In a conference call with reporters, U.S. Federal Reserve chairman Jerome Powell, seen here on March 3, 2020, said the bank acted Sunday after having decided to meet this weekend ahead of its regular policy committee meeting later in the week.
Kevin Lamarque/Reuters
The U.S. Federal Reserve is taking emergency action to buoy the American economy, as the disruption caused by the novel coronavirus raises fears of recession and a credit freeze in financial markets.
The United States central bank announced Sunday a series of sweeping measures, chief among them a reduction in its benchmark interest rate by a full percentage point to effectively zero, its second surprise rate cut this month – with the Fed saying interest rates will remain there until the economy “has weathered recent events.”
The bank will also renew quantitative easing, as it buys US$700-billion in Treasury and mortgage securities, as well as eliminate the requirement for commercial banks to hold reserve funds from the amounts they loan out.
Story continues below advertisement
And in co-ordination with the Bank of Canada and four other central banks, the Fed is shoring up the liquidity of U.S. currency by reducing the amount it charges other central banks to purchase U.S. dollars, who then provide those funds to domestic financial institutions.
The moves in the U.S. follow similar efforts by the Bank of Canada to quickly cut interest rates to levels previously seen during the 2008 financial crisis. Ottawa has also rolled out $1.1-billion in emergency funding to fight the virus, has promised to unveil this week a major fiscal stimulus package and moved to significantly increase lending capacity in the Canadian economy.
Those measures have been enacted since equity markets began their steep decline in late February, driven by fears of massive economic disruption from the coronavirus. In Canada, the drop on Thursday was the steepest in eight decades, worse than even the Black Monday crash of 1987.
Economists said the Bank of Canada, which reduced its own key rate to 0.75 per cent with an emergency half-percentage-point cut on Friday, could now come under pressure to cut even deeper – and soon – to keep pace with the Fed. Ian Pollick, head of North American rates strategy at CIBC Capital Markets, said the Bank of Canada had been expected to cut rates soon, but it is now unlikely to wait until its next scheduled meeting on April 15. “The question now becomes one of timing,” he said.
Bank of Nova Scotia economist Derek Holt said the U.S. central bank’s goal is not necessarily to support equity markets, but rather to ensure that the financial system functions properly. “They really went all out here,” he said, adding that it is possible the Fed’s monitoring flagged growing risk in the financial system.
In a conference call with reporters, U.S. Federal Reserve chairman Jerome Powell said the bank acted Sunday after having decided to meet this weekend ahead of its regular policy committee meeting later in the week. Mr. Powell said the Fed decided not to issue its usual quarterly projections for the economy and interest rates this week because the coronavirus is altering the economic picture too quickly to make such projections useful.
The central bank’s reduction in its benchmark rate to a range between zero per cent and 0.25 per cent did not seem to comfort equity markets.
Story continues below advertisement
U.S. stock futures began falling after the Fed’s announcement. Futures for the S&P 500 index dropped 4 per cent, while futures for the Dow Jones Industrial Average fell 3.7 per cent. Prices for gold, a traditional safe haven for investors, rose 3.5 per cent.
David Rosenberg, head of Rosenberg Research in Toronto, said the co-ordinated move among global central banks is designed to bolster liquidity and that it should also help support investor confidence.
However, Mr. Rosenberg said he is concerned about how much more the Fed, the world’s most powerful central bank, can do from here, as the COVID-19 crisis in the U.S. continues to deepen and Washington politics remains fractured.
“Let’s face it – the Fed was already pretty well out of bullets, and after this bazooka, it is completely out of bullets. That’s a big problem, to have going forward an impotent central bank at a time when there is such a partisan divide that is frustrating a fiscal solution,” he said.
Scott Clark, who was deputy minister when Paul Martin was finance minister, echoed that sentiment, saying massive fiscal stimulus is needed in Canada and other countries to deal with a global economy already contracting.
“We have already entered into a global recession and I call this a global-virus recession,” he said in an interview, urging Finance Minister Bill Morneau to take “really major, really significant measures.”
Story continues below advertisement
On Friday in Ottawa, there was co-ordinated action to boost liquidity, with the Bank of Canada cutting its benchmark rate by 50 basis points to 0.75 per cent, its second reduction in less than two weeks. Mr. Morneau said two Crown lending agencies, Export Development Canada and the Business Development Bank of Canada, would boost their lending by $10-billion. And the Office of the Superintendent of Financial Institutions loosened capital reserve requirements for large banks, creating $300-billion worth of new lending capacity.
Mr. Clark said Ottawa must provide much more credit to small business than the $10-billion, as well as significant funding for employment insurance to deal with mass layoffs, funds for possible industry bailouts and billions more to the health care system to cope with the coronavirus.
Prime Minister Justin Trudeau is to have a telephone call with Group of Seven leaders – the U.S., France, Germany, Italy, Britain, Japan – on Monday. Mr. Clark said the G20, which includes China and Russia, need to be involved as they were during the 2008 financial crisis.
In its statement, the Fed said the effects of the coronavirus will have a negative impact on the U.S. economy in the near term and that it is ready to use its “full range of tools” to support the flow of credit to households and businesses.
The U.S. central bank said the reduction in the cost for other central banks to buy U.S. currency – the swap-line mechanism was put in place during the 2008 financial crisis – will take effect this week. The Fed’s move was made in co-ordination with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.
In a statement, the Bank of Canada said the swap line is not needed at this time, but that it provides flexibility “to address rapidly evolving developments in financial markets.” The bank also said Canadian financial institutions do not appear to be having difficulties with U.S. dollar liquidity needs in North America.
Story continues below advertisement
With reports from Associated Press
Sign up for the Coronavirus Update newsletter to read the day’s essential coronavirus news, features and explainers written by Globe reporters. Sign up
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.
