China slowly recovering from coronavirus hit. As China appears to have overcome the worst in the coronavirus outbreak and more people are returning to work, the Asian powerhouse is recovering, says Michael Dumke, CEO of e-commerce firm Hermes-Otto International. (DW)

Corporate credit risk heightens as coronavirus impact spreads. Investor worries about corporate credit are heating up as the coronavirus spreads, with the prices of bond funds taking a hit, companies starting to draw on credit lines and some market watchers warning of the possibility that investors pull out of products. (Reuters)

Economy faces “tornado-like headwind” as financial markets spiral. The fast-spreading coronavirus and a plunge in oil prices set off a chain reaction in financial markets last week, a self-perpetuating downward cycle that could inflict serious harm on the global economy. (New York Times)

The coronavirus outbreak and tumbling oil prices are triggering a dollar shortage in Nigeria. Nigeria has recorded only two confirmed cases of COVID-19 but the global pandemic’s growing impact on its economy is far more significant. (Quartz)

Coronavirus lockdown batters Italy’s fragile economy. The Italian economy absorbed another blow on Mar. 12 as the government implemented even stricter measures to stem the spread of the coronavirus in what is the worst outbreak outside of China. (HSN)

For the first time, Lebanon defaults on its debts. Restructuring will be a struggle. Fixing the country’s rentier economy will be even harder. (Economist)

European Central Bank expands stimulus measures. European Central Bank President Christine Lagarde disappointed investors Mar. 12 by unveiling an underwhelming stimulus package and signaling that she expects governments to take on much of the burden for supporting the region’s stumbling economy. (HSN)

Oil shock compounds sovereign credit risks from coronavirus. The dual impact of COVID-19 and the significant oil price shock will put pressure on some sovereign credit fundamentals and potentially ratings. (Fitch)

Iran resorts to IMF for first time since 1962 due to COVID-19. Iran asked the International Monetary Fund (IMF) for immediate financial assistance to tackle the novel coronavirus, in conjunction with the authorities’ announcement of 75 new deaths, in the highest daily death toll since the virus began spreading in the country. (Middle East Monitor)

Hackers are seizing on coronavirus fears to steal data, researchers and U.S. regulators warn. Chinese hackers have used fake documents about the coronavirus to deliver malicious software and steal sensitive user information, according to a report on Mar. 12 from researchers documenting a growing wave of cybercrime exploiting fears about the global pandemic. (Washington Post)

Why this oil crash is different. The oil price collapse has sent shockwaves through financial markets. But the geopolitical earthquake could reach even farther. (Foreign Policy)

Study highlights ESG score link to credit risk. A “meaningful” relationship exists between ESG scores and developed markets sovereign spreads, according to research by Federated Hermes. (Funds Europe)

What is an EEI filing? Are you adrift in the sea of export acronyms? Like many industries there are scores of acronyms that get bandied about. Some of them you have probably have heard of; others only come up in specific circumstances. One of the most important of these acronyms is EEI, which stands for Electronic Export Information. (Shipping Solutions)

The timing was impeccable. As the world grapples with the COVID-19 crisis by attempting to shut down whole cities and even countries, the Saudi Arabians and Russians have elected to lower the price per barrel of oil, and by a significant degree. The ostensible reason for the decision is that demand has been off sharply in China and other Asian states. That means there will be less oil purchased. In past years, this would prompt oil producers to limit output so as to create a shortage and thus force prices up. This time, the decision was to cut prices to maintain market share and ensure some kind of cash flow. There is a far bigger motivation at work, however.

Since the start of the “shale revolution” in the U.S., the world of oil has been unalterably changed. The U.S. was the world’s biggest consumer of oil and had long ago lost its status as a major oil producer. As recently as 2006, the U.S. imported some 60% of all the crude it used. That import percentage is now less than 10% and the U.S. has been selling crude oil to the Saudi refineries. The U.S. swiftly became the major global competitor to the OPEC states. This has not been popular. Various moves have been made to put pressure on the U.S. industry, but these have not been generally successful.

The Saudi oil sector can still make a profit if oil prices fall as low as $25 a barrel. Russia seems to be able to make money at $35. The oil shale operations in the U.S. need the price of oil to be at $50 or above to stay profitable. Slashing the price of oil puts immense pressure on the U.S. at a time when there is an oil glut. It is estimated that as much as 60% of the sector could well go out of business. Even the largest oil companies are getting pounded in the markets.

In the short term, this oil war will collapse the price of the commodity. That will translate into cheaper fuel prices. It may benefit the average driver to some degree, but it should be remembered that the crude oil cost is only a fraction of the cost of a gallon of gasoline. There are the costs of refining, transporting, distributing and marketing as well as the costs of the taxes imposed (and those vary considerably from state to state). The airline industry will see a bit of relief (and they could sure use it). The freight business will see a little relief as well. The longer-term issue is that at some point it is presumed demand will rise again. Many of the oil producers will have reduced production or have gone out of business altogether. That will lead to a big price hike as they scramble to catch up.

It is abundantly clear the Saudi/Russian tactic was deliberate—an attempt to take the U.S. down as an oil competitor. It doesn’t mean the end of the U.S. as an oil producer or exporter, but it will certainly mean an immense strain on the U.S. system with many bankruptcies anticipated. This threat will not erode until demand recovers and the price per barrel of oil starts to rise again.

Around half of the companies responding to a new Dublin Chamber survey have already experienced a hit on their turnover as a result of the coronavirus outbreak.

The survey carried out amongst more than 400 companies finds that businesses are apprehensive about the potential economic impact of the coronavirus, with the overwhelming majority (97%) expressing some level of concern. Three in five respondents (60%) said they are “very concerned,” while 37% said they were “somewhat concerned.”

While the concern is widespread, just more than half of firms (51%) note that COVID-19 has had an adverse impact on their revenues so far. Of those companies that have experienced a decline, six out of 10 (59%) said the revenue reduction has been less than 10%, while 16% noted a hit on revenues in the region of 11-20%. Just shy of one in 10 firms have experienced a reduction of 21-30%, while 5% saw revenues fall by 31-40%. A slightly higher number (6%) are reporting a 41-50% hit, while 5% note an impact greater than 50%.

So far, the revenue impact has been most widespread in the “retail and wholesale” and the “accommodation and food services” sectors. Company size does not appear to be a factor in how much revenues are impacted.

“These findings indicate that the coronavirus is already having an impact on trade for many companies,” said Aebhric Mc Gibney, Dublin Chamber’s director of Public & International Affairs. “For the majority of companies, the impact on revenues so far has been less than 10%. However, the impact is very much dependent on the sector in which the company is operating. Feedback from within our membership shows that firms in the accommodation and food services sectors are being hardest hit, along with retail and wholesale-focused companies.”

While more than two thirds of firms (67%) have canceled overseas trips due to the coronavirus, domestic business is continuing with somewhat less of an impact. A slim majority of companies (51%) report that they have not canceled any meetings or events in Ireland due to the virus.

The survey highlights a high level of preparation and contingency planning under way throughout the business community, with four out of five firms (80%) reporting that they already have a continuity plan in place. Around six in 10 businesses (58%) report that they are using the Business Continuity Planning checklist issued by the Department of Business Enterprise and Innovation.

“The survey results tell us that, at present, most businesses continue to operate normally, ensuring that the relevant precautionary measures are taken and that government guidelines are adhered to,” Gibney added. “However, there is also a genuine concern at the potential economic disruption as people’s behaviors adjust in response to their concerns about COVID-19.”

Businesses are taking a similarly pro-active approach to health and hygiene information. The vast majority of employers (92%) have shared HSE advice on COVID-19 with their staff.

As widely reported in the media, many companies are trialing or considering the introduction of remote or flexible working procedures to deal with any health issues arising in the workplace. Seven in 10 businesses (71%) report they are in a position to implement remote/flexible working at short notice, though some have questioned how sustainable this would be in the long-term.

A further 17% of companies report that they are working on a plan to allow staff to work remotely, while the remainder have no such plans or say that it is not possible for their business.

The global spread of the coronavirus is a human tragedy unfolding across the world. Quantifying the economic impact is complex, giving rise to significant uncertainty about the economic outlook and the associated downside risks. Such an abrupt rise in uncertainty can put both economic growth and financial stability at risk. In addition to targeted economic policies and fiscal measures, the right monetary and financial stability policies will be vital to help buttress the global economy.

Higher uncertainty and tighter financial conditions

Measures of economic uncertainty such as equity market volatility increased sharply in countries around the world. Stock markets in major economies, such as the United States, the Euro area and Japan, all fell sharply and witnessed a surge in implied volatility as skittish investors tried to factor in the latest risks posed by the new virus.

As a result of this sharp increase of uncertainty, credit spreads have widened broadly across markets as investors are reallocating from relatively risky to safer assets. High-yield and emerging-market bonds are hit particularly hard by these reallocations. As a result, the spreads of emerging- and frontier-market bonds denominated in U.S. dollars have widened sharply.

Financial conditions have tightened significantly in recent weeks, which means that companies are facing higher funding costs when they tap equity and bond markets. Such a sudden, sharp tightening in financial conditions acts as a drag on the economy because firms postpone investment decisions and because individuals delay consumption as they feel less financially secure.

Monetary policy response

The sharp tightening in financial conditions, along with expectations of low inflation, means that monetary policy has a role to play at the current juncture. Central banks can act quickly to help ease the tightening of financial conditions by injecting liquidity and cutting interest rates, thus preventing a possible credit crunch. In fact, markets have been anticipating aggressive easing by central banks, as reflected in the sharp fall in sovereign bond yields in many countries around the world.

Synchronized actions across countries increase the power of monetary policy. Therefore, global cooperation to synchronize monetary policy must be high on the agenda. Ample liquidity within countries, and across borders, is the prerequisite to the successful reversal of the rapid tightening in financial conditions. In these unusual circumstances, if liquidity pressures threaten market functioning, central banks may need to step in and provide emergency liquidity.

If economic and financial conditions were to deteriorate further, policymakers could revert to the broader toolkit that was developed during the financial crisis. For example, the Federal Reserve launched the Term Asset-Backed Securities Loan Facility in 2009, which provided targeted funding. The Bank of England and U.K. Treasury introduced the Funding for Lending Scheme, where a funding subsidy was provided to incentivize the expansion of lending to households, small- and mid-sized enterprises and non-financial corporates. Other authorities, too, have deployed variants of such lending schemes that aim at lowering the costs of borrowing in certain sectors.

Financial stability policies

The sharp decline in interest rates, combined with growing anxiety about the economic outlook, have also raised investor concerns about the health of banks. Banks’ share prices have fallen sharply, and bond prices of banks have also come under some pressure—likely reflecting fear of potential losses.

The good news is that banks are generally more resilient than before the 2008 financial crisis, because they have greater capital and liquidity cushions. This means the risks to financial stability stemming from the banking sector are much lower, despite declining share prices.

Supervisory authorities should, however, monitor developments at banks very closely. Given the temporary nature of the virus outbreak, banks could consider a temporary restructuring of loan terms for the most-affected borrowers. Supervisors should work closely with banks to ensure that such actions are both transparent and temporary. The goal must be to preserve banks’ financial strength and overall transparency across the financial sector.

Authorities should also be alert to possible financial stability threats from outside the banking system. This requires an increased focus on asset managers and exchange-traded funds, where investors might liquidate risky investments suddenly.

Large swings in asset prices can quickly put markets and institutions under pressure. While market functioning has been able to withstand large swings in asset prices so far, anecdotal evidence suggests that liquidity has been tightening in many markets. And there are strains in U.S. dollar funding markets, where non-U.S. banks and corporates borrow in U.S. dollars.

Overall, policymakers must act decisively and cooperate at the global level to preserve monetary and financial stability during this time of extraordinary challenges. The mantra of “hoping for the best, preparing for the worst” has long been successfully deployed. The IMF will act as needed to help its members face this extraordinary, but hopefully temporary, crisis.

Reprinted with permission from IMFBlog.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations