Global markets rise on renewed confidence of an economic recovery.
Global markets rose on Monday as governments around the world discussed when and how to reopen businesses and get their economies back on track.
European stocks opened about 2 percent higher after a broadly positive day in Asia. Futures markets were predicting Wall Street would open higher as well.
European governments, including Italy and France, were discussing ways to reopen in recent days, as were state officials in the United States. Any opening will be slow and painful, but investors were signaling optimism that the recovery could begin soon. Prices of U.S. Treasury bonds, a traditional investor safe haven, fell in early Monday trading.
Turmoil in oil markets continued, with the price of the U.S. benchmark crude falling more than 14 percent on futures markets.
In Tokyo, the Nikkei 225 index rose 2.7 percent. Hong Kong’s Hang Seng index was up 2 percent. The Shanghai Composite index in mainland China gained 0.3 percent. South Korea’s Kospi rose 1.8 percent. The Taiex index in Taiwan ended 2.1 percent higher.
In London, the FTSE 100 index was up 1.7 percent in early trading. Germany’s DAX was up 2.2 percent, while the CAC 40 index in France traded 2 percent higher.
The vast economic rescue package that President Trump signed into law last month included $349 billion in low-interest loans for small businesses. The so-called Paycheck Protection Program was supposed to help prevent small companies — generally those with fewer than 500 employees in the United States — from capsizing as the economy sinks into what looks like a severe recession.
The loan program was meant for companies that could no longer finance themselves through traditional means, like raising money in the markets or borrowing from banks under existing credit lines. The law required that the federal money — which comes at a low 1 percent interest rate and in some cases doesn’t need to be paid back — be spent on things like payroll or rent.
But the program has been riddled with problems. Within days of its start, its money ran out, prompting Congress to approve an additional $310 billion in funding that will open for applications on Monday. Lenders expect the second round to be depleted even faster.
Countless small businesses were shut out, even as a number of large companies received millions of dollars in aid.
Some, including restaurant chains like Ruth’s Chris and Shake Shack, agreed to return their loans after a public outcry. But dozens of large but lower-profile companies with financial or legal problems have also received large payouts under the program, according to an analysis of the more than 200 publicly traded companies that have disclosed receiving a total of more than $750 million in bailout loans.
The government has since published new guidance strongly discouraging public companies from using the program and urged those that did take the money to return it. Some have; others haven’t.
Small companies — those with under 500 workers — employ nearly half of America’s private sector work force. Most run on thin margins and have scant savings. For small business owners shut out of the program, watching big companies collect loans while their applications languish has been infuriating.
“It has been beyond frustrating,” said Diane Burgio, a single mother who runs a design business in New York City that employs four people. She was one of more than 280,000 applicants who sought, and did not get, a loan from JPMorgan Chase.
Japan’s central bank announced on Monday that it had eliminated restrictions on its purchases of government bonds, opening the door for the country to pump unlimited quantities of money into its economy as it seeks to curtail plummeting growth.
The country’s economy contracted by 7.1 percent in the last quarter of 2019, and economic indicators have only gotten worse since, flashing warning signs that the country — as with many others in the world — is about to plunge into a deep recession.
In a statement following its monetary policy meeting, the Bank of Japan announced that Japan’s economy “is likely to remain in a severe situation for the time being,” adding that the prospects for midterm growth are difficult to assess because of uncertainties surrounding the virus’s spread.
The bank will leave interest rates unchanged, it said.
In an analyst’s note, J.P. Morgan’s Hiroshi Ugai described the decision to scrap limits on bond purchases as “somewhat symbolic,” noting that the bank has so far fallen short of its targets for buying bonds.
The decision to inject more money into the economy follows an already dramatic loosening of the country’s monetary policy in March, following a pledge by the Bank of Japan that it would coordinate its actions with central banks in the United States, the European Union and the United Kingdom, among others, to prop up the foundering global economy.
Earlier this month, Shinzo Abe, the Japanese prime minister, put the country on an emergency footing to confront the virus, calling for a nationwide effort to reduce person-to-person contact by as much as 80 percent ahead of the country’s upcoming weeklong national holiday. Since then, Japan has entered into a sort of soft lockdown: many businesses have continued to operate with reduced hours and workers have continued heading in to the office despite pleas by officials that they work from home.
On a recent weekday, while France was still under one of Europe’s tightest lockdowns, mammoth six-foot tractor tires were rolling off the assembly line at a Michelin factory in northeast France. Farther south, other Michelin plants turned out tires for ambulances and fire trucks as fast as small skeleton crews could make them.
“We can’t stay confined forever,” Florent Menegaux, Michelin’s chief executive, said by telephone recently. “Just after the health crisis, we’re going to have an economic crisis looming which will have huge social consequences. We have to learn how to live with Covid-19.”
But in France, where Michelin is based, the piecemeal rollout has ignited tensions with labor unions.
“Michelin is trying to reassure financial markets by showing that they’re capable of producing,” said Jean-Paul Cognet, a union leader in Clermont-Ferrand, where Michelin has its headquarters. “But at what cost?”
The question is echoing worldwide as companies seek to rebound from lockdowns that have exacted a devastating economic toll. In the United States, Europe and China, governments are calling for more emphasis on getting vital industries back on track, forcing executives to strike a balance between keeping their businesses alive and their employees safe.
Signs of bailout fatigue are already starting to appear in Washington, raising the risk that government help for the economy will dry up before a potential coronavirus depression is contained.
That was a key reason the last economic recovery — after the 2008 financial crisis — was so slow for so long.
“The pandemic response got off to a really promising start, with everyone coming together with a whatever-it-takes attitude,” said Jason Furman, who shaped economic policy in response to the global financial crisis as a staff member in the Obama White House. “But we’re slipping back into the types of gridlock, over-optimism about the economy and over-pessimism on the deficit that followed the financial crisis and unnecessarily prolonged the economic pain.”
Consider a few of the experiences from that earlier episode that might inform the pandemic response.
In the aftermath of the 2008 crisis, there were heated bipartisan warnings about excessive public debt — warnings that the United States risked hitting a tipping point of spiking interest rates and fiscal crisis if it did not curtail borrowing.
But not only did no debt crisis occur — the opposite happened. Interest rates and inflation have stayed persistently low for the last decade, and demand for Treasury bonds has remained very high.
With the economy now in free fall, economists see the last crisis as a reminder that deficit spending during a recession is desirable if it can prevent long-term economic damage.
Politicians and public health experts have sparred for weeks over when, and under what circumstances, to allow businesses to reopen and Americans to emerge from their homes. But another question could prove just as thorny — how?
Because the restart will be gradual, with certain places and industries opening earlier than others, it will by definition be complicated.
Georgia and other states are beginning the reopening process. But even under the most optimistic estimates, it will be months, and possibly years, before Americans again crowd into bars and squeeze onto subway cars the way they did before the pandemic struck.
And it isn’t clear what, exactly, it means to gradually restart a system with as many interlocking pieces as the U.S. economy. How can one factory reopen when its suppliers remain shuttered? How can parents return to work when schools are still closed? How can older people return when there is still no effective treatment or vaccine? What is the government’s role in helping private businesses that may initially need to operate at a fraction of their normal capacity?
Then there is the public health threat: If states reopen their economies too quickly, or without the right precautions in place, that could lead to a renewed outbreak, with dire consequences for both safety and the economy.
Falling stock prices are bad enough. But investors are facing the loss of an income flow that may have seemed as reliable as the rotation of the Earth: quarterly dividends.
“In a recession, companies curl up into a fetal position and they cut employment, production and inventories,” said Edward Yardeni, the independent market researcher. “They stop buying back their own stock, and then, if they are still bleeding cash, they cut dividends.”
Cuts have already begun, and they are expected to amount to as much as 30 percent of the nearly $500 billion that S&P 500 companies paid in dividends in the last 12 months. This will add to the pain of investors who may not have realized that dividends are paid at the discretion of management and do not flow automatically year after year.
Some economists say that investors do not really need dividends — stock buybacks or skillful redeployment of earnings within a corporation can be just as beneficial — but the loss of dividends on top of so many other losses is bound to be painful.
But companies like Ford, Boeing, Macy’s and Occidental Petroleum have already announced dividend reductions or suspensions, and many more are on the way.
Reporting was contributed by Jessica Silver-Greenberg, David Enrich, Jesse Drucker, Stacy Cowley, Neil Irwin, Liz Alderman, Ben Dooley, Jeff Sommer, Ben Casselman, Carlos Tejada and Daniel Victor.