The Day at a Glance | March 17 2020

Emergency response

Countries all around the world have escalated measures to contain COVID-19, especially in Europe – Spain has announced closure of its borders and asked its people to stay at home as one thousand new cases have been recorded in the last 24 hours (more than 11 thousand cases in the entire country) and around 20 thousand cases are expected by the end of the week. In the UK, measures being taken have also increased, as the Prime Minister is requesting people over 60 years old and vulnerable groups to self-quarantine for the next 12 weeks; however, schools will remain open. In Holland, activities have been suspended, though some health specialists worry that total isolation will provoke a re-emergence of the virus in autumn, which is why they have advised exposing less vulnerable groups to the virus in a controlled manner in order to achieve “herd immunity”; this strategy seems to motivate the UK´s actions too. In the United States, people have been asked to avoid groups larger than 10 people, to not visit restaurants, and work or study from home, if possible. Some countries have begun to seek support from private companies for the production of essential goods to fight the virus (medical equipment, hand sanitizer, etc.), although they must adapt production.

Negative data from China

Economic data published Monday morning confirmed the collapse of activity in the country during February, a precedent of the economic impact that can be expected in countries that have been affected by the virus in March. Industrial production contracted (-) 13.5% in the January-February period (compared to the same period of 2019), while retail sales fell (-) 20.5% and fixed investment dropped (-) 24.5%. Figures surpassed analysts´ estimates, with unemployment reaching a historically high level (6.2%) during the period. With this, it´s expected the world´s second largest economy could contract up to (-) 9% in 1Q20 and grow just 3.8% in 2020 (lowest rate of growth in 30 years). Expectations of seeing a quick recovery in 2Q20 have evaporated, especially because of how slowly the service sector restores activities (particularly due to transportation restrictions and fear) and manufacturing´s slow return to production.

Mnuchin will request $850 billion dollars from Congress

The United States Treasury Secretary will request a third round of resources of up to $850 billion dollars to fight the coronavirus. According to Mnuchin, markets require even more liquidity, and issuing loans to small businesses is being evaluated. The main economic challenge is maintaining liquidity as well as the economy´s financial health, even despite a halt in economic activity due to the virus; something difficult given high levels of debt and lower expected earnings in the business sector. Senators are still in the process of passing a fiscal stimulus package, which was prepared by Democrats in the House of Representatives last week. Nevertheless, Mnuchin´s new request highlights the difficulty the problem entails, as the aviation sector estimates it will need at least $50-$200 billion dollars in order to save the industry. The Federal Reserve has practically exhausted its monetary policy tools by reducing interest rates in 100 bps last Sunday after an emergency meeting. Additionally, it announced the purchase of $700 billion dollars of sovereign debt, daily operations in repo markets and reopening the discount window (short-term loans to banks) in order to maintain liquidity.