Federal Reserve Chairman Jerome Powell testifies before a House Financial Services Committee hearing on the “Semiannual Monetary Policy Report to Congress,” at the Rayburn House Office Building in Washington, U.S., July 18, 2018.
Mary F. Calvert | Reuters
With its groundbreaking announcement Monday of further forays into the financial markets, the Federal Reserve has indicated it will surpass its response to the financial crisis in terms of timing, intensity and, ultimately, monetary value.
The latter part of that matrix will only be a matter of time as the Fed continues its role in the battle against the coronavirus and its stunning impact on the U.S. economy.
The central bank’s intention to unload almost all of its remaining firepower seems destined to take it beyond the money-printing initiatives of the previous crisis, and its alphabet-soup array of programs is greater in scope than even all the programs it had launched during the worst economic downturn since the Great Depression.
When everything is done, the Fed could have a balance sheet, consisting mainly of the bonds it has purchased to support markets and the economy, approaching $10 trillion, according to Krishna Guha, head of global policy and central bank strategy for Evercore ISI.
“As things stand the Fed is racing very quickly towards a $7 trillion balance sheet and our best guesstimate is that it might peak in the very broad vicinity of $9 or $10 trillion,” Guha said in a note to clients. “This is monetized credit policy and fiscal-monetary support on a grand scale.”
The central bank’s efforts in that regard, taken within a month’s time of when the novel coronavirus began chocking financial markets, easily beats the timeline during the financial crisis.
The race to ease
Indeed, the Fed starting in December 2008 increased its bond holdings by $3.7 trillion, pushing the total balance sheet past $4.5 trillion in operations that spanned six years. In a since-abandoned effort to run off some of those holdings, the total slipped below $3.8 trillion at one point. Since the Fed started purchasing assets again, the total has run past $4.7 trillion, the largest in the central bank’s history.
During the crisis, the Fed did not start the so-called quantitative easing program until three months after Lehman Brothers collapsed in September 2015. While its launch of the Troubled Asset Relief Program came shortly after Lehman’s fall, it took six months for other liquidity programs to come online.
The ambition of the Fed’s current efforts will only grow with Monday’s announcement that the Fed will purchase Treasurys and mortgage-backed securities “in the amounts needed” to support its goals of stabilizing markets.
For some perspective on just how fast the Fed is moving, it intends to purchase $625 billion this week alone. That’s more than the entire $600 billion second leg of quantitative easing that ran for eight months, from November 2010 to June 2011.
Outside of the dollar force of QE, the Fed’s amalgam of programs aimed at freeing up frozen credit markets also is more ambitious than anything it did during the crisis.
Help still needed from Congress
While programs including the Term Asset-Backed Loan Facility and help for the commercial paper and money markets are familiar to financial crisis historians, the Fed has added to its outreach. It now is buying corporate debt for the first time, added commercial mortgage-backed securities to its targeted purchases to help the credit markets, and it expanded the kinds of securities it is accepting as collateral for its liquidity offerings.
Markets, though, are still distressed over the lack of corresponding fiscal stimulus, and stocks sold off aggressively Monday.
But that doesn’t mean the Fed hasn’t done its part — only what it can, at least for now.
“If Congress comes through – which is still our baseline – the combined policy actions should substantially mitigate the risk that the virus shock is amplified by an economy-wide credit shock,” Guha said. “What it will not do is have any great bearing on how long the virus shuts down the economy.”
To underline the importance of getting fiscal and monetary forces working together, the Fed announced a vague proposal targeted to Main Street small business lending that will need help from whatever Congress passes.
“The Fed package is impressive. It’s also necessary, but probably not sufficient,” said Lauren Goodwin, economist and multi-asset portfolio strategist at New York Life Investments. “The real challenge faced by the economy is the fact that businesses are closed. That’s where the federal government needs to step in.”
The Fed, though, might not necessarily be done.
Though it went full-throttle Monday, the central bank has consistently defied critics who say it is running out of ammunition by continuing to come up with new ideas.
The final horizon would be buying stocks and even high-yield corporate bonds, through exchange-traded funds that back big indexes like the S&P 500 and Dow Jones Industrial Average. There’s no sign that the Fed is headed in that direction, but is one final blast it could sound if markets get into too much trouble. The Fed would need permission from Congress first.
“There’s a reason why the government has not wanted this perception of the central bank owning risk assets in the past,” Goodwin said. “But if a liquidity crisis starts to turn into a solvency crisis and we still don’t have that fiscal activity coming in to support the economy, then yes, I think you could continue to see the Fed be creative.”
Oil prices climb before OPEC+ talks, Asian shares falter – Aljazeera.com
Oil prices climbed on Thursday, hours before the world’s largest oil producers are scheduled to meet to discuss output cuts as the coronavirus pandemic ravages demand.
Brent crude futures rose 2.5 percent or 81 cents to $33.65 as of 00:34 GMT after touching a high of $33.90, adding to gains in the previous session.
United States crude futures were up 4.3 percent, or $1.08, at $26.17, having climbed as much as 6 percent the day before.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, are set to convene a video conference meeting on Thursday.
The meeting is expected to be more successful than their gathering in March, where they failed to agree to extend supply cuts and triggered a price war between Saudi Arabia and Russia.
Hopes of an agreement to cut between 10 million and 15 million barrels per day (bpd) rose after media reports suggested Russia was ready to reduce its output by 1.6 million bpd and Algeria’s energy minister said he expected a “fruitful” meeting.
“I think there’ll be a deal, which will bring a bit of cheer in the short run. Then everyone’s attention will refocus on the fundamentals. The fundamentals are appalling,” Lachlan Shaw, head of commodity research at National Australia Bank told Reuters news agency.
Global demand for oil has shrunk significantly as the coronavirus outbreak triggered travel restrictions and temporary business closures. In India, the world’s third-biggest consumer, oil demand has collapsed as much as 70 percent, according to officials at the country’s refiners.
In contrast to oil prices, Asian shares were mixed on Thursday after a three-day rally, with investors mulling the spread of the coronavirus and when economies will be able to ramp up again.
Shares in Tokyo dipped with the Nikkei declining 0.23 percent in early trade, but were higher in Sydney and Seoul. Australia’s S&P/ASX 200 was up 1.51 percent and South Korea’s Kospi gained 1.3 percent.
In China, blue chips declined 0.47 percent while the broader Shanghai Composite Index fell 0.19 percent. Hong Kong’s Hang Seng Index was also in the red, down 1.17 percent.
US S&P 500 Index futures edged up after the gauge jumped 3.4 percent on Wednesday as Joe Biden emerged as the Democratic frontrunner in the US presidential race, bringing its rise from the March low to more than 20 percent.
But investors are still looking at numbers of new coronavirus cases and deaths for clues on where the global economy is headed.
“It’s all a question of when the economy reopens and how quickly that happens,” Nancy Davis, a chief investment officer with Quadratic Capital Management LLC told Bloomberg. “We aren’t out of the woods.”
While the White House’s top health advisers are developing medical criteria for safely reopening the US economy in coming weeks should these trends hold steady, the coronavirus killed a record number of victims in the United Kingdom and Belgium, as well as in the hard-hit states of New York and New Jersey. The number of new cases in Italy and Spain crept up after several days of declines.
WestJet to rehire nearly 6,400 workers with help of federal wage subsidy – CBC.ca
WestJet says 6,400 workers will be brought back onto its payroll once the federal government has approved an emergency wage subsidy program.
In a statement Wednesday night, WestJet CEO Ed Sims cautioned that there might not be enough work for the rehired employees, but noted “it does help them make ends meet.
“We will be communicating with those WestJetters who are affected by this decision as soon as we can,” said Sims.
Last month, WestJet announced it was cutting roughly half of its 14,000 employees with the elimination of 6,900 positions.
Canada’s airline industry has seen a dramatic reduction in demand due to lockdowns to control the spread of the coronavirus that causes COVID-19.
The Calgary-based airline’s move to rehire its employees follows a similar move by Air Canada, which announced Wednesday that it would rehire 16,500 laid-off workers with assistance from the same federal wage subsidy program.
The federal government’s emergency wage subsidy — originally targeted only at small- and medium-sized businesses — was expanded earlier in April to cover a 75-per-cent wage subsidy for Canadian companies that had lost 30 per cent of revenue due to the pandemic.
WestJet said it can’t guarantee that all employees will be coming back to work in the short-term, but the new subsidy will help out.
After announcing layoffs in late March, WestJet executives took a 50-per-cent pay cut and vice-presidents and directors took a 25-per-cent cut.
The airline also said it would reduce the number of flights offered in Canada by about half due to a reduced demand for travel.
Oil Prices Surge with Production Cut Anticipation By – Investing.com
By Gina Lee
Investing.com – Oil prices built on the momentum from the previous session as the price war between Russia and Saudi Arabia seems to be nearing a truce.
Russia said overnight that it was willing to reduce output by around 1.6 barrels daily, or 15%. The announcement saw WTI futures surging to almost 12% as the session closed.
International rose 2.62% to $33.7 by 10:19 PM ET (3:19 AM GMT) and U.S. jumped 3.71% to $26.02.
As the oil industry continues to grapple with a supply glut, with the COVID-19 pandemic shrinking demand, Russia’s declaration comes at an opportune time. The Energy Information Administration (EIA) said overnight that the U.S. crude oil inventory increased by 15.2 million barrels for the week ending April 3, against analyst expectations of a 9.37-million-barrel build.
The American Petroleum Institute (API) also estimated a build of 11.9 million barrels yesterday.
Investors are waiting to see if Russia will hold to its word at OPEC+’s virtual meeting later in the day.
“The coming extraordinary producing-countries meeting is the only hope in the horizon for the market that could prevent a total price collapse and production shut-ins,” Rystad Energy’s head of oil markets Bjornar Tonhaugen told CNBC.
“At the moment, prices are so volatile that any news or leaks about the direction of the negotiations could move them [prices] either way. As you have seen in recent days, price swings from gains to losses and back are not unusual in such times,” he added.
But some investors took a more skeptical view.
“OPEC+ is trying mightily to cobble together a sizable production cut, and they are in full spin mode to try and rally prices,” Again Capital’s John Kilduff told CNBC.
“[OPEC’s meeting] will be a make-or-break moment for the oil market. The math on a 10 million barrel per day cutback, which is the minimum necessary to stabilize the situation, is almost impossible to compute. I expect a bad day for OPEC+ tomorrow,” he added.
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