Graeme Wearden 

Wall Street slides after Federal Reserve makes emergency US rate cut – as it happened

In an emergency move, the US central bank has cut borrowing costs by 50 basis points and warns that the coronavirus “poses evolving risks to economic activity”
  
  

U.S. Federal Reserve Chairman Jerome Powell speaking to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.
U.S. Federal Reserve Chairman Jerome Powell speaking to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus. Photograph: Kevin Lamarque/Reuters

Heavy losses on Wall Street

Ouch! The New York stock market has ended the day with steep losses again, as the Federal Reserve’s emergency rate cut failed to reassure investors.

Anxiety over a possible US downturn wiped out a hefty chunk of Monday’s recovery, taking the main indices down 3%, back to their lows late last week.

The Dow Jones Industrial Average lost 785 points to 25,917 - a day after its best points gain ever (1,297).

The S&P lost 86 points, clinging onto the 3,000-point level, while the tech-focused Nasdaq closed 268 points lower at 8,684.

Traders appear increasingly anxious about the US economy -- is a recession looming? -- and concerned that monetary policy won’t stop the crisis created by the coronavirus.

Kyle Rodda of IG says it was another wild day in the markets:

The Fed’s 50-pointer initially supported market sentiment, as investors got a little giddy on the prospect of cheaper money. But the fundamental concerns about the coronavirus, and whether monetary policy would really stop a slow-down in the US and global economy, prevailed.

The VIX spiked once again, to trade back around the 40 mark – a level entirely unconducive taking confident long positions in risk assets.

Here’s more reaction:

Doubtless we’ll see more drama tomorrow, so get some rest! Goodnight. GW

Updated

We’re into the last hour of trading in New York, and it’s turning choppier.

The Dow has recovered some ground, but is still deep in the red today - down 652 points or 2.4% at 26,050.68.

Rate cut scepticism abounds, as Bloomberg points out:

Does a 50 basis point cut change things? That’s a tough one to answer,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “Fed cuts tend to be less effective in situations like this when there is a supply and demand shock.”

Fears that the US economy is slowing are driving investors into the safety of government debt.

With prices at new records, the yield on US 10-year Treasury bills has dropped below 1% for the first time. That signals pessimism about growth and inflation prospects.

Allianz’s top economist, Mohamed El-Erian, tweets that investors have lost enthusiasm for buying the dip, for fear of missing out of the next rally:

Interest rate cuts usually boost shares, as looser monetary conditions should lift consumer spending and benefit company earnings.

Not tonight, though...

Here we go again.....the Dow’s now down 910 points, or 3.4%, as the Fed rate cut fails to shore up confidence.

It’s shaping up to be another hefty selloff - pushing the index back towards last week’s lows.

The emergency cut to US interest rates has spooked Wall Street, says Reuters.

Having initially craved lower borrowing costs, traders are now fretting about why the Fed acted today, rather than waiting two weeks for its next policy meeting. How bad is the US economy right now?.....

As Peter Cardillo, chief market economist at Spartan Capital Securities in New York, puts it:

“The market reaction now is negative because the Fed sent the wrong message to the market.

“All of a sudden the Fed is really worried about the economy and this is the reason why we are having this volatility.”

Back on Wall Street, stocks are moving deeper into the red - reversing last night’s strong gains.

The Dow is currently down 596 points, or 2.3%, at 26,106 points - wiping out some of Monday’s 1,297-point rally.

Capital Economics have also predicted the Bank of England will cut interest rates this month -- either at its scheduled meeting in three weeks, or in an Fed-style emergency move.

In a note to clients, they say:

We are not epidemiologists, but judging by the progression of the virus in other countries it seems sensible to assume that over the coming weeks the number of coronavirus cases in the UK will rise from 51 now to somewhere in the hundreds or thousands.....

As such, we now expect the Bank to cut interest rates from 0.75% to 0.50% at its next meeting on 26th March, but it could easily follow the Fed’s emergency 0.50% cut earlier today by taking action sooner.

It may also provide extra support by encouraging banks to lend more freely by reducing the counter-cyclical capital buffer and/or by extending the Term Funding Scheme.

Nomura: Bank of England might cut rates this week

Heads-up. Analysts at Nomura have predicted that the Bank of England will make an emergency cut to UK interest rate before the end of this week.

In a note, just released, they say cutting rates from 0.75% to 0.5% would buy the Bank time to “collect its thoughts” before its scheduled meeting later this month.

At that point the Bank could then make a further decision to lower interest rates again if deemed necessary (another 25bp, or even 35bp if it wanted to take rates down to what we think would be the lowest the Bank would be willing – i.e. 0.10%) and at the same time deliver some sort of easing targeted to addressing issues raised by the virus.

The International Monetary Fund and World Bank are planning to turn their Spring Meetings, due in April, into a ‘virtual event’.

The Spring Meetings are a major event in the economic calendar, with thousands of delegates usually flying to downtown Washington DC from around the world. But not this year, it seems, given concerns over the coronavirus.

Summary: Fed's emergency rate cut

Time for a quick recap

America’s central bank has made its first emergency cut to interest rates since the 2008 financial crisis. The Federal Reserve slashed borrowing costs by 50 basis points, to a 1%-1.25% range.

Fed chair Jerome Powell said the central bank was responding to the risks created by Covid-19. Although US economic fundamentals were strong, the virus is undermining confidence, hurting some sectors and disrupting supply chains.

Powell predicted that other nations will take their own actions, and denied that he had bowed to political pressure; which promptly intensified again today, as president Trump urged further rate cuts.

Stocks initially rallied after the Fed’s move, but then reversed their gains as economists questions whether a rate cut would provide enough support. Yesterday Wall Street posted its biggest gains since 2009.

Shares are currently down on Wall Street, while European markets have closed 1% higher.

The Fed move came three hours after G7 finance ministers and central bankers held a conference call to discuss the virus threat. They said they “stand ready to cooperate further on timely and effective measures”, but didn’t announce any coordinated action today.

Bank of England governor Mark Carney told MPs that preparations are underway to protect the UK economy from the coronavirus too. France’s finance minister, Bruno Le Maire, is pushing hard for a coordinated response that could include increased government spending.

Here’s our main Coronavirus liveblog:

European market close higher, but Wall Street struggles

European stock market have ended the day with gains, but have fallen back from their highs earlier in the day.

The emergency US interest rate cut boosted equities initially, but that quickly unravelled as investors questioned how much good it would do.

Here are the closing prices:

  • FTSE 100: up 63 points or 1% at 6,718
  • German DAX: up 127 points or 1% at 11,985
  • French CAC: up 59 points or 1.1% at 5,393
  • Italian FTSE MIB: up 93 points or 0.4% at 21,748

The broader picture is that European stocks are still massively down on last week.

Wall Street is also in the red, in another volatile trading session.

Melissa Davies, economist at City fund managers Redburn, argues that a rate cut is the wrong answer to the coronavirus crisis. Focused help for companies, and sick pay for US workers who need time off, would be better:

“For a start, rate cuts reduce bank income, at a time banks need to be supporting the economy through a potential cash flow squeeze. Rate cuts also help little if consumers stay at home in large numbers.

“What is needed is targeted central bank help for the corporate sector – loans and bond purchases – and targeted government help for workers – tax holidays and sick pay.”

Marc Ostwald, chief economist at ADM Investor Services, argues that the Fed’s rate cut is a mistake.

He argues that the coronavirus is fundamentally a supply shock (undermining company supply chains), so lower rates will simply drive asset prices higher.

It could provide support for riskier corporate debt with low credit ratings -- but that itself creates risks down the line.

Remember that observation about extended periods of economic growth ‘not dying of old age’, but all too frequently of policy mistakes - sort this into that category.

This is a supply side shock, it will along with the array of trade tensions sharpen the minds of the corporate world in terms of their supply chains and ‘just in time’ processes, but there is a structural shift, interest rates and monetary can do little to change that.

Indeed following decade in which central bank has fuelled chronic asset price inflation, and sanctioned a shockingly high level of financial engineering, this may in the long run be judged by historians to be a ‘straw that broke the camel’s back’ type of error.

Updated

It’s been a choppy day in the markets....

...and a wild couple of weeks!

Stocks fall in New York

Wall Street is now sliding deeper into the red, as investors digest today’s rate cut.

The Dow Jones industrial average has now slumped by 546 points, or 2%, back to 26,157.

That takes a hefty chunk out of yesterday’s strong rally, in which the Fed surged by a record-breaking 1,300 points on hopes of central bank action.

Ironically, now the Fed has acted, stocks are falling again.

Banks such as JP Morgan (-3%) and Goldman Sachs (-1.5%) are among the fallers, as a rate cut will eat into their profitability.

Shares in housebuilders are rallying, though, as lower borrowing costs should mean increase demand for property

Powell defends rate cut: the key points

Here are the key points from Jerome Powell’s short press conference to explain today’s emergency rate cut:

  1. The coronavirus is hurting the US economy, so the Federal Reserve acted swiftly by lowering interest rates

  2. US economic fundamentals are strong, but some sectors are suffering from the new risks created by the virus outbreak

  3. A rate cut will help the economy, by preventing financial conditions tightening and lifting confidence

  4. Expect to see other measures from G7 countries, following today’s conference call

  5. Powell insists he’s not bowed to pressure from Donald Trump (despite the president repeatedly demanding rate cuts).

Q: What damage is the coronavirus causing to the US economy?

Jerome Powell says the effects are still at an early stage, but the Fed is hearing concerns from industries such as travel. Those effects aren’t visible in the data yet.

And that’s the end of the press conference.

Q: How will a rate cut protect America from a coronavirus outbreak?

Powell argues that lower borrowing costs will provide economic support, by avoiding a tightening of financial conditions. But he agrees that it won’t fix broken supply chains or lower the rate of infection.

Q: Did you feel any political pressure to make this rate cut?

Powell insists that he did not.

We will not let political considerations affect our thinking, ad it’s very important the public know that, he says firmly.

Updated

Q: Could you cut interest rates again at your scheduled meeting later this month?

Powell says the Fed is happy with the current level of interest rates, but it will consider all the facts when it meets in a fortnight.

Q: Should we expect other central banks to follow suit?

Jerome Powell says the Fed is in “active discussions” with its counterparts in other countries -- including today’s teleconference with other G7 policymakers.

Other G7 countries could also take measures, he suggests.

Updated

Q: What changed over the last week, and how quickly with the US economy recover?

Jerome Powell replies that the coronavirus has spread further in recent days, with more cases in the US, meaning the Fed now saw risks to the economy.

It’s unclear how long the outbreak will last, he adds, but he expects America to return to “solid growth” once it is resolved.

Jerome Powell press conference begins

Over in Washington, Jerome Powell has arrived for a press conference to explain today’s emergency rate cut.

The Federal Reserve chair confirms that the Fed has cut borrowing costs by 50 basis points today, to help keep the US economy “strong” in the face of the risk posed by the coronavirus.

Powell says the fundamentals of the US economy remain strong, with the jobless rate at its lowest in 50 years, and wages rising. Growth prospects remain favourable.

But since the Fed’s last meeting, the coronavirus has emerged, meaning the risks to the economic outlook have “changed materially’.

Powell says the Fed’s “thoughts and prayers go to those harmed” by the virus.

There are signs that that the spread of the coronavirus is hurting the US domestic economy, he says, citing the travel industry.

The situation is “still fluid”, he adds, and ultimately other parties such as health professionals will play the major role in fighting coronavirus.

Emergency Fed rate cuts really are unusual. They only happen in times of economic distress, financial peril, or terrorism attacks, as this tweet shows:

Seema Shah, chief strategist at Principal Global Investors, agrees that monetary policy can’t protect the US economy on its own.

The surprise cut will deliver a confidence boost and should lead to an easing of financial conditions that had tightened sharply in recent weeks.

But, beyond that, questions still remain about how policy rate cuts can help the economy if quarantines and travel barriers are introduced. Certainly, rate cuts will not help re-stock emptying grocery shelves. Monetary policy is hopeless when supply simply cannot feed demand.

Some traders suspect the Federal Reserve could announce another rate cut at its scheduled meeting in mid-March.

Updated

Trump: Fed must cut again

Newsflash: Donald Trump is demanding deeper cuts to US interest rates.

That early bounce on Wall Street is fizzling out.....

The S&P 500 and the Dow are only slightly positive now -- a small reaction to such a dramatic move from the Fed.

Traders may be concluding that a rate cut will only have limited impact -- it certainly won’t cure Covid-19!

And it might not stimulate demand, if nervous citizens simply refuse to get on a plane or head to the cinema for fear of infection.

Edward Park of asset managers Brooks Macdonald says the Fed is trying to create a feeling of “shock and awe” stimulus, to reassure markets about Covid-19.

Today’s emergency rate cut is designed to signal a “strong intent” to protect the US economy, Park adds.

The US joins a rolling wave of stimulus from across the globe which has previously been focused within economies strongly impacted by the outbreak.

Markets are trying to weigh up the unknown risk of the virus with the known stimulus efforts by governments and central banks, the decisive cut by the Federal Reserve provides an additional reason for investors to consider buying the dip.

Neil Birrell, chief investment officer at Premier Miton, predicts that more central banks will follow the Fed’s lead:

The move by the Fed comes as a big surprise but will be welcomed by markets. Cuts were already discounted, but not so much so soon. It’s likely that other central banks will follow.

It won’t have much immediate impact on the economy but investors will be encouraged by the positive action.

This feels like a victory for Donald Trump.

The president has been a persistent, and vocal, critic of the Federal Reserve for not cutting interest rates faster.

Just eight hours ago he tweeted that the Fed had “called it wrong from day one” and should “cut rate big”.

But even at 1%-1.25%, US interest rate are higher than in the eurozone (0%) or UK (0.75%), so Trump might want to see more cuts.

The dollar is weakening following the Fed’s rate cut, down around 0.5%.

This has pushed the pound up to $1.282, with the euro rising to $1.119.

Updated

This is the first emergency cut in US interest rates since 2008, when the global economy was reeling from the financial crisis.

It means the Fed has now cut rates four times since last July as this tweet shows:

Federal Reserve chair Jerome Powell will hold a press conference at 11am EST (4pm UK time) to discuss today’s shock rate cut.

This emergency cut in US interest rates has sent shares rallying.

The S&P 500 index has shaken off its earlier losses, and is now up nearly 1%.

Stocks are pushing higher in Europe too -- with Britain’s FTSE 1000 index now up 2% today.

FEDERAL RESERVE CUTS US INTEREST RATES

NEWSFLASH: The US Federal Reserve has slashed US interest rates in an emergency measure to protect America’s economy from the economic impact of the coronavirus.

In an unscheduled move, the Fed is cutting its benchmark rate to between 1% and 1.25%. That’s down from 1.5% to 1.75%.

The move comes two weeks before its next official meeting, but just three hours after that joint conference call with G7 finance ministers and central bankers.

The Fed says:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1-1/4 percent.

The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

More to follow!

Updated

The Dow Jones industrial average is now down 327 points, or over 1%, at 26,375 as stocks are continuing to dip in New York.

Wall Street falls after G7 statement

Ding ding! Stocks in Wall Street have dipped in early trading -- quite a contrast with Monday’s 5% surge.

The main indices are in the red, as New York shows its disappointment with the G7 statement on the coronavirus.

The Dow has shed 212 points to 26,490 -- having leaped by almost 1,300 points yesterday in its biggest points gain ever..

The S&P 500 index has also dipped by 0.75%, losing 22 points to 3,067 points.

Wall Street had been hoping for coordinated action from global policymakers today.

So simply hearing that finance ministers and central bankers are “closely monitoring the spread of the coronavirus disease” and “stand ready to cooperate further” isn’t cheering investors.

It’s worth noting that the US Federal Reserve’s overnight liquidity scheme has just proved very popular.

This scheme makes $100bn of cash available to banks for overnight purposes, as long as they provide US treasury bills and mortgage-backed securities as collateral. It’s meant to keep the plumbing of the financial system running smoothly.

It’s not been oversubscribed since October -- until today, when the Fed received bids worth $108bn. That suggests that market participants are somewhat anxious, and keen to avoid a scramble for short-term funds.

Jennifer McKeown of Capital Economics says today’s G7 statement “falls short of hopes of a coordinated policy response.”

It raises the risk that central banks will disappoint markets’ expectations in the months ahead, she cautions, telling clients:

This is a disappointment compared to previous hopes of an immediate and coordinated fiscal package and interest rate cuts, although such hopes had already been dampened by information leaked from “G7 officials” early this morning.

The G7 appears to have disappointed the markets.

Wall Street is currently expected to open lower, after posting its strongest jump in five years on Monday.

CNN says:

S&P 500 futures turned negative and Dow futures lost 390 points following the statement.And there are limits to what central banks can do in the current environment. Their policy arsenal is already depleted after years of low interest rates and bond-buying programs.

European markets are also dipping off their highs, with the FTSE 100 now up 120 points or 1.8%. The Stoxx 600 is up 2%.

Jens Nordvig, analyst at Exante Data has put his finger on the G7’s problem - not enough ammo:

Although, they arguably don’t know what to do either.... (and how much can they do?)

G7 statement: What the experts say

Snap reaction: The G7 statement is a disappointment, to anyone who was hoping for dramatic action from the world’s top policymakers today.

Andreas Steno Larsen of Nordea Markets says ministers and bankers are operating in the dark, so they can’t agree action yet.

The G7 have failed provide “shock and awe” to reassure the markets, points out Kathy Jones of stock brokers Charles Schwab:

Joumanna Bercetche of CNBC agrees that interest rate cuts may have to wait...

G7: We stand ready to fight coronavirus downturn

NEWSFLASH: The world’s top finance ministers and central bankers have just pledged to do what they can to protect the global economy from the coronavirus.

That could include extra government spending, they say, or changes to monetary policy (such as interest rate cuts or more asset purchase programmes).

They also applauded the IMF and the World Bank for promising to help countries who encounter financial problems because of Covid-19.

But they’ve not yet agreed any co-ordinated action, following their teleconference meeting which has just ended.

US treasury secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell, who led the call with fellow G7 finance ministers and central bankers, have just issued this joint statement:

“We, G7 Finance Ministers and Central Bank Governors, are closely monitoring the spread of the coronavirus disease 2019 (COVID-19) and its impact on markets and economic conditions.

Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks. Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase. G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.

We welcome that the International Monetary Fund, the World Bank, and other international financial institutions stand ready to help member countries address the human tragedy and economic challenge posed by COVID-19 through the use of their available instruments to the fullest extent possible.

G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures.”

Updated

Vietnam is planning to launch a 27 trillion dong (£900m) stimulus package to help businesses cope with the coronavirus epidemic, according to state media.

The plan could also help Vietnam stick to its 6.8% growth target this year, despite the supply chain disruption caused by the coronavirus.

Vietnam reported earlier this week that its 16 Covid-19 cases have all been cured. However, its factories are still struggling, due to problems securing raw materials from neighbouring China.

Media entertainment group Disney has been forced to cancel a major media launch of its new Disney Plus streaming service in London, due to the coronavirus.

Journalists from across Europe were due to travel to the UK for the event on Thursday. But as my colleague Mark Sweney explains, the press launch is now canned.

Disney Plus itself, which includes content from Star Wars, Marvel, Pixar and National Geographic, should still launch later this month (giving anyone quarantined at home something new to watch....)

French finance minister Bruno Le Maire is really banging the drum for a powerful economic response to the coronavirus.

He’s just told a press conference in Paris that European authorities must show flexibility and solidarity.

Reuters has more details:

Le Maire also told a press conference it was important to consider all options including budgetary measures to deal with the economic impact of the coronavirus outbreak.

“If there is a time we need to be flexible, it is when we are facing a crisis as important as the one we are facing today”, Le Maire said.

And now for a public service announcement from the UK’s new Chancellor of the Exchequer:

Rishi Sunak will be joining the G7 finance minister’s teleconference call in around 20 minutes, which might move policymakers towards stimulus measures to protect their economies (but no promises....).

Hopefully he’ll still have time to work on his budget - due a week tomorrow.

Updated

Elsewhere in London, a crucial meeting to decide the future of Yorkshire fertiliser miner Sirius Minerals is getting underway.

Sirius wants shareholders to approve a rescue deal from Anglo American which values the firm at £405m, or just 5.5p per share.

Sirius had hoped to dig the UK’s first deep mine in 40 years under the North York Moors. But it was plunged into financial troubles last autumn when it was forced to cancel a £400m bond sales, blaming a lack of government support and Brexit uncertainty.

If the deal is rejected, then Sirius could collapse into administration. But many of the company’s army of small investors, based in North Yorkshire, vote the deal down - unhappy that Anglo is trying to take the business on the cheap.

My colleague Rob Davies is there, and reports:

Back in parliament, Labour MP Alison McGovern asks Mark Carney whether the Bank actually has enough firepower to fight a coronavirus downturn.

With interest rates at just 0.75%, and £475bn of quantitative easing already conducted - there’s not much left, is there?

“We have effectively 200 to 250 basis points of space”, governor Carney shoots back.

“How’s that?”, he asks, like a Western gunslinger twirling his six-shooter.

That’s 75 basis points of conventional action (ie, interest rate could fall to 0%), plus fresh unconventional moves such as QE.

Deputy governor Dave Ramsden adds that you get ‘more bang for your buck’ if such stimulus comes as part of a package, and is coordinated internationally.

Carney comments drive markets higher

Shares are pushing higher in London, as the markets recover some of last week’s heavy losses.

Traders are welcoming the Bank of England’s pledge to take “all necessary steps” to protect Britain from the economic shock of coronavirus.

Shares in medium-sized UK firms are leading the way, with the FTSE 250 index up over 3%.

The larger FTSE 100 index (which contains more multinationals) is up 2.2% or 147 points at 6802. Consumer-focused firms are up 3%, followed by miners (+2.9%), energy companies (2.8%) and tech firms (+2.6%).

Conservative MP Felicity Buchan asks Mark Carney if the Bank of England could cut interest rates before its next scheduled meeting (on Thursday 26 March).

Carney takes a couple of moments to gather his thoughts, before making two points:

  • The MPC has “always acted in a timely way”, once it has gathered the necessary information and conducted its analysis.
  • The transition to a new governor on March 16 will have no impact on the conduct of Bank’s operations as Carney is in regular contact with Andrew Bailey.

He adds:

The committee would make a decision at the appropriate time and not before.

Angela Eagle MP asks Mark Carney about the impact of coronavirus on the labour market -- including gig economy staff who only get paid if they work.

Carney replies this is indeed an issue - but one where fiscal tools (government spending) work better than monetary ones.

Sensing he is drifting beyond his remit, Carney adds smartly:

I don’t want to lead the government, but these are considerations we all need to take into account.

Deputy governor Sir Dave Ramsden, weighs in too - saying the Bank is now reassessing its January economic forecasts (which predicted a rise in global growth).

Ramsden adds that the Bank could launch “additional liquidity measures” to help the economy ride out the temporary shock of the coronavirus.

Carney: Bank audio hack 'whollly unacceptable'

The Treasury Committee are also probing Mark Carney over the recent revelations that some traders gained early, unauthorised access to the audio feed from its press conferences.

Carney says that it is a “wholly unacceptable situation” that anyone should have used the Bank’s backup audio feed in this way (as was revealed in December).

He explains that that Bank disabled the feed once this issue came to light, and have terminated the 3rd party supplier involved. Both this supplier, and the traders who received this information, have been referred to the FCA who are now investigating.

Carney adds that the Bank is conducting an internal review into what went wrong - a report is expected by April.

On Sunday, my colleague Jasper Jolly revealed that the Bank had carried out due diligence three times on technology supplier Encoded Media, but only revoked its access in December.

Under questioning from MPs, Mark Carney adds that he expects a “powerful and timely” global economic response to the coronavirus.

He say the Bank doesn’t want “viable businesses” to collapse because of the impact of Covid-19.

So there are “things we can do” to help commercial banks to use their balance sheets to support customers, he explains. That could provide vital working capital to help bosses manage their way through “a difficult but ultimately temporary” situation, the governor explains.

Carney: Bank committees will meet regularly on coronavirus

Mark Carney then outlines to MPs how the Bank’s various committees are taking action to protect the UK from the coronavirus.

  • The Monetary Policy Committee, which sets interest rates, is looking at the impact which supply disruptions will have on economic demand. That includes issues like “cash flow, the cost and availability of finance as well as confidence effects”.

  • The Financial Policy Committee, which manages financial risks, is looking at whether there could be “spillover effects”, including whether UK households and banks could struggle to get financing.

  • The Prudential Regulation Committee, which oversees the City, is examining the contingency plans of banks and insurers to see if they are ready for disruption, and can serve customers through split teams and remote working if needed.

The Bank’s own management is reviewing its own operations, to ensure that Britain’s payment systems and money market remain operational.

These three committees met yesterday to discuss the situation, and will keep meeting for as long as appropriate, Carney says - adding that he’s in regular contact with international peers, the Treasury, and his successor Andrew Bailey.

Mark Carney: Coronavirus could be a large, but temporary, shock

Newsflash: Bank of England governor Mark Carney has warned MPs that the coronavirus could be a “large” but “temporary” economic shock.

Appealing at the Treasury committee at parliament, Carney insist that the BoE is taking action to protect the economy too.

He tells MPs that the front line of combating Covid-19 are the “extraordinary efforts” of the NHS staff, public health officials, carers and volunteers across the UK.

He also cites the “exceptional support” provided by the Foreign and Commonwealth office to UK citizens abroad, explaining:

The Bank of England’s role is to help UK businesses and households manage through an economic shock which could prove large, but which will ultimately be temporary.

The Bank will take “all necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities”, Carney pledges, adding:

We’re monitoring the situation closely across all our functions and ensuring all necessary contingency plans are in place.

More to follow.....

Updated

UK builders return to growth

In an encouraging sign, Britain’s construction sector has returned to growth for the first time in nearly a year.

Output jumped in February, at its fastest rate since December 2018, according to data firm Markit.

It says:

UK construction companies signalled a return to business activity growth during February, following a nine-month period of declining workloads. The latest survey also pointed to the sharpest rise in new orders since December 2015. Anecdotal evidence mainly linked the recovery to a post- election improvement in business confidence and pent-up demand for new projects.

This has lifted Markit’s construction PMI, which tracks activity in the sector, up to 52.6 in February, up from 48.4 in January. That’s the first reading over 50 (which shows growth) since April last year.

France’s finance minister, Bruno Le Maire, has tweeted that he held a “very positive” phone call with ECB chief Christine Lagarde today.

Le Maire adds:

“We want a strong and coordinated answer at euro zone and G7.”

Analyst John Kemp has spotted that investor are expecting sharp cuts in US interest rates over the next two months - which would please Donald Trump.

Updated

Policymakers might be relieved to see shares going up again today, as it suggests last week’s coronavirus panic is easing.

But there are more important things in life than the stock market -- the G7 should be more focused on protecting the wider economy.

Vitor Constâncio, former Vice President of the European Central Bank, has tweeted about this -- pointing out that just one in three market corrections led to a recession.

Hand sanitiser sales surge 255%

Sales of hand sanitiser surged in the UK last month, as worried consumers tried to protect themselves from Covid-19.

Sales of hand sanitiser rose by 255% in February, data company Kantar reported. Liquid soap sales jumped by 7%, while demand for household cleaners rose 10%.

Fraser McKevitt, head of retail and consumer insight at Kantar, said:

“Given the media focus around the outbreak of COVID-19 in February, it’s unsurprising to see shoppers prudently protecting themselves from illness.”

Some stores have run out of hand sanitisers as the first coronavirus cases were reported in the UK - suggesting that sales could have been even higher had shops been able to meet demand.

As we reported yesterday, supermarkets are preparing to cope with any surge in stock-piling or panic buying from the coronavirus, having drawn up ‘feed the nation’ strategies.

Updated

Greggs: Coronavirus could take bite out of sales growth

Sales at bakery chain Greggs have been hit by the series of blustery storms that hit Britain last month.....and the coronavirus could hurt the business too.

Greggs told shareholders this morning that:

“We made a very strong start to 2020 in January, but in February saw a significant slowdown in sales growth as a result of the storms that have affected the UK.

There is some uncertainty in the outlook, particularly given the potential impact of Coronavirus.

2019 had been a good year for Greggs. Pretax profits jumped to £108.3m, from £82.6m, partly due to its new vegan range. But if customers start shunning the high street, it will suffer.

European markets are a sea of green, as optimism following Wall Street’s huge rally ripples across the Atlantic.

As you can see, every index is up over 1% - with strong gains in London (+2%), Germany (+1.7%) and France (+1.7%).

Connor Campbell of SpreadEx comments:

There are rallies, and there are rallies – and boy did the Dow Jones RALLY on Monday night, posting its greatest ever points gain on the hopes that the world’s central banks can muster a co-ordinated response to the coronavirus this Tuesday.

It is a sign of just how bad the final week of February was that the Dow’s 1,297 point – or 5.1% – increase still leaves it almost 3,000 points off of where it was on Valentine’s Day.

Nevertheless, after a weekend full of stimulus-suggesting statements, news that the central bank chiefs and finance ministers of the G7 would be having a conference call to discuss an action plan – like a fiscal version of the Avengers – designed to combat the coronavirus crisis was enough to point the markets in the right direction.

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The stock market rally is gathering pace in London, driving shares higher.

The FTSE 100 is now 136 points up this morning, or 2%.

But as you can see, that only recovers a small slice of last week’s rout. The Footsie is still down 10% this year.

TUI stocks lead FTSE rally but Intertek stumbles

Shares in holidaymaker TUI jumped by 4% at the start of trading in London.

Last night, TUI announced it would cut spending and implement a hiring freeze, after suffering weaker bookings since the coronavirus outbreak began.

It added:

“At this point in time, we only see a marginal effect on our operations,”

TUI’s shares had slumped by 30% last week, during the market rout.

UK product testing firm Intertek were the only FTSE 100 stock falling in early trading, after warning shareholders that the factory shutdowns in China are hurting.

Intertek is not immune to the impact of the Novel Coronavirus and our 2020 performance will be affected by the temporary disruption to the supply chains of our clients in China and any impact it might have on global trade activities. It is too early to quantify the impact of the Novel Coronavirus.

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Boom! European stock markets have jumped at the start of trading, on hope of central bank intervention.

The FTSE 100 has gained 97 points, or 1.5%, taking the blue-chip index back to 6745 points. Nearly every stock is rallying. That’s a solid rise, but it still leaves the Footsie 9% lower than in mid-February.

Germany’s DAX has jumped by 1.3%, while France’s CAC and Spain’s IBEX have both gained 1.5%.

By calling on the Federal Reserve to “cut rate big”, Donald Trump is demanding significant easing of US monetary policy.

The Fed funds rate is currently 1.50–1.75% -- compared to just 0.75% in the UK, and zero in the eurozone. So there is potential for chunky cuts, with the markets already pricing in three cuts this year.

Trump: US must copy Australia's rate cut

Australia’s central bank has already taken action to ward off a coronavirus recession, by slashing borrowing costs to a record low.

The Reserve Bank of Australia voted to lower its benchmark interest rate to just 0.5% today, from 0.75%, blaming the impact of the virus outbreak. That could set the tone for today’s coronavirus conference call.

My colleague Ben Butler reports:

The Reserve Bank of Australia has cut official interest rates to a new record low of 0.5% due to the “significant effect” of the coronavirus outbreak on the Australian economy and has signalled it is prepared to cut further if needed.

“The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target,” the RBA governor, Philip Lowe, said.

He said that at a meeting on Tuesday the bank’s board “therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity”.

The RBA’s move could be the first of a series of interest rate cuts in the weeks ahead, if central banks decide they need to act.

President Donald Trump has seized on the RBA’s move as a stick to beat America’s Federal Reserve --- claiming, for the nth time, that Fed chief Jerome Powell is blundering.

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Introduction: Markets brace for G7 coronavirus call

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

Can policymakers save the world economy from being dragged into a recession by a coronavirus epidemic?

Markets are looking for action when top central bankers and G7 finance ministers hold a teleconference call today.

Led by US treasury secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, it will discuss the “widening coronavirus outbreak and its economic impact.

Obviously these Lords of Finance can’t come up with a vaccine to tame Covid-19. But if they can deliver easier monetary policy and growth-friendly spending plans, they could protect businesses from the economic shock of the coronavirus.

Hopes of a breakthrough today triggered a monster rally on Wall Street last night. The Dow posted its biggest points gain ever (1,297) as it surged by 5.1% - its best day since March 2009.

European markets are expected to open higher today, with the EU-wide Stoxx 600 called up around 0.6%.

But will policymakers deliver? Reuters is reporting that a draft statement is already being prepared, which doesn’t yet call for fresh fiscal spending or coordinated interest rate cuts by central banks.

So that optimism could yet falter, if yesterday’s rally proves to be a classic ‘dead cat bounce’.

Also coming up today

Outgoing Bank of England governor Mark Carney is appearing before the UK parliament’s Treasury Committee today. He leaves the BoE on the 15th March, so can speak pretty freely about monetary policy, the state of the economy, and the Bank itself.

We also get a health check on UK construction this morning. It may show that the sector contracted slightly again last month.

The agenda

  • 9.30am GMT: Bank of England governorMark Carney appears before Treasury committee
  • 9.30am GMT: UK construction PMI - expected to rise to 49.0 from 48.4
  • Noon GMT: G7 finance ministers and central bankers hold coronavirus teleconference

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