Market Extra: BlackRock thinks now’s the time to dust off crisis-era lending programs
Credit isn’t frozen up yet, but more signs have begun to flash that financing conditions are getting stressed and could get uglier before they get better.
The double punch of the spreading coronavirus and plunging oil prices pushed stocks in the Dow Jones Industrial Average
into bear market territory Wednesday, rekindled recession worries and clouded one of the year’s busiest periods of the year for U.S. corporations to borrow.
Amid the maelstrom, researchers at BlackRock
, the world’s largest asset manager, said it’s time for policy makers in the U.S. and other major economies to go beyond rate cuts and start dusting off crisis-era lending and asset-purchase facilities, specifically to combat the coronavirus fallout.
“Simply using up the limited monetary policy space remaining — interest rates, forward guidance or even quantitative easing — could quickly put the macro focus on the lack of tools left and thus backfire,” wrote a team of BlackRock researchers led by Chief Investment Strategist Mike Pyle, in a report published Tuesday.
“The only way to address this is to add further lines of defense and make fiscal policy an explicit part of the crisis response toolkit,” they wrote. “Central banks going it alone with interest-rate cuts risk wasting precious policy ammunition.”
The Federal Reserve made an emergency 50-basis-point rate cut last week, which lowed its target benchmark to a range of 1% to 1.25%, but failed to shore up confidence in the stock market, as coronavirus cases at last count exceeded 120,0000 and claimed more than 4,000 lives globally.
The first call to action from BlackRock is for households to receive sick-pay and other measures to help stabilize incomes and limit job losses, followed by temporary tax relief for businesses and potentially loans and cash grants.
But they also want governments to keep commercial banks lending to companies, at “preferential” rates, that are hurt by the coronavirus outbreak, and also to see asset purchase programs enacted in countries with weaker public finances.
“A decisive and pre-emptive policy response is essential given the uncertainty around what will likely be material near-term disruptions due to the coronavirus outbreak,” they wrote.
The U.S. government more than a decade ago unveiled the Troubled Asset Relief Program, or TARP, to help stabilize the financial system in the wake of the subprime mortgage crisis. It offered $475 billion in programs to shore up the auto and banking industries, as well as to help restart the credit markets and to help families avoid foreclosure.
Wall Street investors have grown wary that President Donald Trump will quickly get a fiscal stimulus package together to help shore up the U.S. economy as the growing domestic cases of the virus batters airlines, disrupt lives and limits social outings, which is rekindling worries about how U.S. companies will manage their record debt levels.
Trump held a press conference with big bank executives after the closing bell Wednesday after stocks plunged to help reassure jittery markets that help is coming.
The World Health Organization designated COVID-19, the novel coronavirus outbreak, a pandemic on Wednesday, while Italy called on all stores in the country to be shuttered, except for pharmacies and groceries.
Meanwhile, the price of West Texas Intermediate crude for April delivery
on the New York Mercantile Exchange fell $1.38, or 4%, on Wednesday to settle at $32.98 a barrel, amid the start of an oil-price war between Saudi Arabia and Russia after weekend talks to curb production broke down.
Plummeting oil prices, during what in recent years were busy weeks for companies to borrower in the bond market, have investors worried about the ability of weaker U.S. shale producers to survive.