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US president to talk to Congressional leaders about ‘very dramatic’ economic measures

President Donald Trump on Monday said he would propose a “major” economic relief package, including a possible payroll tax cut and measures to help hourly-wage workers, in an effort to reduce the negative impact of the coronavirus outbreak. 

Speaking alongside the members of the White House coronavirus task force, Mr Trump said that after meeting Republican lawmakers on Tuesday, he would unveil a “very dramatic” package of measures aimed at helping the hardest hit parts of the economy. 

“I will be having a press conference to talk about various things that we’re doing economically, they’ll be very major,” Mr Trump said. 

Steven Mnuchin, Treasury secretary, said the measures would target workers who were hardest hit, in addition to small businesses. He said they intended to provide liquidity to tide people and companies over while the US deals with the spread of coronavirus.

“The economy will be in very good shape a year from now,” Mr Mnuchin said. “This is not like the financial crisis.”

As the number of Americans with the virus grew to more than 600 on Monday, Mr Trump continued to come under harsh criticism for how he is tackling the coronavirus crisis — particularly his rhetoric, including advice that contradicts health authorities. 

Mr Trump has played down the seriousness of the situation, even as people close to him have quarantined themselves after interacting with a person who tested positive. 

Mark Meadows, a congressman who was named the fourth White House chief of staff during the Trump presidency, on Monday said he was quarantining himself after learning that he may have interacted with a man who caught the virus after attending a conservative political conference in the Washington area. Matt Gaetz, a Florida lawmaker who attended the conference and also flew with Mr Trump on Air Force One on Monday, has also self-quarantined. 

The White House said Mr Trump had not been tested since he had not had “prolonged close contact” with any known patients and did not have any symptoms.

Earlier on Monday, Mr Trump blamed Russia and Saudi Arabia for a plunge in US stocks. “Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!” he tweeted, adding that the collapse in oil prices would be “good for the consumer” by lowering petrol prices.

In another tweet lashing out at critics, the president said 37,000 Americans had died from the flu last year, while only 22 people had so far been killed by coronavirus. 

“Nothing is shut down, life & the economy go on,” he tweeted. 

Congress is also looking at measures to help contain the expected economic damage. A spokesperson for Chuck Grassley, the Republican chairman of the Senate finance committee, said the senator was “exploring the possibility of targeted tax relief measures that could provide a timely and effective response to the coronavirus”.

Chuck Schumer, the top Senate Democrat, said Mr Trump had not said how he would combat the virus and was “more focused on the stock market than addressing this pandemic”.

US authorities have identified more than 600 cases that have resulted in at least 22 deaths, according to data compiled by Johns Hopkins University. Florida and Ohio became the latest states to step up their responses by declaring states of emergency on Monday.

Ted Cruz, a Republican senator, said he would stay home in Texas after learning that he had also met the man who tested positive after attending the Conservative Political Action Conference in Washington two weeks ago. Mr Trump and Mike Pence, his vice-president who leads the White House coronavirus task force, also attended the event.

Speaking at a White House briefing on Monday, Mr Pence said he had not been tested for the virus.

The White House response to the crisis drew more criticism at the weekend after the US surgeon-general and Anthony Fauci, the respected head of the US National Institute of Allergy and Infectious Diseases and member of the White House coronavirus task force, gave conflicting numbers for the number of test kits that had been distributed.

The Centers for Disease Control and Prevention has been under pressure to boost testing, after criticism that the administration rolled out testing too slowly. Nancy Messonnier, a vaccine expert at the agency, said there were enough lab kits available to health authorities to test up to 75,000 people. Private labs are also increasing testing. 

California was poised for an influx of cases on Monday as the Grand Princess, a cruise ship carrying 3,500 passengers, docked in Oakland. The ship had 21 passengers and crew who have contracted the virus. Mr Trump on Friday suggested he did not want the ship to dock since it would raise the numbers of reported cases on the US mainland. 

Separately on Monday, the US Securities and Exchange Commission told staff at its Washington, DC headquarters to work from home after an employee was treated for “respiratory symptoms” possibly linked to the coronavirus.

Crashing financial markets are increasing the risk of a vicious cycle that could usher in a recession.

The fast-spreading coronavirus and a plunge in oil prices set off a chain reaction in financial markets on Monday, a self-perpetuating downward cycle that could inflict serious harm on the global economy.

What started last month as unease about a potential economic slowdown in China has evolved into a borderline panic, with the S&P 500 on Monday crashing nearly 8 percent. The mayhem is threatening to roil the underlying global financial system and the abilities of companies large and small to survive a potential economic monsoon — a downward spiral that is fed and intensified by these destructive forces.

The odds of such a storm grew after an unexpected fight between Russia and Saudi Arabia. After failing to reach an agreement about how much oil to produce and sell on international markets, Saudi Arabia announced it would quickly ramp up production.

Oil prices had been falling as investors fretted about a possible recession. On Monday, they plummeted over 20 percent — the sharpest decline since the first Persian Gulf war.

Facing one of the worst crises since he was sworn in, President Trump — who has played down the virus threat — said he would talk on Tuesday with Republican congressional leaders about a payroll tax cut and legislation to protect hourly wage earners who may have to miss work because of the virus. He did not provide any details.

The S&P 500 has tumbled 19 percent over the past few weeks, and Monday was its worst one-day decline in over a decade. The free fall has vaporized more than $5 trillion in stock market wealth.

Less than 10 minutes after markets opened in the United States on Monday morning, the sell-off became so steep that automatic “circuit breakers” kicked in and halted trading. It was the first time that has happened since the current circuit breakers were set in 2013. The S&P’s 7.6 percent drop came on the 11th anniversary of the start of the current bull market, one of the longest ever. A 20 percent drop from the high point would signal what’s known as a bear market, a marker the S&P 500 has only narrowly avoided for now.

The public health crisis is now threatening to turn into a financial one, which in turn could amplify the virus’s economic fallout.

“There’s panic,” said Dan Krieter, an analyst at BMO Capital Markets. “We’re heading into what looks to be a global recession, including the U.S.”

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In Asia, markets were mixed early on Tuesday, in an apparent sign that investors were trying to regain their footing, and futures markets were predicting Wall Street and Europe would open higher.

Oil prices also rose about 6 percent, though they remained well below levels from last week.

Still, the downward cycle — there are signs it is underway — might play out like this: As the virus disrupts manufacturing supply chains as well as travel, consumer spending would fall and businesses would falter, and stock prices would plummet. The threat to corporate profits would send investors in search of safe havens, like government bonds, sending those prices up and their yields down, in turn straining the banking industry. Banks would limit financing for businesses, which would cut production or lay off workers to hoard capital.

Already, investors have hustled to safety, shunning corporate bonds and driving up the financing costs for many companies. And as they piled into U.S. government bonds, long-term interest rates fell to historic lows; benchmark 10-year Treasury bonds, whose interest rates until last week had never sunk below 1 percent, were recently yielding half that.

Hoping to forestall that spiral, the Federal Reserve on Monday said it would increase the volume of short-term loans available to banks to make it easier for them to continue lending. It was the second time in a week — after an emergency interest-rate cut last Tuesday — that the Fed had moved to stem potential fallout as the coronavirus sent markets gyrating.

Even for people who don’t have money in the markets, the developments are ominous. Large and small businesses hire or fire workers and buy equipment and raw materials based on their own financial strength and their expectations for how the economy will perform in the future. As companies retrench, it affects workers and suppliers, which then have to tighten their own belts.

Layoffs rise; wages decline. Consumers spend less.

Businesses in need of cash would normally turn to their banks for help in moments like this. But as banks get squeezed by sliding interest rates, their ability and appetite to lend to struggling companies diminish — the type of situation the Fed was trying to head off by increasing its short-term lending. At the same time, panicky investors don’t want to buy risky corporate debt, severing another potential lifeline for many companies. Investors are also yanking their money from mutual funds that invest in leveraged loans, a risky type of corporate debt that has become a popular way for many companies to finance their operations in recent years.

The result could be a surge in bankruptcies as companies — in particular in the shale industry, where many drillers are deep in debt — tip over a financial cliff. More workers lose their jobs. Families cancel vacations and postpone big purchases.

Round and round the cycle goes, further sapping the economy.

“Markets want to hear that the global economy is open for business, and the problem is, it isn’t easy to say that going forward,” said Patrick Chovanec, chief strategist at the investment advisory firm Silvercrest Asset Management.

It is possible, of course, that investors’ gloom will prove to be overblown.

At some point, for example, the coronavirus is likely to stop spreading; it already appears to be easing in China and South Korea. If that happens soon, any economic damage from closed factories and canceled conferences and restricted travel may prove fleeting.

Perhaps Russia and Saudi Arabia will quickly reach an agreement. And until they do, there is a silver lining to rock-bottom oil prices: The resulting cheap fuel will be a boon to consumers and to industries like trucking and airlines.

All is not lost. Even after the decline on Monday, the S&P is still up 140 percent over the last 10 years. And the scorching bond market rally — bond prices go up as yields go down — has delivered outsize returns to many individual investors. Mutual funds and E.T.F.s holding longer-term U.S. government bonds were up 22 percent so far this year as of Friday, according to Morningstar.

In addition, low interest rates are good for people who own or are looking to buy a home. A mortgage refinancing boom is underway, and many borrowers will pocket substantial monthly savings.

“This is a temporary headwind to the economy,” said Rick Rieder, chief investment officer of global fixed income at BlackRock. “It’s temporary, but it’s a tornado-like headwind, so it’s going to be powerful for a period of time.”

He added that the amount of uncertainty in the markets is higher now than it was at the peak of the financial crisis. “I don’t even remember in 2009 the uncertainty being so high,” he said.

Governments and central banks are scrambling to defuse the precarious financial situation. In addition to the Fed cutting interest rates and making it easier for banks to borrow money, the Trump administration and Congress are discussing ways to stimulate the economy.

But that is unlikely to offer much immediate help.

“Many investors are anticipating fiscal stimulus within days, but that’s not typically how D.C. acts — even in emergency situations,” Henrietta Treyz, director of economic policy at Veda Partners, an investment advisory and consulting firm in Bethesda, Md., said in a note to clients on Monday. “It takes weeks to pass even the most urgent of legislation, and there are very few ideas circulating on Capitol Hill right now.”

In the meantime, the signs of stress are multiplying, especially in normally mundane corners of the financial markets.

In recent days, for instance, investors that buy ultra-short-term debt issued by companies — including a popular variety known as commercial paper — have started growing jumpy. Investors like money-market mutual funds are demanding much higher interest rates.

That drives up many companies’ borrowing costs, which makes it more expensive for them to operate. It also shows that institutional investors fear that an increase in corporate defaults could be imminent.

The good news is that the U.S. banking industry is, over all, much stronger than it was in 2008 as an intense financial crisis enveloped the world.

The energy industry, though, is shaping up to be among the hardest hit sections of the U.S. economy. Demand for energy was already set to decline with an economic slowdown. Then Saudi Arabia and Russia initiated a pricing war.

Shares of companies like Marathon Oil and Apache Corporation fell more than 40 percent on Monday, while Exxon Mobil stock fell 12 percent, and Chevron slid 15 percent.

Some of the companies that pioneered the shale boom, including Chesapeake Energy and Range Resources, were already in trouble, and their woes are likely to intensify. Chesapeake’s stock goes for pennies; its bonds are trading at a level that reflect investor expectations of a default. Range Resources, an early natural gas driller in Pennsylvania, is, like many of its peers there, slashing its capital spending.

That is likely to hurt the local economies in which the gas companies operate — another reminder of how the economy is in danger of getting sucked into a steep, sinking spiral.

Deal to acquire Willis Towers Watson comes as global markets convulse over spread of coronavirus, oil turmoil

Aon AON -16.70% PLC agreed Monday to acquire rival Willis Towers Watson WLTW -7.50% PLC for almost $30 billion in stock, the biggest global M&A deal of the year announced on one of the wildest days for markets in recent memory.

The Aon-Willis Towers combination would create a global insurance broker with total annual revenue of more $20 billion and the ability to extract pretax cost and other annual savings of $800 million to help boost profit. The new company will be named Aon, with headquarters in London, and will have a combined market value of around $80 billion.

The deal’s timing is surprising as it comes as equity markets are spiraling downward amid the fallout from the spread of the coronavirus and an oil price war between Russia and Saudi Arabia. U.S. equity markets where both stocks are listed plunged 7% Monday, triggering a temporary halt to trading for 15 minutes. While the stock deal valued Willis Towers at $29.9 billion based on the companies’ closing price Friday, the market’s plunge wiped out about $5 billion of deal value based on closing prices in New York. That still made it by far the biggest deal of the year ahead of the more than $19 billion sale by Germany’s Thyssenkrupp AG TKAMY -14.29% of its elevator business last month.

Several European companies have braved the broader market volatility to make big bets recently. The Aon-Willis Towers deal was announced on the same day that U.K. grocery-chain operator Tesco PLC agreed to sell its Asia operations to Thailand’s richest family for $10.58 billion.

Overall, total deal value in Europe is up 42% so far this year to $140.4 billion, according to Dealogic.

Insurance brokers have been consolidating to reach new markets and expand their product offerings. Marsh & McLennan Cos., another global insurance broker, bought the U.K.’s Jardine Lloyd Thompson Group PLC in a £4.3 billion ($5.63 billion) pact in 2018. That deal was based on a desire to gain greater access to higher growth markets in Asia and Latin America, while bolstering its specialty risk-management operations.

Insurance brokerages help companies buy insurance and advise companies on risk management, but are consolidating at a rapid rate following years of sluggish commercial-insurance pricing growth.

Aon, which is incorporated in England and Wales, and Ireland-based Willis Towers operate across sectors, focusing on areas such as advising on employment benefit plans, as well as providing property and liability brokerage services, health and benefit solutions and investment management consulting services through risk underwriting and reinsurance brokering.

By combining, the companies are betting that the deal will allow them to develop new products more quickly, particularly to address growing needs of clients to manage the risks generated from cybercrime, climate change and intellectual property.

Aon is using stock to finance the deal, avoiding the risk of loading up with debt to fund the tie-up.

Aon previously approached Willis Towers about acquiring the business last March and since that time its stock had surged, making the deal more economically attractive.

In New York on Monday, however, Aon’s stock closed down almost 17% to $178.93 under the market’s overall selloff and the challenges the company will likely face integrating the acquisition. Willis Towers fell 7.5% to $184.74.

The deal also addresses succession planning at Willis Towers. John Haley, the company’s chief executive, was expected to retire by the end of the year, according to a recent report by Gordon Haskett, and Willis Towers hadn’t announced a succession plan. Under the Aon transaction, Mr. Haley, 70 years old, will assume the role of executive chairman. Greg Case, Aon’s chief executive, will retain that role at the new company.

Under the terms of the deal each Willis Towers shareholder will receive 1.08 Aon share for each Willis Towers share. After the deal closes existing Aon shareholders will own approximately 63% and existing Willis Towers shareholders will own approximately 37% of the combined company.

The deal is slated to close in the first half of 2021.

Lender acted as correspondent bank for Malaysian facing allegations over 1MDB scandal

Deutsche Bank cleared funds for Jho Low, the Malaysian businessman fighting multibillion-dollar corruption allegations, ahead of his purchase of a house and nationality in Cyprus under the Mediterranean state’s “golden passport” scheme. 

Germany’s biggest lender acted as a so-called correspondent bank and processed a cross-border transfer of almost €6m. The payment was made in June 2015 from Mr Low’s Swiss account at Abu Dhabi-owned Falcon Bank to the Bank of Cyprus, according to a transaction record seen by the Financial Times. 

The money transfer happened several months after allegations surfaced that Mr Low helped misappropriate vast sums from Malaysia’s 1MDB state investment fund. The businessman, who is under US criminal indictment, has always denied any wrongdoing. 

Deutsche’s role in the transaction highlights the hazards of the correspondent-banking model, in which global banks provide international payment services such as clearing US dollar and euro transactions for smaller regional lenders, earning fees in return. 

The German lender is one of the world’s largest processors of cross-border payments. In 2019, it pulled out of correspondent bank activities in Cyprus and several other EU countries because of the risks involved. 

The payment of €5.96m to Mr Low’s Bank of Cyprus account was made on June 24, 2015, according to the bank’s incoming customer credit transfer document, which also recorded Deutsche’s role as correspondent.

Mr Low then bought a €5m house in the holiday resort of Ayia Napa and made a brief trip to Nicosia in September 2015 to pick up a Cypriot passport, under an official scheme that offered citizenship to foreigners who invested in high-end property. 

A fee of €650,000 relating to the property purchase was paid from a Cypriot developer to an agent, according to an invoice seen by the FT. Mr Low also gave €300,000 towards a theological school in Cyprus, according to interviews in local media with Archbishop Chrysostomos, head of the Eastern Orthodox church of Cyprus and a supporter of Mr Low’s citizenship application.

The June payment to the Bank of Cyprus account came almost four months after the investigative website Sarawak Report published a detailed article alleging Mr Low was central to a plot to misappropriate more than $700m from 1MDB intended for a business joint venture. Mr Low vigorously denied the allegations, including in an April 2015 interview with Euromoney, available online and headlined “Jho Low says it ain’t so”. 

Bank of Cyprus declined to comment. It reported transactions involving Mr Low later in 2015 to Mokas, the island’s body responsible for combating money laundering, according to local media reports. 

The US criminal indictment unsealed in 2018 accused Mr Low of conspiring with others to misappropriate more than $2.7bn from 1MDB. Under a separate provisional financial settlement with the US government unveiled last year, he agreed to forfeit assets including a Bombardier jet, high-end real estate in London, New York and Los Angeles, and a “luxury boutique hotel” in Beverly Hills. He admitted no wrongdoing.

A representative of Mr Low did not respond to a request for comment. 

Deutsche Bank is facing regulatory scrutiny over its vetting of transactions for Danske Bank Estonia. Between 2007 and 2015, the German lender processed up to €160bn of potentially suspicious transactions for the tiny Estonian branch of Danske. Last September, criminal prosecutors in Frankfurt launched an investigation into Deutsche’s role in the matter. 

Deutsche had limited direct anti-money-laundering responsibilities in the Cyprus transfer involving Mr Low, who was not its client. However, correspondent banks are required to monitor their business partners’ transactions “with a view to detecting any changes in the respondent institution’s risk profile or implementation of risk mitigation measures”, according to a guideline from the Financial Action Task Force, a global anti-money laundering body.

Abu Dhabi's Falcon Bank received $3.8bn in cross-border payments between 2012 and 2015 involving accounts held by offshore-companies linked to the 1MDB scandal, according to an investigation published in 2016 by Swiss regulator Finma. 

The watchdog also found the bank had a “young Malaysian businessman with links to individuals in Malaysian government circles” among its clients. The unnamed person acquired $135m in assets “in an extremely short period of time” and later received $1.2bn in payments to his account. 

A Falcon spokesperson told the Financial Times that it “does not disclose any information about past, current or potential banking relationships due to Swiss banking secrecy.” 

Deutsche also declined to comment on “potential or actual client relationships”. A spokesperson added that “we are checking our banking partners diligently and are monitoring the transactions that we are processing.”

Zurich-based Falcon Bank was sanctioned by Finma in 2016 for “serious shortcomings in [its] anti-money laundering activities and in risk management”. The lender had to pay back SFr2.5m in “illegally generated profits”, was banned from entering new business relationships with foreign politically-exposed persons for three years, and told it would lose its licence should there be a further breach. 

Finma and German financial regulator BaFin declined to comment.

Coronavirus hit to demand will constrain scope for growth boost, economists say

The last sustained fall in global oil prices from 2014 to 2015 was greeted as a shot in the arm for the world economy. This week’s crash, if it lasts, could be very different.

The shock to supply — which analysts say could leave crude prices hovering around their current levels of between $30 and $40 while the price war persists — is expected to put enormous strain on the economies and public finances of oil-producing countries. 

In normal times the net effect on the global economy would still be positive, as lower fuel prices boost consumer demand and investment in non-oil sectors. But this time the global coronavirus outbreak offers little hope that consumers will rush out to spend the windfall.

On Monday, the International Energy Agency said it expected global oil demand to fall this year for the first time in a decade owing to China’s economic slowdown and the disruption to travel and tourism around the world. 

“With a combination of a massive supply overhang and a significant demand shock at the same time, the situation we are witnessing today seems to have no equal in oil market history,” said Fatih Birol, executive director of the International Energy Agency. 

Economists at Morgan Stanley say there are three main channels through which a decline in oil prices will damage the global economy. 

First, it will hit capital spending in oil-related sectors and producer countries. Second, strains in corporate bond markets — with some energy companies at risk of default — could exacerbate the recent tightening in global financial conditions. Finally, while there will be a benefit for consumers, it is unlikely to translate into higher spending in the near term. 

Andreas Economou at the Oxford Institute for Energy Studies, said: “Usually, consumer countries would benefit . . . but nothing is positive at the moment for anybody.” 

The main oil-producing nations will feel the worst of the pain. An oil price of between $30 and $40 is not high enough for any of their governments to finance spending plans while running a balanced budget, according to IMF estimates of fiscal break-even rates. 

Although Saudi Arabia’s large foreign exchange reserves mean it can tolerate low prices for some time, Mark Lacey, head of commodities at Schroders, estimates that Riyadh’s decision to slash prices while pumping more oil could cost the country some $120bn. 

Mr Birol said on Twitter that in some big producer economies “sustained low prices could make it almost impossible to fund essential areas such as education, healthcare and public sector employment”, adding that this would make diversification at once “more important and more difficult due to the lack of funds to achieve it”. 

Other emerging markets could also suffer. James Lord at Morgan Stanley said oil importers “may on the face of it benefit, yet they rarely do” — because sharp oil price falls were often accompanied by global risk aversion and higher borrowing costs. 

The implications for the US economy are more ambiguous. 

In the past, the main effect would have been to bring down gasoline prices for consumers at the pump — a development which would be a boon for any incumbent president in an election year. But now shale oil has made the US a net energy exporter and many shale producers risk falling into bankruptcy if prices remain at their current level. 

“You’re going to see companies hit, you’re going to see investment decline and local fiscal bases collapse that sustain spending on health and education in oil-producing states,” said Jason Bordoff, a professor at Columbia University.

One region that should be an unambiguous beneficiary is the eurozone, where the chief effect of a fall in the oil price is to bring down consumer prices, boosting household finances. 

The European Central Bank’s rule of thumb is that every 10 euro fall in the oil price brings down eurozone inflation by 0.3 percentage points within two months. “It is good news. It is one of the shock absorbers that can help,” said Holger Schmieding, an economist at Berenberg. 

But he added that while the effects on investment in the US energy industry would be immediate, any benefits to European consumers would feed through only in the longer term — making it more of a “consolation” than an immediate help to global growth. 

Jennifer McKeown, at the consultancy Capital Economics, said the near 50 per cent drop in the oil price since the start of the year would knock about 1 percentage point off headline inflation across the OECD — but warned that even in 2014, the decline in oil prices had not boosted consumer spending in the eurozone or US by as much as had been initially expected. 

Given coronavirus fears and related lay-offs, “it seems particularly unlikely that households will respond to lower energy costs by spending more now”, she said. If anything, the drop in the oil price “has raised the threat of a deeper downturn”.