing some of the biggest guns in its arsenal, but economists say without a similar, forceful response from the government, the country’s record 11 year expansion could end in recession. Stocks have already tumbled into a bear market.
“The Fed had to make this move, and waiting would have been a grave mistake,” said Michael Darda, market strategist at MKM Partners. “The problem is there is a tsunami coming and the Fed is likely to be overwhelmed by it, and the markets know that.”
The Fed said it will keep interest rates near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The central bank acted the day before leaders from the Group of Seven nations, including Trump, are set to discuss their virus response on a teleconference. Central bankers and investors have pressed governments to do more to support their economies given monetary ammunition is running low and because fiscal policy can be targeted at corners of an economy that need it most.
“The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals,” it said.
To support smooth functioning in the Treasury and mortgage backed securities market, the Fed said it would lift its holdings of Treasury securities by at least US$500 billion and of MBS by at least US$200 billion.
Cleveland Fed President Loretta Mester cast a lone dissent, preferring rates were instead cut to a 0.5 per cent-0.75 per cent range.
What Bloomberg Economists Say
“The fact that the Fed saw it as necessary to act with the meeting just three days away speaks to the urgency of the matter. The broad-spectrum of tools engaged shows the Fed is contending with more than just an economic shock.”
–Carl Riccadonna.
The Fed’s actions followed the Trump administration and Congress’s first comprehensive steps Friday to assure the public that it has a coordinated public health and fiscal policy response.
The dramatic Sunday evening move was not the Fed’s first big attempt to provide support. On Thursday it sought to ease strains in the Treasury debt market through massive injections of liquidity and broader purchases of U.S. securities — a measure reminiscent of the quantitative easing it used during the financial crisis.
The Fed’s action also comes less than two weeks after it slashed rates by a half percentage point in an emergency move that failed to reassure nervous investors, in part because it was not accompanied by steps from other policy makers. That move — alone — failed to comfort investors and stocks ended the day down almost three per cent.
“The Fed’s mantra has been to go early and aggressive, so this is the best thing they could have done, they’re really inventing new stuff,” said Diane Swonk, chief economist at Grant Thornton in Chicago.
She also emphasized that more action is needed from fiscal authorities.
“This is not enough,” she said. “The Fed is showing its commitment a lot more than the federal government is. They’re going to have to step it up a lot more.”
–With assistance from Justin Sink, Ros Krasny, Tom Schoenberg, Christopher Condon, Steve Matthews, Matthew Boesler, Rachel Evans, Vince Golle and Zoe Schneeweiss.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
