Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you make the most of staying home.
Visit the hub

TAPPING THE FED

U.S. Federal Reserve Chairman Jerome Powell speaks to reporters during a news conference in Washington on March 3.

Kevin Lamarque/Reuters

Recent blowouts in dollar swap prices are a sign economic lockdowns across the world are starting to pressure business cashflows, forcing companies to look elsewhere for greenbacks to pay suppliers and creditors.

So what the U.S. Federal Reserve does to keep those dollars flowing smoothly is crucial. Keep an eye on global central banks tapping the Fed for currency swaps. The Fed, which releases data on this every Thursday, has agreements with five major central banks - in Canada, the euro zone, Britain, Japan and Switzerland - so they can get their hands on dollars easily when called on to provide liquidity to financial institutions at home.

As of now, the swap lines data shows little strain - foreign central banks tapped $58 million in swaps in the latest week, the most in four weeks but up only $10 million from the week before.

Story continues below advertisement

Meanwhile, interest rate cuts won’t cure the coronavirus but markets are still banking on the Fed to do so, even after the recent 50 basis-point emergency cut. The target rate is priced to be slashed by another 75 to 100 basis points to near zero, the CME FedWatch website shows.

FEELING THE STONES IN CHINA

Residents walk past a retail and office district with a screen showing propaganda which reads "Go China! Go Wuhan" as businesses slowly restart in Beijing on Sunday, March 8.

Ng Han Guan/The Associated Press

China now has 80,000 confirmed cases. Shuttered businesses, quarantined towns, overflowing ports and a disrupted supply chain indicate a collapse in domestic demand and exports -- upcoming data on retail sales, investment and industrial output for January and February should confirm that.

So what of Beijing’s pledge to keep 2020 growth at 6%? So far, it’s taken only baby steps on monetary and fiscal policy, instead resorting to money market cash injections, loans to small businesses and tweaks to equity-raising rules. It cut bank reserve requirements again on Friday and benchmark prime loan rates may drop further next week. Talk is it might cut its main deposit rate for the first time since 2015.

But, having learned the lessons of unrestrained investment and borrowing, China may be doing what former leader Deng Xiaoping advised: crossing the river by feeling for stones. Even as authorities elsewhere announce hundreds of billions of dollars’ worth of stimulus, it is unlikely there will be a 2008-style multi-trillion yuan Chinese bazooka.

CENTRAL BANKS FLASH THE CASH

A security guard walks past in front of the Bank of Japan headquarters in Tokyo on Jan. 23.

Issei Kato/Reuters

With markets buckling under the toxic combo of COVID-19 and an oil price war, central banks are centre stage -- from the Fed Reserve to the Bank of Japan, they are all pump-priming, boosting liquidity and cutting interest rates.

In emerging markets, currency losses have forced central banks such as Chile, Brazil and Indonesia to intervene with dollar sales. In coming days we hear from central banks in South Africa, Turkey and Indonesia, countries whose domestic situations are only being exacerbated by the glum backdrop.

Russia, so far considered one of the better placed emerging economies due to its solid central banking credentials, has suddenly found itself grappling with a $30-per-barrel fall in oil prices. It’s central bank meets on Friday.

Story continues below advertisement

NO TIME FOR LEISURE

The Disneyland logo is shown near the entrance to Disneyland in Anaheim, Cal.

Mike Blake/Reuters

The coronavirus has propelled the travel and leisure industry into an existential crisis, which many firms will struggle to survive. Announcements on revenue losses are coming thick and fast; Cinema operator Cineworld summed up the mood, warning of a potential “total loss of revenue” for up to three months in a worst case scenario.

Among others, Princess Cruises, two of whose ocean liners became coronavirus hotbeds, suspended all voyages for two months. Airports operator Fraport reported a 30% drop in passenger numbers at its Frankfurt hub in the first week of March. Disney has shuttered its U.S. and French amusement parks.

If the crisis lasts another two or three months, it could force airlines to collapse, the International Air Transport Association reckons. Revenue losses will be “probably above” the $113 billion it estimated a week ago. Air France has drawn down on 1.1 billion euros worth of its revolving credit facility to help its financial position. Others might be preparing to follow its example.

MIND YOUR LANGUAGE

European Central Bank (ECB) President Christine Lagarde addresses a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, March 12.

KAI PFAFFENBACH/Reuters

Amid the struggle to assess the coronavirus fallout came a curveball from ECB chief Christine Lagarde who told Thursday’s news conference that it was not the central bank’s job to “close the spread”.

It was a reference to the widening yield spread or premium over German bond yields that riskier southern European countries must pay investors when they borrow. The reaction from investors, long accustomed to the ECB backstopping these markets was severe to say the least: Italian 10-year bond yields soared 55 bps, the biggest one-day jump since 2011.

And the “spread” ballooned over 65 bps -- one of its biggest daily moves ever. Spanish and Portuguese bonds were thrashed too.

Story continues below advertisement

Other policymakers have jumped in since then to limit the damage but fears have set in. Lagarde’s latest steps to contain the impact of coronavirus have real value, say investors, but their impact is lessened without effective communication. A lesson learned for the ECB’s new chief.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies