CaixaBank Research | China is responding with economic policy space to deal with the coronavirus. On the one hand, measures will be taken in 1H20 to support the sectors having the greatest difficulties. On the other hand, a significant fiscal stimulus package is expected to provide investment in the 2H20. The set of measures will be beneficial, as they will facilitate a full recovery of China’s economy, although they will also increase the deficit in a country with an already high level of corporate debt (150% of GDP).
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Keith Wade (Schroeders) | The world economy is in the midst of a sudden stop where activity has been brought to a halt by official action to suppress the coronavirus. We have updated our forecasts and see a severe recession in global GDP this year with the downturn concentrated in the second quarter (see here). Although a rapid V-shaped recovery is our central forecast, if Covid-19 lingers there is a risk of a “double-dip” recession.
Intermoney | In the case of credit, a situation is already beginning to take shape in the US that worries us quite a bit and which will end up spreading throughout the world. Namely, the forced debt sales for companies that lose their investment grade rating. Currently, this would translate into the closest thing to a sale of balances. This situation has already forced Western Asset, a fixed income manager with $460 billion under management, to apply for a waiver for a Fresno County public employee pension fund.
AENA has signed new loans with various financial institutions for a total of 1.075Bn euros. The loans have a maturity of between 1 and 4 years and will boost the firm’s liquidity to 2.425Bn euros (from 1.350Bn previously). AENA also has the possibility of increasing it further with the Euro Commercial Paper (ECP) programme up to 900Mn euros, of which 495Mn are still available. Furthermore, the company expects to close additional loans in the coming weeks.
Following the recommendations of European banking supervisors to suspend dividend payments for 2019 and 2020, Morgan Stanley analysts estimate that, in a hypothetical scenario, eliminating all dividend payments for ’19 and ’20 would generate on average 140 bp in CET1 (about EUR 100 Bn). Banks such as Caixabank, DBK, and Italy’s Banco Monte dei Paschi di Siena and Banco BPM would not be impacted due to their low dividend payouts.
Despite the disruption in the market created by Covid-19, on Tuesday , the German electricity company successfully placed a 5.5-year maturity green bond with a 1% coupon. The funds will be used to finance investments in network infrastructure and energy efficiency projects. There was strong demand for the bond issue, with the order book over 8 times subscribed.
In the face of the economic slowdown due to the restrictive measures in place to stop the spread of Covid-19, Spanish companies laid off or terminated contracts for over 302,365 workers in March, which is more than 50% higher than the negative milestone of January 2009 (at the start of the last economic crisis) when there were almost 199,000 unemployed.This brought the total number of unemployed to 3.548.312. Finally, Spain’s labour market have lost 833,979 members up to March 31.
Unigestion | The current shock that the investment world is facing has three unique features: it is exogenous, it will likely be temporary, and its effect on the real economy is extremely uncertain. According to our core scenario, 2020 should see the first global recession since the Great Financial Crisis. This scenario assumes that the quarantine will have a limited impact on financial services, insurance, utilities and healthcare services, and leaves 20% of usual energy consumption.
The IMF has recommended a number of measures to the banks’ supervisors to address the coronavirus health crisis. Firstly, it believes it is necessary to keep regulations unchanged and extend the time frame for compliance (Basel IV). It also recommends the use of capital buffers to facilitate operations, as well as providing incentives for lending by making risk management and associated costs (provisions) more flexible in the most affected sectors.
The Ministry of Economic Affairs and Digital Transformation has informed the European Commission that it has decided to postpone the date for the release of the 700 MHz band, a process known as the Second Digital Dividend. This was scheduled to be completed by end-June, along with the auction of that spectrum amongst operators for the deployment of 5G. The postponement is due to the exceptional situation resulting from the Covid-19 pandemic.