The Fed will offer emergency loans to money market mutual funds.
The Federal Reserve said late Wednesday night that it would offer emergency loans to money market mutual funds, its latest in a series of steps to keep the financial system functioning and prop up the economy as it spirals toward recession during the coronavirus pandemic.
Officials said they would establish a so-called Money Market Mutual Fund Liquidity Facility, which would be backed by $10 billion from the Treasury Department. That facility joins a similar lending program for banks, established earlier this week.
The Fed is trying to protect the financial system and insulate the broader economy, where short-term pain could turn into long-term suffering if credit crunches prevent companies from obtaining the cash they need to function, forcing them to lay off workers, delay payments to vendors and shutter plants.
Markets fall relentlessly in Asian trading.
Asian stock markets continued their relentless march downward on Thursday, as investors dismissed efforts by officials in the United States and Europe to shore up the world economy.
South Korea led the drop, with the Kospi index falling 7.7 percent and at one point triggering a trading halt. Taiwanese shares fell 5.7 percent. Hong Kong was down 3.3 percent in midday trading.
In Tokyo, the Nikkei 225 index was down 1.5 percent midday. In mainland China, the Shanghai Composite Index was down 1.5 percent.
Futures markets were predicting another glum opening in Europe and on Wall Street.
Investors were dealing with a flurry of news, sending mixed signals. Futures tracking oil prices for American benchmark crude rose nearly 7 percent in Asian trading after a crash on Wednesday in the United States. Investors were balancing signs of slumping oil demand with the European Central Bank unveiling a huge bond-buying program.
Bond prices fell as investors sought to keep their money in cash, with yields rising on the 10-year Treasury bond.
Markets slide as virus fears persist.
Financial markets reeled again on Wednesday, as the coronavirus continued its relentless spread, governments ramped up efforts to contain it and investors waited for lawmakers in Washington to take action on proposals to bolster the American economy.
Stocks did recoup some losses late in the day, as the Senate began to vote on a bill to provide sick leave, jobless benefits, free coronavirus testing and other aid. President Trump is expected to sign it. But when all was said and done, the S&P 500 fell about 5 percent, stocks in Europe were sharply lower and oil prices cratered.
The renewed selling showed how fragile any gains have become as long as the number of cases continues to grow at a staggering rate.
The turmoil on Wednesday was evident in other markets as well. The British pound fell to its lowest level in 35 years against the American dollar.
The Fed faces pressure to do even more.
Over a frenetic two weeks, as the coronavirus has upended American capitalism and changed every aspect of life, the Federal Reserve has taken drastic steps to keep money flowing throughout the financial system.
It has cut interest rates to near zero, introduced a huge bond-buying program, revamped a crisis-era emergency lending program, and promised to offer emergency loans to money market mutual funds, among other measures.
And yet calls for the central bank to do even more abound.
Speaker Nancy Pelosi has joined other Democrats in urging the Fed chair, Jerome H. Powell, to support state and local governments. Ben S. Bernanke and Janet L. Yellen, Mr. Powell’s predecessors, have said that the central bank should consider asking Congress to allow it to buy corporate debt.
At the most extreme, some economists have suggested that the Fed could help send people money. David Beckworth, a senior research fellow at George Mason University’s Mercatus Center, has argued that Congress should allow the Fed to create a so-called standing fiscal facility, which would allow it to deposit funds in the Treasury in exchange for Treasury bonds.
The financial crisis was a growth slowdown that imprudent risk-taking magnified into a painful economic shock. This time, a real-world shock is spilling into the financial system and breaking its gears. Therefore, the approach to addressing it will need to be different said Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia.
“It wasn’t bad behavior — it’s a virus,” he said. “Look at the streets — it’s affecting every single American immediately. This is just such a different scenario.”
Europe plans a bond-buying program to counter the economic fallout.
The European Central Bank said it would embark on an enormous wave of bond purchases intended to counter the “serious risks” to the eurozone caused by the coronavirus pandemic.
The bank will buy up to 750 billion euros, or $820 billion, in government and corporate bonds and other assets, pumping cash into financial markets deeply rattled by the pandemic.
The announcement came after an unusual late-night conference call among members of the bank’s Governing Council, which followed signs that bond investors were losing faith in Italy’s ability to repay its enormous government debt. If Italy’s borrowing costs reach unsustainable levels, the future of the eurozone would be at stake.
The bank said it would buy even more assets if need be.
“The Governing Council is fully prepared to increase the size of its asset purchase programs and adjust their composition, by as much as necessary and for as long as needed,” the bank said in a statement. “It will explore all options and all contingencies to support the economy through this shock.
Australia cuts rates and will try quantitative easing.
Australia’s central bank said on Thursday that it would cut its key interest rate to 0.25 percent to ward off a coronavirus-spurred recession. It will also begin buying government bonds, the first time in the country’s history it would use quantitative easing, or unconventional methods to boost money supply.
Sweeping travel restrictions and social distancing had led to “major disruptions to economic activity across the world,” said Philip Lowe, governor of the Reserve Bank of Australia, in a statement announcing the new policy on Thursday. “Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”
The bank will also make $50 billion available to authorized banks to encourage lending to small and medium-sized businesses.
Australia has not in the past used quantitative easing, even during the 2008 financial crisis.
This is the second time in two weeks that Australia’s central bank cut its main interest rate. Two weeks ago it cut its benchmark rate by one-quarter of a percentage point to 0.5 percent.
The news came as the country experienced a steep uptick in coronavirus cases, with 565 confirmed as of Thursday. The Australian dollar also weakened on Thursday, briefly plunging to 55 cents against the American dollar. At the beginning of this year, it hovered around 70 cents to a U.S. dollar.
First came the buyback boom. Now comes the bust.
Major American corporations spent roughly $1.4 trillion dollars buying back their own shares over the last three years, according to Goldman Sachs.
Now, after a stock market crash that has pushed prices back to where they were in early 2017, almost all that money is gone, at least for the moment.
The penchant of American corporations for buying back their own shares — it is largely an American phenomenon — became a political football in recent years. The Trump administration sold its vast overhaul of the American tax system, which was signed into law in December 2017, as a measure that would supercharge capital investment from companies, increasing productivity and wages for workers.
Economists can debate how well it worked. Wages have risen. Business investment has tumbled. No one can prove the tax change is the reason.
But the tax overhaul left major American companies flush with cash, and set off a record amount of share buybacks by S&P 500 companies. Buybacks hit a record in 2018, with net buybacks accounting for roughly $600 billion in outlays from companies, according to Goldman Sachs. The full numbers for 2019 are still coming in but are estimated to be around $480 billion.
Defenders of buybacks say it is an efficient way for companies to return money to shareholders that they would not otherwise know how to invest efficiently.
Critics say the practice is merely a way to inflate share prices and burnish key metrics, such as earnings per share, which look better because buybacks reduce the number of shares a company has. They point out that companies can always pay shareholders with dividends, which are checks issued directly to stock owners, rather than by buying back shares.
Looking at the collapse in share prices lately, a lot of investors would rather have cashed a dividend check and put the money in the bank. And with corporations scrambling to raise cash to weather the coming coronavirus recession, treasurers would rather be sitting on a pile of dollars too, instead of watching their rapidly tumbling share prices.
“At the time of purchase, you did support your stock and you did increase your E.P.S.,” said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. “In hindsight, was it the best investment? It all depends what happens with the market.”
Reporting and research were contributed by Isabella Kwai, Jack Ewing, Carlos Tejada, Heather Murphy, Matt Phillips, Jeanna Smialek, Jim Tankersley.