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US surge in coronavirus cases darkens outlook for economy – Financial Times

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The US economy is facing an accelerating surge in coronavirus cases and harsh new restrictions on business activity without the cushion of meaningful fiscal support, raising fears of a blow to the recovery.

Even though equity markets have rallied strongly on advances in the development of a vaccine, the deteriorating health situation across the country is presenting an imminent threat to the US economy as the winter months approach.

The US has already recorded more than 1m new coronavirus cases so far this month, with the healthcare system in parts of the country now under severe strain. Lockdown measures have been introduced in a number of states and major cities in an attempt to contain the spread.

Whereas the White House and Congress agreed to $3tn in government spending measures to counter the initial pandemic lockdowns in March and April, they failed to reach a deal on further stimulus before the election and have made little if any progress towards an agreement since the vote.

Joe Biden, the US president-elect, has called for a compromise even before he takes office in January given the urgency of the situation, a position that was reinforced on Sunday by Ron Klain, his pick for White House chief of staff.

“There’s a lot of things that are going to have to wait until Joe Biden is president, but this is not one of them,” he told NBC on Sunday, adding that direct help to people and state and local governments to prevent job losses was crucial. “This is a national crisis, it needs bipartisan action now.”

Even Donald Trump, the outgoing president who has waxed and waned over the issue of new coronavirus economic relief for months, said in a tweet over the weekend that he wanted an agreement.

Still, big differences remain between congressional Democrats who are pushing for a broader and more costly package worth more than $2tn, and Republican lawmakers who think the economy needs far less. This has economists worried that no significant agreement will be reached, leaving households and businesses to fend for themselves even as new lockdowns are introduced and workers are furloughed or dismissed.

Ron Klain testifying before an Emergency Preparedness, Response and Recovery Subcommittee hearing on Capitol Hill in Washington DC, in March
Ron Klain, Joe Biden’s chief of staff, called for swift action to counter the economic drag of rising Covid-19 cases © AFP via Getty Images

“From a health perspective and as a result from an economic perspective we’re really not in a good place, there’s really no way to sugarcoat it. We have essentially a fairly long winter ahead of us,” said Gregory Daco, chief US economist at Oxford Economics.

“The vaccine news, the pent-up savings, the possibility of coming back to a new normal in six months’ time are all very encouraging, and a source of optimism, but they do nothing for us today.”

Michael Feroli, a senior US economist at JPMorgan Chase, said if fiscal support ended up being slower or smaller than expected this time, compared with the aid delivered during the first virus wave, it would “definitely present some considerable risks to growth” at a time when momentum was already waning.

JPMorgan Chase data on its own credit and debit card spending released last week showed a notable dip in November, particularly in states suffering big rises in coronavirus cases.

“I wouldn’t say the evidence right now is conclusive that we are entering a double dip. But there are certainly some warning signs out there,” Mr Feroli said.

Nancy Pelosi, the Democratic speaker of the House of Representatives, on Friday said a stimulus package was a top priority for the next few weeks in Congress, during the “lame duck” session before new lawmakers and Mr Biden take office. “This is a red alert, all hands on deck,” she told reporters.

But Mitch McConnell, the Kentucky Republican and Senate majority leader, does not feel the same level of urgency and no serious negotiations have resumed on Capitol Hill.

The lack of fiscal support in the world’s largest economy as the coronavirus crisis worsens could raise pressure on the Federal Reserve to take further action, even though it has already delivered huge amounts of monetary support and lacks the tools to help struggling workers and companies directly.

The Fed refrained from any new policy moves in early November at its policy meeting following the presidential election, but discussed changes to its asset purchase programme that could “deliver more accommodation if it turns out to be appropriate”, as Jay Powell, the Fed chairman, described it in his press conference.

The prospects for such a step is likely to be a key focus when the Federal Open Market Committee next meets in mid-December, but some strategists said the US central bank may be forced to move even sooner.

Steve Englander, head of North America Macro Strategy at Standard Chartered, wrote in a note that the Fed could increase its asset purchases and try to expand its credit facilities for struggling businesses as its next move.

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The Toronto Stock Exchange rises 0.15% to 19,135.81

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Toronto Stock Exchange

* The Toronto Stock Exchange’s TSX rises 0.15 percent to 19,135.81

* Leading the index were Canadian Tire Corporation Ltd <CTCa.TO​>, up 10.6%, WSP Global Inc​, up 9.2%, and Sunopta Inc​, higher by 7.5%.

* Lagging shares were Turquoise Hill Resources Ltd​​, down 18.5%, AcuityAds Holdings Inc​, down 17.0%, and Pan American Silver Corp​, lower by 10.3%.

* On the TSX 125 issues rose and 97 fell as a 1.3-to-1 ratio favored advancers. There were 12 new highs and 2 new lows, with total volume of 239.1 million shares.

* The most heavily traded shares by volume were Enbridge Inc, Manulife Financial Corp and Suncor Energy Inc.

* The TSX’s energy group fell 2.80 points, or 2.2%, while the financials sector climbed 4.42 points, or 1.3%.

* West Texas Intermediate crude futures fell 3.47%, or $2.29, to $63.79 a barrel. Brent crude  fell 3.32%, or $2.3, to $67.02 [O/R]

* The TSX is up 9.8% for the year.

This summary was machine generated May 13 at 21:03 GMT.

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Rising Canadian Dollar could hit export outlook, affect monetary policy

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If the buoyant Canadian dollar continues to rise it could create headwinds for exports and business investment as well as affecting monetary policy, Bank of Canada Governor Tiff Macklem said on Thursday.

The currency has jumped about 4% since the central bank updated its projections in April, driven by surging commodity prices. Canada is a major exporter of energy, lumber, minerals and agricultural products. It hit a six-year high on Wednesday.

“We’ve highlighted that a stronger dollar does create some risk,” Macklem told reporters after a speech to university students in his most detailed comments yet about the potential drawbacks of a more muscular currency.

“If it moves a lot further, that could have a material impact on our outlook and it is something we have to take into account in our setting of monetary policy.”

Further gains could drag down export projections. “If we’re less competitive, our export profile is weaker, that also probably means that our investment profile will be weaker,” he said.

The Canadian dollar was trading 0.4% lower at 1.2180 to the greenback, or 82.10 U.S. cents, pressured by a sharp decline in oil prices.

Macklem earlier said that some of the monetary policy tools the bank is using to address the COVID-19 pandemic, such as quantitative easing (QE), could widen wealth inequality and that it was looking closely at the issue.

While the QE program has stimulated demand and helped create jobs, it was is boosting wealth by inflating the value of assets that “aren’t distributed evenly across society”, he said.

The bank had been buying C$4 billion ($3.3 billion) of government bonds a week but last month cut that to C$3 billion, becoming the first major central bank to trim a pandemic-era money-printing stimulus program.

It also signaled it could start lifting interest rates in late 2022, as it hiked the outlook for the Canadian economy.

Macklem reiterated Thursday that the benchmark rate would stay at its current record low 0.25% until inflation was sustainably at the 2% target. The bank, he added, would continue to use monetary policy tools to support a “complete recovery.”

(Additional reporting by Fergal Smith in Toronto; Editing by Steve Orlofsky and John Stonestreet)

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Brazil March economic activity falls less than expected, indicates Q1 GDP growth

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Economic activity in Brazil fell in March, a central bank index showed on Thursday, the first decline in 11 months due to lockdowns to counter a second wave of the COVID-19 pandemic, but a far smaller decline than economists had expected.

The smaller-than-expected monthly fall in the IBC-Br economic activity index, a leading indicator of gross domestic product, meant that the index rose comfortably in the January-March period, allaying fears of a first-quarter contraction.

“Given the stronger-than-expected performance of the economy in March, strength of the early activity indicators for Q2 and further improvement in the terms of trade, we are upgrading the forecast for 2021 real GDP growth to 4.5% from 4.1%,” said Alberto Ramos at Goldman Sachs.

The IBC-Br index fell a seasonally adjusted 1.59% in March. According to Refinitiv data, that was the eighth steepest fall since the series began in 2003.

But it was less than half the median estimate in a Reuters poll of economists for a 3.75% slide, meaning the index rose 2.3% in the first three months of this year from the final three months of last year.

The seasonally adjusted index in March stood at 140.16, just above the 139.36 seen in February last year before the COVID-19 pandemic brought the economy to a standstill and triggered the biggest annual decline in activity since 1990.

By this measure, Latin America’s largest economy had returned in March to the size it was in mid-2015, but still 5.7% smaller than it was at its peak in December 2013, on a seasonally adjusted basis.

The IBC-Br index was up 6.26% on a non-seasonally adjusted basis from March 2020, the central bank said, reflecting the scale of the economic downturn when the pandemic first struck.

In the 12 months through March, the index was down 3.37%.

 

(Reporting by Jamie McGeever; Editing by Gareth Jones and Bernadette Baum)

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