By Lorcan Roche Kelly
No agreement yet
While lawmakers in Washington are almost universally united on the need to introduce a very large stimulus bill to fight the economic fallout from the spreading coronavirus outbreak, fundamental differences remain between Republicans and Democrats on how the money should be spent. Senate Democratic leader Chuck Schumer said the GOP bill amounted to a “large corporate bailout” arguing that there should be much more money for hospitals, as his party voted against the proposal in the Senate. President Donald Trump remained optimistic, saying he thinks a deal will be done. The Senate will sit again at noon today.
While politicians in Washington argue about how to direct stimulus, the real world effects of the virus continue to mount. Delaware, Louisiana and Ohio are joining California, Illinois and New York in ordering all residents to stay at home. In Italy, one of the hardest hit countries, even stricter measures were introduced over the weekend which amount to an almost complete shutdown of industrial activity in the country. Hong Kong has banned all non-resident arrivals for fourteen days as the city faces a second wave of infections. India is trying to lock down most of its urban areas and Japanese Prime Minister Shinzo Abe said a postponement of the Olympics may be inevitable.
Measuring the fallout
While economists in the U.S. are still stopping short of forecasting the economy entering a depression, their outlooks are looking increasingly gloomy for the short term. Measures already announced amount to a sudden stop for the economy, meaning a recession is probably already baked in, with the next quarter likely to be the worst for growth since records began in 1947. Goldman Sachs Group Inc. predict a 24% contraction in the April-June period and Morgan Stanley see a 30.1% plunge. Federal Reserve Bank of St. Louis President James Bullard is even more pessimistic, saying growth may drop 50% and unemployment hit 30%.
The lack of a deal in Washington, tightening measures to control the virus and increasingly bad forecasts are all pressuring global markets. Overnight the MSCI Asia Pacific Index dropped 3.2%, with Japanese stocks bucking the trend as the Topix index closed 0.7% higher. In Europe, the Stoxx 600 Index was 3.6% lower at 5:45 a.m. Eastern Time with every industry sector posting losses as investors wait for more fiscal action. S&P 500 futures, which traded limit down shortly after opening, are pointing to more red at the open, the 10-year Treasury yield was at 0.829% and gold was lower.
Hopes that Texas would become an ally for OPEC in the coordination of production cuts are fading. There was some expectation that the rout in global crude prices, driven by an almost perfect storm of massive supply increases into a market where demand is evaporating, could bring the two sides together. However, objections from producers in Texas seem set to put paid to any significant move to cut output there. A barrel of West Texas Intermediate for May delivery was trading at $22.40 while Brent dropped to $25.54.