The Day at a Glance | March 12 2020

Fiscal response doesn´t satisfy

President of the United States Donald Trump announced what measures would counter COVID-19´s economic effects yesterday, as the virus´s spread accelerates within the country. Trump also announced flight restrictions to and from Europe for 30 days, criticizing allies whose migratory measures lacked stiffness in order to contain the spread, and stated fiscal measures seem to not have convinced markets. The most important proposal was pushing back the payroll tax, which includes payments to workers who are absent on account of illness and $50 billion dollars in small-business loans. However, Congress has not seen support to suspend the payroll tax and markets doubt these measures would bring quick results, in addition to expecting a more solid plan that would eliminate doubts of government intervention. What raises concerns is that the President considers the issue as an external phenomenon, and the proposed solution is to close off the country´s borders despite the US having recorded more than 1,300 cases and 38 deaths. The emergency, however, is very real: Massive entertainment events have started being suspended and the Governor of New York has said he will no longer wait for federal support to face the issue that has already exceeds their capacity, as they do not count on enough test kits which prevents them from controlling the virus. Markets have reacted negatively in light of the President´s underestimation of the risk the virus brings. The World Health Organization declared COVID-19 has turned into a pandemic yesterday, and highlighted its concerns of the virus´s spread and many country´s lack of activity to contain it.

ECB does not cut rates and announces stimulus packages

The European Central Bank decided to increase its long-term banking sector lending program, improved loan conditions and increased the asset purchasing program in €120 billion ($135 billion dollars). In contrast with its counterparts in the rest of the world, the ECB did not respond with greater interest rate cuts, reflecting differences in the governing body and the central bank´s limitation of available tools to confront the issue. Instead, its response was directed more towards avoiding liquidity and credit problems in the economy. The purchasing program is focused on acquiring debt from the corporate sector, while lending programs seeks to keep credit flowing. In a press conference, Christine Lagarde, President of the ECB, called for a coordinated and ambitious plan to respond to the issue, and expects robust efforts on behalf of fiscal authorities. “Considerable worsening of the near-term outlook”, said Lagarde, as the ECB cut its growth estimates to 0.8% in 2020 (vs 1.1% prev.)

Moody´s warns PEMEX could need further Federal Government support

In a note issued yesterday afternoon, Moody´s assured the coronavirus´s impact and the drop in oil prices have increased risks of the company needing “substantial” federal government support. Moody´s confirmed it is evaluating PEMEX´s credit profile again after the collapse of international oil prices, and will revise its need for funding and liquidity. This increases the risk of Moody´s adjusting PEMEX´s credit rating, which would confirm Fitch´s previous decision of placing the company´s issued debt in junk rating. In case this happens, investors could be forced to sell PEMEX´s debt in markets, which would further complicate its need for funding. For Fitch, the situation conveys a negative picture for Mexico, according to an interview with Charles Seville, sovereign debt analyst. The Mexican peso has already depreciated to record levels in face of global and local risks.