Five Things You Need to Know to Start Your Day

In this article

Want to receive this post in your inbox every morning? Sign up here

All eyes on jobless claims, Senate passes $2 trillion virus plan, and WHO says countries are wasting time. Here are some of the things people in markets are talking about today. 

Record number

This week’s initial jobless claims data at 8:30 a.m. Eastern Time is the most hotly anticipated in years as it will be the first hard data on the severity of the economic hit from the coronavirus-spurred shutdowns. The median estimate of economists is for 1.6 million with forecasts running as high as 4 million. White House chief economic adviser Larry Kudlow said the number would show a “very large increase.” Canada saw jobless claims of nearly 1 million, representing nearly 5% of the total workforce. 

Bill passed 

The Senate passed the historic $2 trillion stimulus bill last night in a 96-0 vote following intense negotiations between Republicans and Democrats on the make-up of the package. The measures include loans to corporations, tax breaks and direct payments to companies and individuals. Democrats won a major concession in securing independent oversight of the $500 billion slated for distressed companies, but there are fears the move could slow the flow of cash. The House is scheduled to vote on the bill tomorrow, and President Donald Trump said he would sign it immediately. 






Virus warning

There was an unusually blunt message from the World Health Organisation for governments, with the body saying political leaders should stop wasting time in the fight against the spread of the coronavirus. WHO Director-General Tedros Adhanom Ghebreyesus said the first window of opportunity to act has already been squandered. The death toll from the virus in the U.S. passed 1,000 as states continue to tighten movement restrictions, and Governors call for more funding to help fight the outbreak. Evidence of the global economic fallout piles up by the day, with Singapore estimating its economy shrunk the most in a decade. 

ECB goes all in

The European Central Bank published the legal text of its 750 billion euro ($819 billion) Pandemic Emergency Purchase Program (PEPP) which revealed the bank will scrap the issuer limits on purchases of bonds, and widened the scope of buying to include instrument with as little as 70 days left to maturity. “The decision removes virtually all constraints on asset purchases,” Frederik Ducrozet, global strategist at Bank Pictet & Cie. in Geneva, said. Euro-area sovereign bonds are rallying as markets digest the details of the move, with short-dated Italian debt dropping as much as 13 basis points and Greek bonds surging this morning. Speaking of central banks, the Bank of England announces its latest policy decision at 8:00 a.m. this morning. 

Markets drop

Now that the stimulus bill has been passed, global equity investors seem to be turning back to worrying about the virus, with markets taking a turn lower today. Overnight, the MSCI Asia Pacific Index gained 0.1% with a mixed performance across the region. Japan’s Topix index dropped 1.8% while India’s Sensex Index jumped over 4%. In Europe, the Stoxx 600 Index was 1.5% lower at 5:55 a.m. with all but one industry group trading in the red. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 0.811% and gold slipped. 

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

  • Odd Lots: How the crisis nearly blew up one of the world’s safest trades. 
  • World trade rocked by virus sees worst collapse in a generation. 
  • The gold market is being tested like never before. 
  • Huge quarter-end asset shift is little threat to the dollar’s reign. 
  • Risky mortgages face reckoning in market spooked by crisis.
  • Why stock buybacks may be slowed or shut by the virus.
  • Distant “quasar tsunamis” are ripping their own galaxies apart. 

Source: Read Full Article

Overview of what $2 trillion stimulus bill will cover

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

London (CNN Business)Here’s a much-needed dose of good news for investors: Lawmakers in Washington have reached an agreement on a sweeping $2 trillion economic stimulus package that will help support companies and workers harmed by the coronavirus pandemic.

Anticipation of such a deal sent US stocks soaring on Tuesday, with the S&P 500 rising 9.4% — its tenth best day ever and strongest performance since 2008, according to Bespoke Investment Group.
But, as has become typical, stocks are struggling to hold onto their gains. European shares powered higher in early trading but have since pulled back.

    Goldman Sachs told clients Tuesday that the “swift and large” global policy response could help steady markets — but commitments may need to get even bigger before that happens.
    The investment bank said that three other components are also needed to stabilize markets: A sign the infection rate is peaking, an indication the economic downturn may be slowing and cheap valuations. With the exception of valuations, we’re not quite there yet.

    In the meantime, major risks remain — especially on the unemployment front. If joblessness shoots up, Goldman Sachs warns that companies could wind up short on cash as demand falters even more, raising the chances that the recession “becomes more entrenched.”
    Andrew Hunter, senior US economist at Capital Economics, thinks the $2 trillion stimulus plan will help limit corporate bankruptcies and thus job losses.
    But the research firm still sees the unemployment rate in the country soaring above 10%, and the economy contracting at an annual rate of as much as 40% between April and June.
    Capital Economics also thinks that the US government will need to add to its $2 trillion efforts down the line.
    “There is no reason to believe that Congress will now sit on its hands,” Hunter told clients. “Fiscal stimulus measures could easily be ramped up even further over the next couple of months as the economic damage becomes clear.”

    Nike earnings show a way forward

    How can retailers navigate the coronavirus pandemic as stores around the world shut down? Investors think Nike (NKE) could offer some clues.
    The retailer’s revenue between December and February beat investors’ expectations despite a heavy reliance on China, pushing shares up 12% in premarket trading.
    Driving the enthusiasm: Nike said that sales in Greater China fell 4% last quarter, after 22 consecutive quarters of double-digit growth. But online sales in the region increased by more than 30%, helping to compensate for the fact that three quarters of its locations were temporarily closed. The company said that nearly 80% have now reopened.
    “We’re seeing the other side of the crisis in China,” CEO John Donahoe told analysts Tuesday.
    UBS analyst Jay Sole said the strength of online sales eases some concerns about cash flow and will put Nike in a better place than expected when the crisis ends. But the company still faces tough months ahead. All stores outside Greater China, Japan and Korea have been closed since March 16.
    See here: Retailers will soon need to start offering huge discounts on spring clothing in an attempt to clear out inventory, my CNN Business colleague Nathaniel Meyersohn reports.
    “People aren’t interested in buying anything but the things they need to stay alive,” said Mark Cohen, director of retail studies at Columbia Business School.

    Why gig economy workers need help now

    Millions of gig economy workers across the world are facing an impossible choice as a result of the coronavirus pandemic: break lockdown rules, or stay home and earn nothing, my CNN Business colleague Hanna Ziady reports.
    Millions of gig economy workers need help now to make coronavirus lockdowns work
    The dilemma was illustrated Tuesday by images of packed subway cars in London less than 12 hours after Prime Minister Boris Johnson announced stricter social distancing measures as part of a nationwide lockdown.
    The new coronavirus restrictions mean people are only allowed to leave their homes for medical reasons, to grocery shop or exercise once a day, and to travel to and from work when absolutely necessary.
    But lockdowns won’t be effective if individuals who cannot work from home continue reporting to job sites because not doing so would deprive them of income. “Many of those traveling to work today … work in the gig economy or are freelancers,” London Mayor Sadiq Khan said Tuesday on Twitter. “A proper package of support for these workers would alleviate this situation.”

    Up next

    The chipmaker Micron (MICR) reports results after US markets close.
    Also today:

      • US durable goods orders for February arrive at 8:30 a.m. ET.
      • The latest data on US crude oil inventories follows at 10:30 a.m. ET.

      Coming tomorrow: G20 leaders will meet by videoconference to discuss the coronavirus pandemic.
      Source: Read Full Article

      US automakers to extend shutdown into April: sources

      Coronavirus will pressure auto supply chains: Bob Nardelli

      Former Chrysler CEO Bob Nardelli on rolling back EPA regulations on the auto industry and the potential impact of the coronavirus on earnings.

      Get all the latest news on coronavirus and more delivered daily to your inbox.  Sign up here.

      Continue Reading Below

      Detroit's Big Three automakers plan to extend a current shutdown of vehicle production in North America into April as the coronavirus pandemic continues, people briefed on the matter said Tuesday.

      The automakers had said on March 18 they would halt production until at least March 30.

      Ford Motor Co said in a statement Tuesday it was "not planning to restart our plants in the U.S., Canada and Mexico on Monday, March 30 as originally hoped."

      GET FOX BUSINESS ON THE GO BY CLICKING HERE

      Two people briefed on the matter said Ford does not plan to restart production until at least April 6 but warned it could be further delayed into April.

      General Motors Co  and Fiat Chrysler Automobiles NV  also do not plan to resume production on March 30, three people briefed on the matter said. It was unclear when they may resume production or if some plants could restart before others.

      GM declined to comment Tuesday but said last week when it announced the shutdown it would last "until at least March 30. Production status will be reevaluated week-to-week after that."

      DETROIT AUTOMAKERS TO IDLE 150,000 WORKERS DUE TO CORONAVIRUS: SOURCES

      Michigan Governor Gretchen Whitmer issued an order on Monday barring non-essential businesses from operating until April 13. A spokeswoman for Whitmer was unable to clarify on Tuesday whether auto production is considered essential or not.

      Michigan has declared vehicle sales by auto dealers to be impermissible under the order, but dealerships and other facilities can make repairs.

      United Auto Workers President Rory Gamble said in a letter to union members on Tuesday that Fiat Chrysler had told the union that it would comply with the Michigan governor's order and had "no plans to reopen on March 30."

      Ticker Security Last Change Change %
      GM GENERAL MOTORS COMPANY 21.11 +3.51 +19.94%
      F FORD MOTOR COMPANY 4.95 +0.94 +23.44%
      FCAU FIAT CHRYSLER AUTOMOBILES N.V. 7.01 +0.66 +10.39%

      Fiat Chrysler declined to comment on the UAW letter. The UAW also said two Fiat Chrysler union members — one in Indiana and one in Michigan — have died after contracting the coronavirus.

      Gamble's letter said the union is "waiting to hear from GM and are demanding that they put our members’ safety first and adhere to government and health officials’ recommendations to stay-at-home."

      CLICK HERE TO READ MORE ON FOX BUSINESS

      A group representing major U.S. and foreign automakers warned in a letter to U.S. lawmakers with other industry groups on Monday that "Auto industry analysts are expecting sales to be down by as much as 40 percent in March compared to 2019." The letter said 95% of North American auto plants are currently closed.

      (Reporting by David Shepardson; Editing by Simon Cameron-Moore)

      Source: Read Full Article

      What else can the Fed do?

      A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

      London (CNN Business)For the second time in two days, Democrats voted on Monday against advancing a $2 trillion package to mitigate the economic crisis caused by the coronavirus pandemic. Why? They want to avoid a replay of 2008.

      Senator Sherrod Brown, a Democrat from Ohio, argued Monday that the American people “don’t want another corporate bailout” that prioritizes Wall Street and airlines over workers.
      “The fact is, we need to learn from 10 years ago,” he said. “The same people came to us and said, ‘We need this bailout.’ They promised that it would help people stay in their homes. They promised that it would be money in the pockets of workers. The banks have done well. The executives have done well. But since then wages have basically remained flat.”

        CNN’s Alex Rogers and Phil Mattingly report from Washington:
        Democratic senators have maintained that their response cannot reflect the 2008 Troubled Asset Relief Program, the $700 billion bank bailout often referred to as TARP, underscoring that the policy and political repercussions from that vote are still having ripple effects to this day.

        The policy fallout is plain — while the emergency efforts saved the financial system and, by extension, the economy, a similar scale of effort and aid wasn’t made available to average Americans, at least not without onerous rules and regulations to overcome and strings attached.
        “In our desire to overwhelmingly respond … there were great mistakes made,” Senator Bob Menendez, a New Jersey Democrat, said Sunday. “We need to not only have a sense of urgency, we need to get it right.”
        One problem for Washington is that investors do have a sense of urgency when it comes to the stimulus package. Optimism that progress was being made contributed to a global stocks rally on Tuesday, but further signs of delay could spark a quick reversal and add to the collapse in stock prices.
        Kit Juckes, a strategist at Societe Generale, described the scale of Monday’s intervention by the US Federal Reserve as “incredible.” But lawmakers still need to pass that stimulus package. And on the comparison to 2008?
        “The key [in 2008] was to limit the damage a financial crisis caused to the rest of the economy. The key now is to make sure that people can withstand the economic hardship caused by the collapse in activity, and that when the virus is beaten, the economy can recover as fast as possible,” Juckes said.

        What can the world learn from China?

        The country where the pandemic began was almost completely shut down in late January as the number of coronavirus cases mounted. Now, with the outbreak apparently under control, China is trying to re-start its economy.
        Beijing’s plan rests on a slew of policies and campaigns meant to push people back to work, encourage business confidence at home and abroad, and protect as many companies from failing as possible.
        Many parts of the country are lifting their lockdowns, removing road blockades and allowing people to travel more freely — as long as they have documented proof that they are healthy.
        But as my colleague Laura He reports from Hong Kong, Beijing has acknowledged that its attempt to get back to normal is risky. Some businesses have rushed back to work, only to be forced to shut down again when workers became infected.
        Analysts caution that the return of millions of people to work in China could also risk another outbreak if the virus hasn’t been totally eradicated in local communities. “In our view, the risk of a second wave of Covid-19 in China is rising,” wrote Ting Lu, chief China economist for Nomura, in a recent report.
        Western governments are also debating when to lift restrictions on travel and public life. But China’s blueprint might only provide so much help, particularly for economies that operate under less centralized government control.
        “The challenge in the West will be to incentivize people to go out to restaurants, theaters, and sporting events, rather than to get workers back to the factories,” said Victor Shih, an associate professor at the University of California at San Diego. “The challenge is very different.”
        Meanwhile, there are signs that President Donald Trump is leaning toward re-starting the US economy weeks before the virus may peak.
        “Our country was not built to be shut down,” the president said on Monday. “We are going to be opening up our country for business because our country was meant to be open.”

        Europe is hurting

        Experts have been warning that economic data is going to take a dramatic turn for the worse in the coming weeks, revealing the scale of damage caused by the coronavirus pandemic.
        One of the first reports out of Europe is … not great.
        IHS Markit’s Flash Eurozone PMI Composite Index dropped to 31.4 in March from 51.6 in February, revealing what the survey’s publishers described as the “largest collapse in business activity ever recorded.”
        The prior low for the eurozone was seen in February 2009, when the index hit 36.2. That suggests the pain is even more intense than during the peak of the global financial crisis. Huge job cuts are already underway.
        “Employment is already falling at a rate not seen since July 2009 as despair about the outlook broadens, said Chris Williamson, chief business economist at IHS Markit.
        Here’s the reaction from Capital Economics:
        “March’s slump in the eurozone Composite PMI is so sharp that at any other time it would look like a spreadsheet error. But now it is all too believable, and April’s data could be even worse,” the research firm said.
        Reminder: US initial jobless claims will be published on Thursday.

        Up next

          Happening later: Nike reports results after US markets close.
          Coming tomorrow: US crude inventories.
          Source: Read Full Article

          Virus Walloped U.S. Economy in March, IHS Markit Gauge Shows

          The global health crisis dealt a swift, painful blow to the U.S. economy in March, with a gauge of activity at service providers and manufacturing contracting the most on record.

          The IHS Markit composite index of purchasing managers tumbled 9.1 points to 40.5, marking the steepest drop in data back to October 2009, the group reported Tuesday. The plunge mirrors the rapid deceleration in other nations as the coronavirus tightens its grip on the global economy and financial markets.

          “The survey underscores how the U.S. is likely already in a recession that will inevitably deepen further,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “The March PMI is roughly indicative of GDP falling at an annualized rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline.”

          The IHS Markit gauge of services slid 10.3 points to 39.1 in March. The median projection in a Bloomberg survey of economists called for a decline to 42.

          With services comprising almost 90% of the U.S. economy, the slump in the index highlights the extent of the hit to the nation’s output as retailers, restaurants and other service providers shut down in an effort to contain the outbreak. Similar measures for Japan, Germany, the U.K., France and Australia were also at all-time lows.

          The economic stoppage and social distancing is also starting to put U.S. manufacturing on its heels and threatens to become an even bigger drag in coming months.

          While registering a smaller setback than the services gauge, the IHS Markit index of U.S. manufacturing dropped in March to 49.2, the weakest since August 2009. Readings below 50 indicate contraction. Factory orders shrank at the fastest pace since then as well.

          As businesses close their doors and the economy grinds to a halt, millions of Americans are being dismissed and filing for unemployment insurance. The IHS Markit employment gauges for both services and manufacturing contracted in March.

          “Jobs are already being slashed at a pace not witnessed since the global financial crisis in 2009 as firms either close or reduce capacity amid widespread cost-cutting,” Williamson said.

          — With assistance by Kristy Scheuble

          Source: Read Full Article

          Five Things You Need to Know to Start Your Day

          Want to receive this post in your inbox every morning? Sign up here

          Pelosi pushes $2.5 trillion bill, it’s PMI day, and markets rally. Here are some of the things people in markets are talking about today. 

          Stimulus

          House Speaker Nancy Pelosi unveiled a $2.5 trillion spending bill as she attempts to take control of negotiations over the second stimulus package debate after the Senate failed to agree on measures yesterday. Pelosi’s plan includes measures to support home owners and renters, and would see $10,000 in loan forgiveness for student borrowers. There are no plans for the House to vote on the measures, which are seen as a list of Democrat demands for inclusion in the Senate bill. President Donald Trump, speaking at a press conference yesterday, said that he was looking to get the U.S. back to work as soon as possible as his administration becomes increasingly concerned about the economic damage caused by the virus. 

          PMIs

          There are obvious signs of that damage in the purchasing managers indexes already published today. A gauge of activity in Japan’s service sector shrunk to 32.7, a record low. In Europe, a similar number for France crashed to 29, with manufacturing PMI there dropping to 42.9. There were also signs of a steep recession in German data, while a composite number for the euro area showed it may be headed into the biggest economic crisis in its history. March manufacturing, services and composite PMI numbers for the U.S. economy are also expected to show a sharp contraction when the data is released at 9:45 a.m. Eastern Time. 

          Lockdown

          The U.K. finally joined most of the rest of Europe by imposing an almost complete lockdown, with Prime Minister Boris Johnson telling people that they must stay at home. The restrictions on movement seem to be effective in controlling the spread of the virus with Italy, the country with the largest outbreak in the region, reporting slower growth in the number of cases and deaths. Chinese authorities are preparing to lift the lockdown in Wuhan, the city where the outbreak was first reported earlier this year. In the U.S. there isn’t a national lockdown in place, but many states have introduced stay-at-home measures and travel has become curtailed. 

          Stocks rally

          Global equity investors are reacting to unprecedented stimulus from the Federal Reserve, and possibly trying to get ahead of good news on controlling the coronavirus and fiscal packages today. S&P 500 futures hit the upper limit of their trading range after an Asian session which saw the regional benchmark gain 4.9%. In Europe, the Stoxx 600 Index was 5% higher at 5:50 a.m., with every industry sector gaining, led by a huge jump in energy stocks. The 10-year Treasury yield was at 0.812% and gold jumped.

          Oil rises

          The on-again, off-again possibility of a detente between the America and OPEC seems to be very much on again today after U.S. Energy Secretary Dan Brouillette said the possibility of a joint U.S.-Saudi oil alliance is one idea under consideration. That, coupled with the sweeping measures announced to support the economy by the Federal Reserve, is helping push oil higher for a second day, with a barrel of West Texas Intermediate for May delivery trading as high as $25. There are also growing signs that some producers do not have the firepower needed to fully engage with the price war, possibly meaning the expected flood of crude onto the market could be lower than feared. 

          What we’ve been reading

          This is what’s caught our eye over the last 24 hours.

          • Treasuries dysfunction easing with strengthening Fed measures.
          • ECB buys most bonds since 2017, even before latest increase. 
          • Bank of England’s $231 billion of QE may come quicker than advertised. 
          • For 32 minutes everything was quiet in India’s bond market.
          • Europe’s labor market better placed to face the virus than U.S.
          • What it looks like from space when everything stops. 
          • Comet Atlas may put on quite a show. 

          Source: Read Full Article

          Despite coronavirus, new bull market can run

          Market expert: We are in a financial crisis

          Mark Grant of B. Riley FBR Inc. on how the U.S. can combat the economic impact of the coronavirus crisis.

          Stock-market investors searching for a bottom to the sharpest bear market in history may have to keep looking.

          Continue Reading Below

          The benchmark S&P 500 fell nearly 3 percent on Monday, extending the decline from its Feb. 19 peak to 33 percent as the COVID-19 pandemic brings the U.S. economy to a near standstill. The Dow Jones Industrial Average has dropped 37 percent in the same time frame and is now on pace for the worst month since September 1931, according to analysis by the Dow Jones Market Data Group.

          A “peak in the number of new cases daily” is the most important thing that needs to happen before the next bull market can begin, wrote Savita Subramanian, equity strategist at Bank of America. During the SARS epidemic of 2003, both the Shanghai and Hong Kong indexes hit bottom shortly after the number of daily global confirmed cases crested, she added.

          MNUCHIN: TRUMP ADMIN DETERMINED TO SUPPORT AMERICAN BUSINESSES, WORKERS

          COVID-19 has infected more than 46,963 people in the U.S., and the number of new cases is growing rapidly each day as increasing test availability identifies previously unknown sufferers. State governments have issued “stay-at-home” orders in an effort to slow the spread of the virus.

          “Whereas the Fed and fiscal stimulus are widely seen as market panaceas, so far they have not been particularly potent” in addressing the decline in equities, she wrote, adding that she would like to see banks tightening lending and a further softening of the economy before her checklist is complete.

          The Federal Reserve on Monday took major action to support the U.S. economy, announcing it will buy Treasury securities and agency mortgage-backed securities in “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

          FED'S CORONAVIRUS ACTIONS MAKE TRUMP VERY HAPPY WITH POWELL

          That afternoon, President Trump, a frequent critic, praised Fed Chair Jerome Powell for his actions to combat the coronavirus.

          The central bank also introduced three new lending facilities designed to provide up to $300 billion in financing to support the flow of credit to employers, consumers and businesses.

          That action is on top of the central bank's previous reduction of interest rates to nearly zero and other programs to ensure markets function correctly.

          On the fiscal front, Congress has passed two stimulus plans and has a third package, which is approaching $2 trillion in size, in the works but is meeting resistance among Democrats on Capitol Hill.

          “Simplistically, for markets to recover from the current crisis, we think the market will need to be able to put limits on the tail risks that are currently center-stage and for new tail risks not to surface,” wrote Goldman Sachs strategists Kamakshya Trivedi and Zach Pandl.

          They agree with Subramanian that a so-called flattening of the curve is needed before markets can bottom, but would also like to see more visibility into the depth and duration of the economic disruption and make sure there’s no intensification of other less likely hazards.

          Their other criteria, including a “sufficiently large global stimulus,” “a mitigation of funding and liquidity stresses” and a “deep undervaluation across major assets and position reduction” may be a bit closer to occurring.

          CLICK HERE TO READ MORE ON FOX BUSINESS

          “As in the global financial crisis, sufficient progress on some may substitute for the others, and some assets may be more sensitive to one or other of these conditions,” Trivedi and Pandl wrote. “But a broadly favorable mix of these conditions will likely be required for us to turn more decisively positive.

          Source: Read Full Article

          Mortgage Bonds Rattle Wall Street Anew With Rush of Urgent Sales

          The $16 trillion U.S. mortgage market — epicenter of the last global financial crisis — is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Federal Reserve to intervene.

          Unlike last time, risky mortgages aren’t the cause. Instead, the coronavirus pandemic is threatening to make good loans go bad — and simultaneously sapping the market’s funding. There are fears that government efforts to shore up borrowers and financing won’t be enough and that mortgage and property investors again face massive losses.

          Measures to slow the spread of the deadly disease are slamming the brakes on commerce, threatening to prevent companies from making payments on their leases and commercial mortgages. Companies are also firing employees, who won’t be able to keep up on their own rents and home loans. Mortgage industry veterans warn of a cascade of defaults.

          At the same time, holders of mortgage-backed securities are fielding redemption requests from clients, margin calls from jittery counterparties and drops in their valuations, forcing the funds to solicit offers on billions in assets in emergency sales over the weekend. If such sales accelerate, bond prices could fall and put pressure on other investors to mark down or sell their holdings too.

          The tensions are flaring up in myriad ways across the property market — boosting interest rates for home loans last week, leading listing companies such as Zillow Group Inc. to suspend buying programs and prompting industry players from real estate brokers to mall owners to plead directly to President Donald Trump for relief.

          In one of the most dire warnings, real estate investor Tom Barrack said Monday that the U.S. commercial-mortgage market is on the brink of collapse and predicted a “domino effect” of consequences if banks and the government don’t take prompt action to keep borrowers from defaulting.

          “You have to support the employers” so they can keep paying their rents and employees, he said. “When commerce stops and they can’t pay rent and they can’t pay interest on the debt, and then the banks and the intermediaries can’t pay their investors, it all collapses.”

          Yet negotiations between lawmakers and the Trump administration to prop up households and the economy with a roughly $2 trillion relief package keep stalling. Among the demands, Democrats are insisting on restrictions for corporate bailouts and stronger protections for workers.

          The Fed, in a surprise announcement early Monday, said it’s buying unlimited amounts of Treasury bonds and mortgage securities to keep borrowing costs low. It also set up programs to ensure more credit flows to businesses of all sizes and state and local governments.

          But that effort has limits. For example, the central bank is focusing on securities consisting of so-called agency home loans and commercial mortgages that were created with help from the federal government.

          There are about $10 trillion of U.S. mortgage-backed securities, of which about 14% don’t meet that criteria, according to the Securities Industry and Financial Markets Association. And when that tally of securities is compared to the Fed’s of about $16 trillion in total U.S. mortgages, the central bank’s announcement suggests that roughly half of all property loans will be eligible for purchase.

          Flagstar Bancorp, one of the nation’s biggest lenders to mortgage providers, said Friday it stopped funding most new home loans without government backing. Other so-called warehouse lenders are tightening terms of financing to mortgage providers, either raising costs or refusing to support certain types of home loans. One prominent mortgage funder, Angel Oak Mortgage Solutions, said Monday it’s even pausing all loan activity for two weeks. It blamed an “inability to appropriately evaluate credit risk.”

          Also retreating: A new generation of sophisticated home flippers, who use data and debt to buy and sell homes in quick order. Zillow said Monday it has stopped purchasing homes, following rivals SoftBank-backed Opendoor and Redfin Corp. “No one can say what a fair price is right now, so we’re not making any instant offers,” Redfin’s Chief Executive Officer Glenn Kelman said last week.

          Interest Rates Up

          Banks are facing pressures that will make it hard for them to step in by making or purchasing mortgages others are dumping. Corporate borrowers have been drawing down credit lines at banks, siphoning off cash and raising the prospect that the lenders will eventually incur losses.

          It all means households are being charged mortgage rates far above where they ought to be, with no end in sight, said Jeremy Sopko, co-founder and CEO of Nations Lending Corp. Even broker-dealers, whose job is to match buyers and sellers, are uncertain, “and they’re normally the guys who have their pencils sharpened the tightest,” he said.

          Interest rates on traditional 30-year fixed-rate mortgages typically follow yields on the 10-year Treasury note, a benchmark that helps determine the cost of borrowing throughout the U.S. economy. But this month the gap between the two is set to reach a record, according to monthly data compiled by Bloomberg dating to 1998, in a show of how tumult in markets impacts what the average American has to pay on a mortgage.

          For Wall Street, the moment that crystallized the extent of problems in mortgage markets came Sunday, when some firms rushed to raise cash by requesting offers for their bonds backed by home loans. Eager sellers included investor AlphaCentric Income Opportunities Fund and Annaly Capital Management Inc., a mortgage real estate investment trust.

          Such solicitations are known as “bids wanted in competition,” or BWIC.

          “I ran dealer desks for over 20 years,” said Eric Rosen, who oversaw credit trading at JPMorgan Chase & Co., ticking off the collapse of Long-Term Capital Management, the bursting of the dot-com bubble some 20 years ago, and the 2008 global financial crisis. “And I never recall a BWIC on a weekend.”

          Then on Monday, mortgage fund AG Mortgage Investment Trust Inc. said it failed to meet some margin calls on Friday and doesn’t expect to be able to meet future margin calls with its current financing. And TPG RE Finance Trust Inc., which focuses on commercial real estate debt, said it’s starting talks with lenders because of uncertainty about meeting future margin calls.

          “The Fed is going to do whatever it takes to restore normal functioning in the market,” said Karen Dynan, a Harvard University economics professor who formerly worked as a Fed economist and senior official at the Treasury Department. “But we need to remember that the root of the problem is that financial institutions and investors are desperately seeking cash, so in that sense the Fed’s announcement is not everything that needs to be done.”

          — With assistance by Sridhar Natarajan, Heather Perlberg, Gillian Tan, and Patrick Clark

          Source: Read Full Article

          Merger Monday Vanishes With Coronavirus Roiling Dealmaking

          Two weeks after the year’s biggest Merger Monday, dealmakers confronted the worst start to the week in more than five years.

          Only $2.3 billion of deals, from 94 transactions, were announced Monday, the lowest total for that day of the week in at least five years, according to data compiled by Bloomberg. None of the deals topped $1 billion. The only Mondays with lower deal volume during the period were four that fell on U.S. public holidays, which Bloomberg didn’t include in this analysis.

          As the Coronavirus pandemic takes its toll, companies are prioritizing liquidity over strategic opportunities as the economy and everyday life have slowed to a standstill. Corporations like American Airlines Group Inc. and AT&T Inc., which might ordinarily look in a downturn for potential acquisitions, are instead in talks with lenders for financing for operations.

          “Everyone is trying to catch their breath and figure out what it means,” said Chris Abbinante, an M&A lawyer at Sidley Austin. “There’s going to be a continued slowing of announcements over the next month or so.”

          Almost $222 billion of mergers, acquisitions and investments have been announced globally since beginning of the month, compared with $169 billion during the same period last year.

          Source: Read Full Article

          Stocks Climb From Lowest Since 2016; Dollar Drops: Markets Wrap

          Asian stocks and U.S. futures climbed in early trading Tuesday after global equities hit their lowest level since 2016. The dollar slipped against major peers.

          Benchmarks were at least 2% higher in Tokyo, Seoul and Sydney after a massive further wave of initiatives from the Federal Reserve helped ease some measures of corporate credit risk. Investors are now watching U.S. congressional talks on a fiscal package. Treasuries were little changed after rallying. Oil clawed back some gains after plunging 29% last week.

          The Fed said it will buy an unlimited amount of bonds to keep borrowing costs low and will set up programs to ensure credit flows to corporations and state and local governments. The cost to insure against corporate defaults fell and bond ETFs eligible for Fed purchases jumped.

          The Fed’s efforts “have to be matched by much bigger and timely packages on the fiscal side, which in turn have to be effective in helping the economy in this downturn but also – importantly – in the recovery,” Anna Stupnytska, global head of macro, Fidelity International, said in a note.

          Investors continue to look for fiscal packages and central bank support as economic forecasts are being slashed and Europe continues to struggle to curb the pandemic. German officials are said to be ready to help Italy get through the coronavirus pandemic and are prepared to support an emergency loan from the euro area’s bailout fund.

          Here are the main moves in the market:

          Stocks

          • S&P 500 futures rose 1% as of 9:12 a.m. in Tokyo. The S&P 500 Index fell 2.9% as of 4 p.m. in New York; the Dow Jones Industrial Average lost 3%.
          • Topix index rose 2.4%.
          • Australia’s S&P/ASX 200 Index rose 2.2%.
          • South Korea’s Kospi index gained 2%.
          • Hong Kong’s Hang Seng Index futures rose 1.8% earlier.

          Currencies

          • The yen rose 0.3% to 110.92 per dollar.
          • The euro gained 0.4% to $1.0764.
          • The British pound was at $1.1585.
          • China’s offshore yuan was at 7.1093 per dollar, up 0.2%.

          Bonds

          • The yield on 10-year Treasuries was little changed at 0.78%.
          • Australia’s 10-year bond yield fell about three basis points to 0.88%.

          Commodities

          • West Texas Intermediate crude rose 3% to $24.05 a barrel.
          • Gold climbed 0.6% to $1,562.80 an ounce.

          — With assistance by Phil Kuntz

          Source: Read Full Article