The huge cost of the coronavirus pandemic is upending Japan’s seven-year experiment to rescue the economy from its debt timebomb, as recession fears prompt calls for “helicopter money” – unlimited spending bankrolled by the central bank.
Days after Prime Minister Shinzo Abe launched a nearly $1 trillion stimulus package to battle the pandemic’s financial fallout, some ruling party lawmakers are calling for even bigger spending.
Already, the government plans to boost bond issuance to a five-year high of 147 trillion yen ($1.35 trillion), or 30% of the size of Japan’s economy, to pay for the stimulus.
But even as global governments and central banks pull out all the stops to reduce the economic fallout, Japan is a grim reminder that a debt timebomb may be inescapable.
Japan could issue even more debt, as economy minister Yasutoshi Nishimura has said the latest package won’t be the last if growth remains in danger.
The missed opportunity to fix Japan’s finances may squeeze spending for the younger generation and constrain the country’s options for supporting one of the world’s fastest-ageing populations.
It also marks a death knell for premier Shinzo Abe’s fiscal policy, which relied on higher tax revenue backed by strong economic growth – instead of painful spending cuts – to restore Japan’s fiscal health, analysts say.
“Abenomics has kept the economy in good shape for quite a long time,” said former Bank of Japan board member Takahide Kiuchi, pointing to Abe’s stimulus policies, launched in late 2012 to pull the country out of deflation.
“If that time had been spent fixing Japan’s finances, the government would have had more scope to boost spending without relying excessively on debt issuance,” he said. “The government and the BOJ were complacent. They’re responsible for this mess.”
European stock markets pushed higher Thursday, as investors took in the strong gains on Wall Street overnight but remained cautious ahead of the resumption of talks on how to fund the massive government borrowing needed to support the region’s economy through the crisis.
At 3:35 AM ET (0735 GMT), the U.K.’s index traded 3.4% higher, 40 was up 1.9%, while the rose 2.3%. The broader based Europe index climbed 2%.
Eurozone finance ministers are set to resume their virtual gathering to debate the best way of financing the response to the Covid-19 crisis, which is set to result in a sharp expansion of budget deficits. Outside the currency union, the U.K. government has signalled it will increase direct borrowings from the Bank of England.
The Eurogroup meeting had originally started Tuesday, but disagreements persisted over the conditions for loans to hard-hit countries like Spain and Italy under the eurozone bailout fund, the European Stability Mechanism, as well as whether to issue joint debt known as ‘coronabonds’ as part of a wider recovery plan.
In corporate news, UBS and Credit Suisse , Switzerland’s two biggest banks, said Thursday that they had decided to partially postpone the payment of their dividend for 2019 until later this year. UBS shares rose 1.9%, while Credit Suisse shares rose 4%.
Staying in the banking sector, top executives at HSBC and Standard Chartered announced they would forgo their bonuses for 2020 and donate part of their salaries to the fight against the Covid-19 pandemic. HSBC shares climbed 1.2% and Standard Chartered shares rose 3.5%.
The two banks said at the start of this month that they would cancel their dividends and suspend buybacks.
Elsewhere, shares in Suez rose 2.4% after the French water and water management company said it was reducing, but not suspending, its 2019 dividend.
Wall Street had closed sharply higher Wednesday amid hopes the U.S. may turn a corner in its battle against the coronavirus as early as next week. The rose 3.4%, or 780 points, the up 3.4%, while the added 2.6%.
The most important data of the day will be the weekly in the U.S., at 8:30 AM ET (12:30 GMT).
Economists expect that claims eased off only a little from the previous week’s record 6.65 million to 5.25 million, according to forecasts compiled by Investing.com.
Oil prices have pushed higher Thursday, ahead of a crucial meeting where the Organization of the Petroleum Exporting Countries and its allies are expected to agree a cut to production of up to 10 million barrels per day over 90 days.
At 3:35 AM ET, futures traded 5.2% higher at $26.39 a barrel. The international benchmark contract rose 3.1% to $33.87.
Elsewhere, rose 0.4% to $1,691.30/oz, while traded at 1.0868, up 0.1%.
European stock markets have pushed firmly higher Tuesday, as investors anticipate more financial aid to help bolster the region’s battered economies.
The EU’s finance ministers will be in focus Tuesday as they meet to try and agree a list of measures to mitigate the impact of the coronavirus on the region’s economies. If enough headway is made, the bloc’s leaders could debate and then rubber stamp a deal later in the week.
The subject of joint ‘coronabonds’ is sure to be raised again, but more likely options include credit lines from the euro zone’s bailout fund, more lending from the European Investment Bank and the use of the joint long-term budget directly for guarantees for leveraged borrowing.
This follows on from reports late Monday that another stimulus package could come from Capitol Hill. Another round could come by May and be around $1.5 trillion, Fox Business reported, citing sources briefed by the White House and Congressional leaders.
In corporate news, shares in Thales rose 3% despite it becoming the latest major European company to slash its dividend, suspend profit guidance and top up liquidity in response to the coronavirus crisis. The French aerospace and defense supplier said it had withdrawn the proposed final instalment of its 2019 dividend, saving 430 million euros.
Elsewhere, luxury groups LVMH and Kering joined Hermes and Chanel in saying they wouldn’t tap a state scheme for wage subsidies to help them through the crisis.
Shares in WH Smith soared over 7% after the U.K. retailer said it has raised 165.9 million pounds ($203.5 million) via the share placing, which will strengthen its balance sheet and liquidity position.
Oil prices pushed higher Tuesday as investors focused on the possibility of a global cut in crude production. OPEC+, which includes Russia, is set for a virtual meeting on Thursday that many expect to end with an agreement.
The group is likely to agree to cut production Thursday as long as the United States joins in cutting output, Reuters reported late Monday, citing three OPEC+ sources.
The American Petroleum Institute will issue its measure of weekly U.S. oil stockpiles after the bell Tuesday. Last week it reported a huge build of more than 10 million barrels.
At 3:30 AM ET, futures traded 3.5% higher at $27.00 a barrel. The international benchmark contract rose 2.7% to $33.94.
Elsewhere, rose to a new seven-year high of $1,742.20 before retreating a little to $1,700.10/oz, while traded at 1.0870, up 0.7% on the day.
European stock markets posted strong gains Monday, helped by signs of a slowdown in coronavirus-related deaths in the region, and by expectations of more financial aid to help bolster its battered economies.
At 03:45 AM ET (0745 GMT), the U.K.’s index traded 2.6% higher, 40 was up 3.3%, while the rose 3.9%. The broader-based Europe index climbed 2.6%.
The number of deaths has fallen in recent days in Italy and Spain, the two European countries worst hit, as well as in Germany, the region’s most populous country. The rate of new infections presents a more mixed picture, but has clearly slowed in Italy.
This news has raised hopes that the European continent may be on the road back to something approaching normality, although British Prime Minister Boris Johnson was taken to hospital on Sunday suffering from persistent coronavirus symptoms..
Eurozone finance ministry officials are set to hold discussions this week about how best to aid poorer states buckling under the coronavirus strain.
The subject of joint ‘coronabonds’ is sure to be raised again, but more likely options include credit lines from the euro zone’s bailout fund, more lending from the European Investment Bank and using a joint long-term budget directly for guarantees for leveraged borrowing.
In corporate news, shares in HSBC climbed 3% in the positive market despite Fitch Ratings downgrading its outlook to negative from stable. The agency kept its A+ long-term default rating.
Accor shares climbed over 5% after its chief executive stated the French hotel group has enough cash to operate through the coronavirus crisis. BMW shares rose 6.5% even after the carmaker reported a 20% drop in first-quarter sales.
On the flip side, Norwegian Air Shuttle shares fell 6% after the airline reported passenger volume fell by 60% year-on-year in March as it grounded more of its fleet amid global efforts to halt the spread of the novel coronavirus.
Oil prices edged lower as the OPEC+ group of major exporters delayed a meeting scheduled for later in the day to Thursday.
The announcement of the meeting, called last week to mediate a truce between Saudi Arabia and Russia in their ongoing price war, sent oil prices soaring last week.
At 2:45 AM ET, futures traded 1.3% lower at $27.98 a barrel. The international benchmark contract fell 1.0% at $33.77.
Elsewhere, were 0.9% higher at $1,660.90/oz, while traded at 1.0817, up 0.1% on the day.
The world’s biggest oil and gas companies are cutting spending this year following a collapse in oil prices driven by a slump in demand because of the coronavirus crisis and a price war between top exporters Saudi Arabia and Russia.
Cuts already announced by eight major oil companies, including Saudi Aramco and Royal Dutch Shell , come to a combined $28 billion, or a drop of 20% from their initial spending plans of $142 billion.
BP cut its 2020 spending plan by 25% and will reduce output from its U.S. shale oil and gas business, it said on Wednesday.
Exxon Mobil Corp said it would cut capital expenditure but has not given specific figures as yet.
Brazilian oil company Petrobras said it was dialling back short-term production, delaying a dividend payment and trimming its 2020 investment plan, among other measures aimed at reducing costs in the face of the coronavirus pandemic.
Oil prices have slumped 65% since January to around $25 a barrel.
Investors say if the current crisis is prolonged, the spending cuts announced by major oil companies may not be enough to let them maintain dividends without adding to their already elevated levels of debt.
The combined debt of Chevron , Total, BP, Exxon Mobil and Royal Dutch Shell stood at $231 billion at the end of in 2019, just shy of the $235 billion hit in 2016 when oil prices also tumbled below $30 a barrel.
European stock markets surged higher Friday, helped by strong gains in the energy sector after oil prices bounced back.
At 03:55 ET (0855 GMT), the U.K.’s index was trading 2.3% higher, 40 and the were up 4.8%. The pan-eurozone index, the , gained 4.5%.
Additionally, futures traded 6.6% higher at $27.62 a barrel, after soaring 24% Thursday. The international benchmark contract rose 5.8% to $30.12, after jumping 14.4% on Thursday in its biggest one-day gain since September.
This has prompted healthy gains in the oil & gas sector, a part of the market which has been hit hard by the slump in crude prices.
Shares in U.K. oil giant BP (LON:) were up 7.6%, shares in Anglo-Dutch producer Royal Dutch Shell (LON:) gained 7%, Total in France was up 7.6% and Repsol (MC:) (MC:) in Spain 5.5%.
These moves followed U.S. President Donald Trump suggesting he may intervene in the price war between Saudi Arabia and Russia at an “appropriate time”.
U.S. crude and Brent have both collapsed about 40% in the last two weeks since talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, broke down, resulting in Saudi Arabia ramping up supply.
Yet, while market participants take stock of the many and varied plans to stimulate the global economy given the destruction wrought by the coronavirus pandemic, Deutsche Bank (DE:) gave a timely reminder that times remain difficult.
The German bank warned Friday that the impact of the coronavirus outbreak may affect its ability to meet its financial targets. This is the first time that Germany’s largest lender has sounded the alarm on the outbreak.
Also in Germany, Siemens confirmed that it had 57 confirmed cases of Covid-19 among its workforce.
Economic indicators are thin on the ground in Europe Thursday, although the release of the Bank of England’s Quarterly Bulletin, at 8:00 AM ET (1200 GMT), may be of interest given the central bank’s surprise interest rate cut Thursday.
Elsewhere, at 4:45 AM ET (0845 GMT), were up 2% to $1,509.05/oz, while traded at 1.0786, up 0.9% on the day.