Australian airline Qantas has highlighted the economic damage of Covid-19, by posting the worst results in its hundred-year history.
My colleague Ben Butler explains:
The coronavirus pandemic has driven Australia’s flagship carrier, Qantas, to declare its worst financial result for a century – a $2bn loss – amid widespread devastation in the travel and tourism industries.
Despite concerns in the market that the airline is bleeding cash as much of its fleet remains grounded, the company declared on Thursday that it remains a going concern and its chief executive, Alan Joyce, took a swipe at stricken rival Virgin Australia by declaring that after the crisis Qantas would be “the only Australian airline that can fly long haul”.
Worryingly, the Federal Reserve’s staff have more pessimistic about the prospects for the US economy, given the spread of Covid-19.
Last night’s minutes show that the Fed’s economists have cut their forecasts for growth and employment gains:
The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast.
Fed staff are worried that the resurgence of coronavirus infections this summer will knock the recovery — even if Congress does (eventually) agree a new stimulus package.
Although the staff assumed that additional fiscal stimulus measures would be enacted beyond those anticipated in the June forecast, the positive effect on the economic outlook was outweighed somewhat by the staff’s assessment of the likely effects of several other factors.
Those factors included the increasing spread of the coronavirus in the United States since mid-June; the reactions of many states and localities in slowing or scaling back the reopening of their economies, especially for businesses, such as restaurants and bars, providing services that entail personal interactions; and some high-frequency indicators that pointed to a deceleration in economic activity.
You can read the Federal Reserve’s views on the US economy here –> Minutes of the Federal Open Market Committee.
Stephen Innes of AxiCorp suggests you might want a strong coffee first…
While the FOMC minutes never make for the best of reads, this one certainly doesn’t go down in the annals as the Next Great American Novel.
It may not be a riveting read, but last night’s “central bank policy linguistics” have left traders more anxious – and less confident that the Fed will keep printing money to support prices.
Looking across a swath of assets, my take is the market has gone from ‘don’t fight the Fed’ mode, to now keeping an eye on the Fed mode, after the minutes expressed some concerns about the rapidly rising balance sheet.
Indeed this doesn’t sound like the same Fed where the market had assumed an incomprehensibly far fetched policy principle that the FOMC would continue to monetize all debt.
The new that the United States will demand today that all United Nations sanctions be reimposed against Iran is also worrying investors.
Jim Reid of Deutsche Bank tells clients:
This morning in Asia markets are following Wall Street’s lead with the Nikkei, Hang Seng, Shanghai Composite, Kospi and ASX all in the red.
The move for the Kospi hasn’t been helped by the latest virus data in South Korea, with a reported 288 cases in the past 24 hours. Meanwhile, reports that the US has suspended its extradition treaty with Hong Kong and ended reciprocal tax treatment on shipping also isn’t helping broad sentiment this morning, as is the news that President Trump is calling on the UN to renew all nuclear-related sanctions on Iran
Asia-Pacific stock markets have just had their worst day in a month, Reuters reports:
The Fed’s concern about the US economy was one factor, along with the latest jump in Covid-19 cases and tensions between China and Australia:
MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.79%, the biggest daily decline in five weeks. U.S. stock futures were down 0.55%.
Australian stocks dropped 0.77% due to concern that ties with China will worsen further after a report that Australian regulators will reject acquisitions by a Chinese company.
Shares in China fell 1.28% due to dwindling expectations for additional monetary easing after the People’s Bank of China kept a benchmark lending rate unchanged on Thursday.
Japanese stocks slid 1.06%. South Korean stocks tumbled 3.5%, the biggest daily decline since June 15, amid a spike in coronavirus cases in Seoul.
Introduction: Fed warns coronavirus will ‘weigh heavily’ on the economy
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets have had a reality check.
America’s central bank has unnerved investors by expressing significant concern about the impact of Covid-19 on the US economy.
In the minutes of its last meeting, the Federal Reserve warned that the pandemic is creating extremely high uncertainty over growth prospects, after a historic slump in GDP in April-June.
Uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector’s response to it
The Fed also warned that the recent pick-up in employment appears to have slowed since mid-June, with growth and job creation heavily dependent on tackling the virus.
As the Fed put it:
Participants generally agreed that prospects for further substantial improvement in the labor market would depend on a broad and sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficacy of health measures taken to limit the spread of the virus….
Members stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.
No argument there! But the Fed minute’s also revealed that many policymakers felt that new stimulus measures, such as caps on bond yields, were “not warranted in the current environment”.
That’s dampened hopes that central bankers will always do whatever it takes to support asset prices.
There’s also renewed anxiety over the spread of Covid-19, after Germany reported its biggest daily case numbers since April and South Korea warning that it risks a “nationwide pandemic”
In response, Asia-Pacific markets have slid into the red, with Japan’s Nikkei and China’s CSI 300 both down 1% and South Korea’s Kospi shedding 3.8%.
European markets are heading for falls too
Also coming up today
The European Central Bank will give its view on the pandemic today, with the minutes of its latest meeting. We also get a new healthcheck on factories in the UK, and across the eurozone.
Plus, the latest US weekly unemployment figures are out – they’ll show whether the Federal Reserve is right that job creation has slowed….
- 10am BST: Eurozone industrial production for June
- 11am BST: CBI Industrial Trends Orders for August
- 12.30pm BST: European Central Bank releases its Monetary Policy Meeting Accounts
- 1.30pm BST: US weekly jobless claims figures