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Coronavirus roils global markets, putting rate cuts back on the radar

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Mounting concerns over the spread of coronavirus outside China sent global markets into a panic Monday and some economists are warning the prospect of a pandemic could push the Bank of Canada and the U.S. Federal Reserve to consider cutting interest rates sooner rather than later.

“It is reasonable to assume that coronavirus is going to last longer given the infection rate is higher than SARS and is still climbing. That itself, might convince the Bank of Canada and even the U.S. Fed to cut interest rates. I wouldn’t be surprised,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets. “This is just the beginning of coronavirus, and there is a consensus starting to be generated that maybe, it will last longer than expected.”

Stock markets began the week in turmoil as a surge in the number of coronavirus cases was reported outside China — specifically in South Korea, Iran and Italy — just days after G20 officials warned that the ongoing outbreak would have a detrimental effect on global growth if not contained soon.

The Dow Jones Industrial Average plunged 1,031 points, or 3.56 per cent on Monday, while the S&P 500 fell by 3.3 per cent, the steepest drop since August. The tech-heavy Nasdaq was hit even harder, losing 3.71 per cent to close Monday at just over 9,200 points.

Canadian markets felt the pinch too, with the TSX dropping by 1.5 per cent or approximately 280 points, ending the trading day at 17,562 points. The VIX, a measure of stock market volatility surged by 35 per cent.

The price of gold, meanwhile, soared by 2.6 per cent, reaching a seven-year high while the 10-year Treasury yield plunged to its lowest level in almost four years as investors sought out traditional safe havens to weather the uncertainty.

Oil prices tumbled by as much as four per cent on concerns over stalling global demand, as energy traders began to price in the notion that the virus could last longer than previously thought.

“The virus spread comes at a time when companies are already facing significant inventory restocking and a stalling in global manufacturing following the application of tariffs and overall trade tension,” said Frances Donald, chief economist at Manulife Investment Management. “Coronavirus is adding salt to the wound.”

Like Tal, Donald believes that the Bank of Canada will seriously contemplate a rate cut.

“I have a lot of trouble believing that the central bank is not very concerned at this point about what the first half of 2020’s economy looks like for Canada,” she said.

Worries over coronavirus morphing into a global pandemic began to flare up late last week, as the number of infections in South Korea surged fivefold to over 800 while authorities in both Italy and Iran reported tens of new cases and almost 20 deaths. Italy is now the epicenter of the biggest coronavirus outbreak outside Asia, as officials still struggle to track down how the virus first entered the country.

The number of cases in North America, however, remains much lower, with just nine in Canada and 53 in the U.S. — 18 of which were discovered on Monday.

Markets reacted negatively to the virus when it first came to light almost a month ago, but then recovered, signalling a dismissal of the potential for a wider economic impact.

“What I find fascinating is that up until last week, the U.S. consensus had not changed one iota on coronavirus concerns,” said Douglas Porter, chief economist at BMO Financial Group. “I wonder if that might start to shift a little bit in the next few weeks,” he added.

Porter remained cautious on the idea that the U.S. Fed would ease rates, saying that it would take a “major shock like a massive, wide outbreak of the virus” to get them to shift gears.

“I can see a scenario where the Bank of Canada cuts rates, and the Fed doesn’t because the Bank has basically told us they are biased to ease, if need be, but the Fed hasn’t indicated that,” he said.

Because of how large the Chinese economy is, the impact of a coronavirus-related slowdown on Canada would come from both the supply side (Canadian companies depending on Chinese goods) and the demand side (exports of our commodities to the Chinese market), says Donald.

“But the supply side component of this is so much worse than in 2003, with SARS, because global supply chains are significantly more complex. In today’s environment, we are relying on China for intermediary goods — for example automakers rely on parts made in China,” she said.

“So the biggest challenge from a policymaker’s point of view is how much of the loss we might experience over the next few months is going to be recouped over the next year,” Donald added.

On Sunday, China confirmed 150 new deaths, pushing its national death toll to almost 2,600.

The outbreak has also caused widespread travel chaos, with Turkey, Pakistan, Armenia and Oman closing their borders with Iran on Monday, citing the surge in the number of cases there. Hong Kong too, closed its doors to all arrivals from South Korea over the weekend.

Airline stocks in particular took a hit on Monday, with American Airlines dropping just over eight per cent and Air Canada’s stock declining five per cent, as the company continued to restrict the number of flights between Canada and China.

“The direct damage to global economies is still limited, but there’s potential for much more which is basically what the market is reacting to,” said Porter.

”But frankly, no one can really know at this point, because if you think about it, it has really only been a month (since) this first emerged as an issue.”

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Ontario passes new rules aimed at work-life balance for employees – CP24 Toronto's Breaking News

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The Ontario government has passed new laws it says will help employees disconnect from the office and create a better work-life balance.

On Tuesday, the government said it passed the “Working for Workers Act,” which requires Ontario businesses with 25 people or more to have a written policy about employees’ rights when it comes to disconnecting from their job at the end of the day.

These workplace policies could include, for example, expectations about response time for emails and encouraging employees to turn on out-of-office notifications when they aren’t working, the government says.

According to the act, between January 1 and March 1 of each year an employer must ensure it has a written policy in place for all employees with respect to disconnecting from work.

“We are determined to rebalance the scales and put workers in the driver’s seat of Ontario’s economic growth while attracting the best workers to our great province,” Monte McNaughton, Minister of Labour, Training and Skills Development, said in a statement Tuesday.

The act also bans the use of non-compete clauses, which prevent people from exploring other work opportunities and higher salaries at other jobs.

According to the government, Ontario is the first jurisdiction in Canada, and one of the first in North America, to ban non-compete agreements in employment.

McNaughton says the new laws not only protects workers’ rights, but also will help to attract top talent and investments to the province.

The act also removes “unfair” work experience requirements for foreign-trained immigrants trying to work in their professions. 

It also introduces a mandatory licencing framework for temporary help agencies and recruiters to help prevent labour trafficking.

“This legislation is another step towards building back a better province and cementing Ontario’s position as a global leader, for others to follow, as the best place in the world to live, work and raise a family,” McNaughton said.

A government spokesperson told CTV News Toronto that while the act has not yet received royal assent, it is expected to later this week.

Timelines for when each law under the Working For Workers Act will come into effect have not been announced yet and the government said it there will be a initial grace period for businesses.

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Asian factories shake off supply headaches but Omicron presents new risks

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Asian factory activity grew in November as crippling supply bottlenecks eased, but rising input costs and renewed weakness in China dampened the region’s prospects for an early, sustained recovery from pandemic paralysis.

The newly detected Omicron coronavirus variant has also emerged as a fresh worry for the region’s policymakers, who are already grappling with the challenge of steering their economies out of the doldrums while trying to tame inflation amid rising commodity costs and parts shortages.

China’s factory activity fell back into contraction in November, the private Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) showed on Wednesday, as soft demand and elevated prices hurt manufacturers.

The findings from the private-sector survey, which focuses more on small firms in coastal regions, stood in contrast with those in China’s official PMI on Tuesday that showed manufacturing activity unexpectedly rose in November, albeit at a very modest pace.

“Relaxing constraints on the supply side, especially the easing of the power crunch, quickened the pace of production recovery,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data release.

“But demand was relatively weak, suppressed by the COVID-19 epidemic and rising product prices.”

Beyond China, however, factory activity seemed to be on the mend with PMIs showing expansion in countries ranging from Japan, South Korea, India, Vietnam and the Philippines.

Japan’s PMI rose to 54.5 in November, up from 53.2 in October, the fastest pace of expansion in nearly four years.

South Korea’s PMI edged up to 50.9 from 50.2 in October, holding above the 50-mark threshold that indicates expansion in activity for a 14th straight month.

But output shrank in South Korea for a second straight month as Asia’s fourth-largest economy struggles to fully regain momentum in the face of persistent supply chain disruptions.

“Overall, with new export orders flooding back to countries previously hamstrung by Delta outbreaks and the disruption further down the supply chain still working through, there is plenty of scope for a continued rebound in regional industry,” said Alex Holmes, emerging Asia economist at Capital Economics.

India’s manufacturing activity grew at the fastest pace in 10 months in November, buoyed by a strong pick-up in demand.

Vietnam’s PMI rose to 52.2 in November from 52.1 in October, while that of the Philippines increased to 51.7 from 51.0.

Taiwan’s manufacturing activity continued to expand in November but at a slower pace, with the index hitting 54.9 compared with 55.2 in October. The picture was similar for Indonesia, which saw PMI ease to 53.9 from 57.2 in October.

The November surveys likely did not reflect the spread of the Omicron variant that could add further pressure on pandemic-disrupted supply chains, with many countries imposing fresh border controls to seal themselves off.

(Reporting by Leika Kihara; Editing by Sam Holmes)

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ANZ faces class action for “unfair” interest charged from credit card customers

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Australia and New Zealand Banking Group has been sued by a law firm for charging interest on some purchases by credit card holders which were repaid on time for nearly a decade, the parties said on Wednesday.

The law firm, Phi Finney McDonald, filed a class-action suit in the federal court against Australia’s No. 4 lender for charging interest between July 2010 and January 2019 on purchases that should have been interest-free.

“The terms of ANZ’s contract made it impossible for a typical consumer to understand that they would be charged retrospective interest, even on purchases which they repaid on time,” the law firm said in a statement.

Australia outlawed charging retrospective interest in January 2019.

The lawsuit alleged “unfair contract terms and unconscionable conduct” by the bank, but did not specify the damages it was seeking against ANZ in the federal court.

ANZ said in a statement it would review the claim that its contract contravened the Australian Securities and Investments Commission Act.

The lawsuit is the latest in a string of legal actions faced by Australia‘s top banks, ranging from breach of consumer protection credit laws to charging financial advice fees to dead customers.

Scrutiny of Australian lenders and financial institutions has ramped up significantly since a Royal Commission inquiry in 2018 found widespread shortcomings in the sector, forcing companies and regulators to take swift action.

 

(Reporting by Savyata Mishra in Bengaluru; Editing by Arun Koyyur)

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