IMF urges governments to maintain support, as Covid-19 restrictions worry markets - as it happened

Graeme Wearden

from on 2020-10-14 16:10 (#593B0)

International Monetary Fund says it's too early to end government support scheme, as pandemic drives up to 90m people into extreme poverty

5.10pm BST

And finally... Britain's FTSE 100 has closed at its lowest point in almost two weeks.

The blue-chip index ended the day at 5935, down 34 points or 0.6%.

As sterling has become heavily headline-driven on Brexit-related headlines, it was hardly surprising to see the GBP/USD and other pound crosses turn positive earlier, despite growing concerns about the economic impact of the second wave of the coronavirus.

Bloomberg reported that the UK has signalled it won't walk away from EU trade talks immediately. The Telegraph's James Crisp said in a tweet that David Frost will tell Boris Johnson that deal is still possible when he briefs PM on Brexit talks."

4.59pm BST

Today was a historic one for China's equity markets -- the combined value of all the stocks listed on the Chinese bourses hit $10tn for the first time.

The total value of all company shares listed on the Shanghai and Shenzen markets rallied to hit $10.08tn (7.7bn) on Wednesday, according to figures compiled by Bloomberg.

The rebound comes as the Chinese economy recovers steadily from a record drop in output earlier this year when Covid-19 first spread, driven by stimulus measures unleashed by Beijing to cushion the economic fallout.

4.21pm BST

Back in the markets, online food ordering business Just Eat has now jumped 6% to a record high around 92.72.

They've now gained a third of their value this year, lifted by strong demand for takeaways during the lockdown.

The Just Eat business model has undergone a revolution through assimilating the most regularly used brands to close a long awaited gap in the takeaway delivery market.

Competition remains rampant in this space though, which means Just Eat must continue to grow, innovate and foster good relations with employees, business customers and consumers, if this performance is to be maintained.

4.17pm BST

Here's more reaction to the IMF's latest fiscal advice:

Keep going, IMF! "Most advanced economies that can borrow freely will not need to plan for austerity to restore the health of their public finances after the coronavirus pandemic, the IMF has said in a reversal of its advice a decade ago."https://t.co/5BG7xqmcVq pic.twitter.com/BgTToCqbmp

IMF, very body that backed austerity decade ago, now urging governments not to turn off financial support too soon...sign of how times and needs have changed

4.09pm BST

Nadia Daar, the head of Oxfam International's Washington DC office, is concerned that the IMF's concerns about inequality and resisting austerity aren't been mirrored in its work on the ground:

Watching @IMFNews @KGeorgieva press conf urging govts not to cut lifelines too early & worried bout inequality. Yet we see IMF COVID19 loan docs pushing austerity once pandemic recedes. Need 2 see MD's message translate into country advice. #EndAusterity https://t.co/jEdBLrBWr7

3.39pm BST

There's a cautious start to trading in New York today.

The Dow Jones industrial average has dipped by 27 points, or 0.1%, to 28,652, while the tech-focused Nasdaq has lost 0.3%.

We went down to the lowest point lately in early September, around 30,000-35,000 new cases a day. Now we're back up to (about) 50,000 new cases a day. And it's going to continue to rise," Dr. Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine, said Tuesday."

This is the fall/winter surge that everyone was worried about. And now it's happening. And it's happening especially in the northern Midwest, and the Northern states are getting hit very hard -- Wisconsin, Montana, the Dakotas. But it's going to be nationally soon enough."

2.55pm BST

The IMF has also rubbished the idea that governments should be imposing austerity soon, to pay the cost of Covid-19.

Instead, the Fund argues that austerity is not inevitable, and that countries who can borrow freely can stabilise debt without fiscal adjustment.

By 2025, most advanced countries would have a higher cyclically-adjusted primary deficit, but that is to a very large extent compensated for by lower interest payments", Mr Gaspar said.

As a result, there is no need for budgetary consolidation in countries able to borrow freely from financial markets, he added.

IMF Fiscal monitor 2010: "many countries face large retrenchment needs"

IMF Fiscal Monitor 2020: " there is a risk of prematurely withdrawing fiscal support"

It's quite a change
https://t.co/TAKl65hLpj via @financialtimes

Of course doing anything prematurely is always silly, so the IMF is using an entirely empty phrase here...

... but apart from that, the conversion is real and they're forecsting sustainable public finances in advanced economies with no consolidation at all

1.38pm BST

Grimly, the IMF estimates that the pandemic could push between 80 million and 90 million more people into extreme poverty.

Today's fiscal monitor says Covid-19 is driving down living standards, and pushing up malnutrition:

COVID-19 has confronted policymakers with painful and urgent trade-offs. Living standards will be falling in most of the world. We estimate that the number of people in extreme poverty will increase by 80 to 90 million.

The risk of malnutrition is on the rise. Access to health and education are problematic for important segments of the population. The international community must act with debt relief, access to grants and concessional financing- now and going forward-to help the poorest countries tackle these urgent and painful trade-offs.

1.26pm BST

The IMF also warns that repairing the damage caused by Covid-19 will be a long-term challenges.

Today's fiscal monitor explains:

Once the pandemic is under control, governments will need to foster the recovery while addressing the legacies of the crisis-including the large fiscal deficits and high public debt levels.

1) Countries with fiscal space and major scarring from the crisis, such as large long-term unemployment, should provide temporary fiscal stimulus while planning for an adjustment over the medium term.

1.21pm BST

Over in Washington, the International Monetary Fund is urging governments not to withdraw their Covid-19 economic support packages too quickly.

The IMF's new fiscal monitor outlines that global debt levels have hit record levels this year, at nearly 100% of global output.

The COVID-19 crisis has devastated people's lives, jobs, and businesses. Governments have taken forceful measures to cushion the blow, totaling a staggering $12 trillion globally. These lifelines have saved lives and livelihoods. But they are costly and, together with sharp falls in tax revenues owing to the recession, they have pushed global public debt to an all-time high of close to 100 percent of GDP.

With many workers still unemployed, small businesses struggling, and 8090 million people likely to fall into extreme poverty in 2020 as a result of the pandemic-even after additional social assistance-it is too early for governments to remove the exceptional support. Yet many countries will need to do more with less, given increasingly tight budget constraints.

As economies tentatively reopen, but uncertainty about the course of the pandemic remains, governments should ensure that fiscal support is not withdrawn too rapidly.

However, it should become more selective and avoid standing in the way of necessary sectoral reallocations as activity resumes.

Before #COVID19 struck, debt was already elevated. With the unprecedented fiscal response to the crisis, global public debt has been pushed to an all-time high of close to 100% of GDP. More on our #IMFblog. #FiscalMonitor https://t.co/1mGsD3aFiB pic.twitter.com/BKdHEwQUX6

1.05pm BST

European stock markets are mostly in the red after a fairly underwhelming morning.

The FTSE 100 has lost its earlier zip, now down 0.25% as the pound strengthens slightly on hopes that a Brexit free trade deal could be agreed.

US fiscal talks have stalled. An antibody and a vaccine trial in the US have paused to investigate illness among trialists. UK PM Johnson's self-imposed deadline for making progress on Brexit talks is fast approaching (but who really thinks he will just walk away?). And virus trends, particularly in Europe, are alarming, but in the UK, Mr Johnson is caught between those who think the country needs a more forceful lockdown and those who think current proposals are already too stringent.

These themes feel as old as the hills and the market would much rather forget about them, and wake up to find a world post-election, post-virus, post-Brexit. Fat chance of that happening! But if we did stumble on such a world, we would find that it was one with a lot debt, and a lot of spare capacity as a result of the pandemic...

12.36pm BST

Just in: Wall Street bank Goldman Sachs has posted a surge in profits.

Net revenues were $10.78 billion for the third quarter of 2020, 30% higher than the third quarter of 2019 and 19% lower than the second quarter of 2020.

The increase compared with the third quarter of 2019 reflected higher net revenues across all segments, including significant increases in Asset Management and Global Markets. The operating environment continued to recover during the third quarter of 2020 from the impact of the COVID-19 pandemic earlier in the year as global economic activity significantly rebounded following a sharp decrease in the second quarter, market volatility declined modestly, and monetary and fiscal policy remained accommodative.

GOLDMAN SACHS 3Q EPS $9.68 VS. $4.79 Y/Y$GS smashes earnings!

GOLDMAN SACHS 3Q NET REV. $10.78B, EST. $9.40B

11.31am BST

Despite the worst recession in decades, the number of UK companies going into administration was near a historic low in the last three months.

The question remains....whether the can is simply being kicked down the road. We know that as the support schemes start to unwind, and the repayment of loans, tax arrears and rent starts to kick in, cash flow is going to come under significant pressure once more.

As it stands, the moratorium on lease forfeiture ends on 31 December, so it could be a very difficult start to the new year for those who have delayed rent payments thus far."

11.14am BST

As well as Covid-19, global policymakers are also wrestling with the climate emergency.

And this morning, the head of the European Central Bank suggested it could potentially adjust its corporate bond-buying stimulus programme.

The European Central Bank will review a key rule forcing it to buy corporate bonds in proportion of their outstanding amounts in light of the market's failure" to reflect risks related to climate change, ECB President Christine Lagarde said on Wednesday.

In the face of what I call the market's failures, (there) is also a question we have to ask ourselves as to whether market neutrality should be the actual principle to drive our... asset purchases programme," Lagarde told a United Nations event.

Christine Lagarde addressing the role of #centralbanks in fighting the #pandemic through #socialbonds and keeping #climate at the forefront #Europe must play a key role! pic.twitter.com/KisDtA8xDU

Not enough finance is going in the green direction...we are short two thirds of the finance we need." Very excited to have Christine Lagarde, President, @ecb speaking at #GRT2020. "Europe is playing key role. More than 40% of green bonds denominated in Euros." @Lagarde pic.twitter.com/a3ne5zW0S0

"There are calls for more intervention to correct failures in markets...Regulators have a role to play... More needs to be done and we need to appreciate what is and what is not green." Christine Lagarde, President, @ecb speaking at #GRT2020. pic.twitter.com/wiQWw9MNJU

11.04am BST

Sam Miley, economist at the Centre for Economics and Business Research, warns that eurozone factory output could start falling again soon (having only risen modestly in August).

Miley says:

The outlook for industrial production remains fragile heading into the winter months. Given their dependence on wider economic conditions, the recovery of the eurozone's industrial sectors could be significantly hampered by the recent onset of a second wave of coronavirus infections and reimplementation of restriction measures.

As such, we will likely see some months of declining industrial output this winter or, at the very least, a further slowdown in the rate of monthly growth."

10.41am BST

The recovery in Europe's factory sector slowed dramatically in August.

Statistics body Eurostat reports that industrial production across the eurozone rose by 0.7% in August compared with July.

In the euro area in August 2020, compared with July 2020, production of durable consumer goods rose by 6.8%, intermediate goods by 3.1% and energy by 2.3%, while production of both capital goods and non-durable consumer goods fell by 1.6%.

Euro area #IndustrialProduction +0.7% in August over July, -7.2% over August 2019 https://t.co/h5rSwOrZJ9 pic.twitter.com/sNzQDSDAAQ

10.18am BST

Sky News are reporting that a partial rescue deal for UK restaurant chain Gourmet Burger Kitchen (GBK) is close.

Boparan Restaurants is understood to have seen off competition from the new owners of GBK's rival burger chain, Byron, to clinch a deal.

The transaction will be the latest in a swathe of deals which have reshaped Britain's casual dining industry since the start of the coronavirus crisis.

Exclusive: The tycoon who has built one of the UK's biggest restaurant empires is about to add the Gourmet Burger Kitchen chain to his portfolio; I understand that Ranjit Boparan will buy GBK through a pre-pack administration, saving 35 sites and 650 jobs. https://t.co/gbkZ4Xm7rI

9.59am BST

Here's our news story on ASOS's profits quadrupling in the lockdown:

9.39am BST

The International Energy Agency has warned that demand for oil is slowing as Covid-19 infections rise.

The trajectory for Covid-19 infections is strongly upwards in many countries and governments are tightening restrictions on the movements of their citizens. This surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth.

The longer term offers little encouragement for the producers; the curve shows prices not reaching $50/bbl until 2023. Truly, those wishing to bring about a tighter oil market are looking at a moving target.

9.14am BST

Online fashion firm ASOS is also profiting from the pandemic, with earnings quadrupling in the last year.

I am pleased by the improvements we have made this year but there is still more for us to do to continue our progress.

Whilst life for our 20-something customers is unlikely to return to normal for quite some time, ASOS will continue to engage, respond and adapt as one of the few truly global leaders in online fashion retail."

9.09am BST

Several UK companies have reported that they've benefitted from the pandemic, though.

Order growth accelerated compared with the prior quarter, leading to a widening gap to competition in key countries, including the UK and Canada. Australia was the fastest-growing country, delivering market share gains with triple-digit order growth in the quarter.

8.49am BST

The Europe-wide Stoxx 600 index has dipped this morning too, down 0.2%.

The Italian FTSE MIB is bucking the trend, though, up 0.3% after its government imposed new restrictions - but insisted it didn't want a nationwide lockdown.

Italian Prime Minister Giuseppe Conte on Tuesday imposed new restrictions on gatherings, restaurants, sports and school activities in an attempt to slow a surge in novel coronavirus infections.

The latest steps marked the second time in a week that the government has toughened its measures, though overall they remain less severe than those in other European countries such as Britain and Spain, where infection rates are far higher.

8.32am BST

Shares in travel and hospitality companies are falling in early trading on the London stock market.

Jet engine maker Rolls-Royce is the top faller on the FTSE 100, down 4.5%, with British Airways parent company IAG losing 4%.

The tail risk,, is how lawmakers deal with this surge, and the way consumers interact remains the wild card. While a return to draconian confinement measures is unlikely, the most prominent threat to the economic recovery is fear of the virus, not necessarily the soft lockdowns or social gathering restrictions.

It is fear that could keep people hunkered down in their apartments until the curve flattens or the vaccine is available. And It could sound a significant downbeat to the economy.

8.25am BST

Covid-19 jitters knocked Asia-Pacific markets into the red today.

All the major indices slipped, with China's CSI 300 losing 0.6%.

Johnson and Johnson delivered a reality check to markets, after temporarily halting clinical trials of its Covid-19 vaccine. The emphasis is on temporary, though, and trials will more than likely resume quickly.

It does, however, highlight the realities of vaccine development, even in accelerated Covid-19 environment. Again, the pessimism will most likely be short-lived and has as much to do with extended short-term positioning, then a sea change in the race to develop a Covid-19 vaccine.

7.47am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Covid-19 fears are weighing on the financial markets again today, as rising infections put governments under pressure to consider fresh, tougher restrictions to combat the pandemic.

Guess which country is, concerning Covid, the most problematic in Europe right now? pic.twitter.com/sbSGmSNBY8

On Tuesday Johnson & Johnson announced that it as pausing its covid vaccine candidate vaccine trial owing to a participants' unexplained illness. Eli Lilly & Co announced later on Tuesday that it too is pausing its clinical trial of its covid antibody treatment on safety concerns, sending US stocks sharply lower.

Whilst it is common to see pauses in vaccine trials, this boils down to the fact that at best it could take longer to get a vaccine rolled out and at worst the trials will be shelved. Either way you look at it, its not good news for risk sentiment in the markets.

Let's not forget that we are only in Autumn, meaning that this could be a very long winter as governments struggle to get control of the spread of the virus. These measures could quickly derail the already very fragile economic recovery.

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