Category: Economy

N.S. small businesses say rent deferral program places full burden on them

Across the province, small businesses are being forced to shut down to adhere to provincial regulations set out in the Public Health Act.

Many, like DeeDee’s Ice Cream, a small family run business with two locations, has been forced to lay off their employees in an attempt to weather the storm.

“Most of my employees have worked for me for between three and five years. So to lay them off was a super difficult decision,” said owner of DeeDee’s Ice Cream Ditta Kasdan.

But even without payroll, there are still many bills to pay, including rent, and utilities.

In an effort to help small businesses, on Friday the Nova Scotia Government introduced the rent deferral program, which encourages landlords to defer rent for three months for businesses forced to close under the public health order.

As part of the effort, the province guarantees up to 5,000 dollars a month for landlords if that business goes under.

But small businesses are raising concerns that it does little to help them.

“The rent deferral program that our Premier has put forward on Friday is going to put most businesses out of business,” said Lara Cusson, chairwomen of the Nova Scotia Small Business Affiliation.

“It’s putting all the burden on small businesses. So if we defer our rent by three months, even six months, we still have to pay back that rent, but we’ve never made that revenue.”

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Cusson has written a letter to the Premier calling for a more equitable solution.

“We need to share this burden with landlords, with the banks. We need some sort of collective collaborative effort to keep businesses alive and sustainable.”

Already over 200 businesses in the province have signed the letter, including Kasdan.

https://shawglobalnews.files.wordpress.com/2020/03/letter-9.pdf

“I totally disagree with the whole deferral idea,” said Kasdan, who would instead like to see some form of aid to help reduce debt.

During an update on the Province’s response to COVID-19 on Monday, Stephen McNeil said this program acts as a way to help businesses, and it doesn’t mean that businesses will be required to pay the rent immediately when they re-open.

“This is meant quite frankly to take pressure off them right now,” he said.

“They can work with their landlord to spread that over the life of their lease, that could be two years, if its shorter than that then the landlord could have the responsibility to extend it beyond that period of time.”

But Kasdan says it’s still not good enough. She says many businesses like her own can’t afford to take on any extra debt and she’d like to see the province do something to help alleviate their debt, not add to it.

“It’s like with big oil corporations, huge fisheries companies. We seem to always have money to give them to operate and somehow small businesses are always expected to be self-sufficient and resilient on their own,” said Kasdan.

Federal help needed

Meanwhile on the federal level, over the past few weeks, the government has been dolling out benefits aimed at helping Canadians and businesses get through this pandemic. For businesses, the federal government has introduced loans, and wage subsidies.

Many small businesses say neither will keep them from going bankrupt if they have to stay closed for months.

“Their fixed costs continue, so those are things like rent or other things like debt they made be paying on inventory or other things they are holding, and that is likely what will bankrupt them if this crisis is to continue for months on end,” said David MacDonald, an economist with the Canadian Centre for Policy Alternatives.

MacDonald says it’s important to note that things are changing almost daily, and it is possible the federal government will introduce more aid for businesses in coming days.

“What we may see over the coming days is some sort of basic support for small businesses, that’s going to cover the bare minimum of fixed costs,” said MacDonald.

“If they go bankrupt in the meantime that will mean the economic impacts will be more widespread, we wont just have a rapid restart of the economy we’ll have a much slower and damped down restart of the economy because these businesses go bankrupt.”

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Canadians who didn’t have a job even before coronavirus: what help can they get?

The coronavirus pandemic has attracted a historic response from the federal government, with Ottawa pledging around $200 billion to rescue the economy. But across the country, Canadians who already didn’t have a job when the pandemic struck are wondering what support, if any, they’ll be able to access.

The Trudeau government is rolling out a 75 per cent wage subsidy to help employers keep workers on payroll through the crisis. Those who’ve already lost their income can turn to the new Canada Emergency Response Benefit (CERB), which will provide $2,000 a month for up to four months.

Meanwhile, those who are already receiving employment insurance will continue to do so and be able to transition to the CERB if they’re unable to find work when their benefits run out due to the health emergency, according to the Department of Finance.

It remains unclear, however, whether some of those who were already unemployed before the onset of the crisis and students about to graduate will be able to access the emergency income support.

“It’s a huge oversight,” saays David MacDonald, senior economist at the Canadian Centre for Policy Alternatives.

While over a million Canadians have applied for jobless benefits since mid-March, another million workers were already unemployed at the end of February, he says. Of those, MacDonald estimates around 600,000 would not have qualified for EI. The question now is whether those Canadians will be able to access the CERB.

Some government sources have indicated some students would be able to apply for the CERB. In an update to her website on Friday, federal cabinet minister Maryam Monsef said students who’ve earned $5,000 in the past year would qualify for the aid.

The government’s Emergency Response Act, which introduced the CERB, says workers must have had income of at least $5,000 in 2019 or in the 12-month period preceding their application in order to qualify. The income must have come from employment, self-employment or EI or Quebec maternity and parental benefits.

That’s good news for students who’ve managed to hold on to part-time jobs while in school, MacDonald says. But, he adds, what about the new graduates who have a job offer lined up for May that may unravel amid the current economic cataclysm?

In general, young Canadians will be “particularly hard hit” by the crisis, MacDonald predicts.

Youth unemployment was at 10 per cent even while the economy was humming along, he notes. By May, when school is out, he predicts it will hit around 33 per cent.

And by the summer, amid a dearth of jobs in the restaurant and retail industries, “it will get even worse,” he says.

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Oil price plunges to 2002 lows amid global coronavirus shutdown

Oil took another stomach-churning 8 per cent dive on Monday and world shares buckled again as fears mounted that the global coronavirus shutdown could last for months.

There were some bright spots, with Australian equities posting a standout jump as the government launched a super-sized support program and Wall Street futures were fractionally positive, but that was about it.

Japan’s Nikkei had led the rest of Asia lower and Europe’s main markets skidded another 1 per cent, adding to what has already been the region’s worst quarter since 1987.

The rout in oil took crude to its lowest since 2002. Brent slumped to $22.5 a barrel leaving it down 65 per cent for the year and hammering petro currencies such as Russia’s rouble, Mexico’s peso and the Indonesian rupiah by as much as 2 per cent.

It didn’t help that the U.S. dollar was back on the climb. The euro was batted back by about 0.7 per cent, leaving it near $1.1 and sterling went as low as $1.2350 after Britain had become the first major economy to have its credit rating cut because of the coronavirus on Friday.

“I have been in this business almost 30 years and this is the fastest correction I have seen,” Lombard Odier’s Chief Investment Officer Stephane Monier said of this year’s plunge in global markets.

Total global deaths from the coronavirus are around 34,000 and the United States has emerged as the latest epicenter, with more than 143,000 confirmed cases and 2,500 deaths as of the morning of Monday, March 30.

U.S. President Donald Trump on Sunday, March 29 extended his stay-at-home guidelines until the end of April, dropping a hotly criticized plan to get the economy up and running by mid-April after a top medical adviser said more than 100,000 Americans could die from the outbreak.

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Wall Street futures had also back-pedaled, having been up as much as 1 per cent in Asia after a late flutter of optimism.

Australia’s benchmark ASX200 registered a late surge, closing 7 per cent up after Prime Minister Scott Morrison unveiled a $130 billion ($80 billion) package to help to save jobs.

Most other markets were down but trimmed earlier losses. Japan’s Nikkei dropped 1.6 per cent, Shanghai blue chips fell 1 per cent and there were sharper drops in Southeast Asia, with Singapore’ benchmark index down almost 3 per cent.

JPMorgan now predicts that global GDP could contract at a 10.5 per cent annualized rate in the first half of the year.

“We continue to mark down global GDP forecasts as our assessment of both the global pandemic’s reach and the damage related to necessary containment policies,” said JPMorgan economist Bruce Kasman.

As a result, central banks have mounted an all-out effort to bolster activity with rate cuts and massive asset-buying campaigns, which have at least eased liquidity strains in markets.

China on Monday became the latest to add stimulus, with a cut of 20 basis points to a key repo rate, the largest in nearly five years.

Singapore also eased as the city state’s bellwether economy braced for a deep recession while New Zealand’s central bank said it would take corporate debt as collateral for loans.

Rodrigo Catril, a senior FX strategist at NAB, said the main question for markets was whether all the stimulus would be enough to help the global economy withstand the shock.

“To answer this question, one needs to know the magnitude of the containment measures and for how long they will be implemented,” he added.

“This is the big unknown and it suggests markets are likely to remain volatile until this uncertainty is resolved.”

Bond investors looked to be bracing for a long haul, with European government bond yields dipping and those at the very short end of the U.S. Treasury curve turning negative. Those on 10-year notes dropped a steep 26 basis points last week and were last standing at 0.64 per cent.

That drop has combined with efforts by the Federal Reserve to pump more U.S. dollars into markets, dragging the currency off recent highs.

Against the yen, the dollar was pinned at 107.99, well off the recent high of 111.71, but its gains against the euro, pound and heavyweight emerging market currencies suggested it was regaining strength.

“Ultimately, we expect the USD will soon reassert itself as one of the strongest currencies,” argued analysts at CBA, noting the dollar’s role as the world’s reserve currency made it a countercyclical hedge for investors.

“This means the dollar can rise because of the deteriorating global economic outlook, irrespective of the high likelihood the U.S. is also in recession.”

The dollar’s retreat had provided a fillip for gold, but buying stalled as investors were forced to liquidate profitable positions to cover losses elsewhere. The metal was last at $1,613.6 an ounce.

Oil prices have also been hit by a fight for market share between Saudi Arabia and Russia, with neither showing signs of backing down even as global transport restrictions hammer demand.

Brent futures were down 8 per cent, or $2, at $22.50 a barrel – their lowest for 18 years. U.S. West Texas Intermediate (WTI) crude futures fell as far as $19.92, near a 2002 low hit this month.

“Central banks have been easing (monetary policy) and governments have been offering stimulus packages, but they are only supportive measures, not radical treatments,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

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US dollar posts biggest weekly fall since 2009

NEW YORK (REUTERS) – The US dollar posted its biggest weekly decline in more than a decade on Friday (March 27), as trillions of dollars worth of stimulus efforts by governments and central banks helped temper a rout in global markets driven by the coronavirus pandemic.

The dollar surged in March as tumbling stock and debt markets caused a scramble for the world’s most liquid currency.

But big government spending pledges and coordinated efforts by central banks around the world to increase the supply of dollars have supported a rally in other major currencies.

The United States House of Representatives on Friday approved a US$2.2 trillion (S$3.1 trillion) aid package – the largest in American history – to help people and businesses cope with the economic downturn inflicted by the coronavirus outbreak.

The dollar dipped 0.87 per cent against a basket of currencies Friday to 98.41. It fell 3.90 per cent last week – its biggest weekly decline since March 2009.

The dollar index in the previous week had racked up its biggest weekly gain since the financial crisis.

“What we are seeing is abating stress in the money markets. Action by central banks has been successful so far and a shortage of dollars has been taken off the table,” said Commerzbank head of FX and commodity research Ulrich Leuchtmann.

After this month’s large price swings, investors were likely to be especially active rebalancing their books for month- and quarter-end.

The Global Foreign Exchange Committee on Thursday warned the coming few sessions could be volatile as market participants execute larger than normal trades as part of this process.

Against the yen, the dollar fell 1.56 per cent on Friday to 107.87 yen, as Japanese investors and companies repatriated funds before their fiscal year ends next week.

The euro gained 0.83 per cent against the greenback to US$1.1119.

Sterling jumped 2.07 per cent to US$1.2454 and the Australian dollar rose 1.78 per cent to US$0.6171.

Speculators increased their net short dollar position in the latest week to US$8.88 billion, from US$8.27 billion the previous week, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday.

“Now that the surge in demand for dollars overseas has been met by the Fed’s new improved swap lines, economic and medical fundamentals are taking over,” BDSwiss Group head of investment research Marshall Gittler said in a note on Friday.

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Macron told EU leaders "survival of European project" at stake in virus crisis

PARIS, March 26 (Reuters) – French President Emmanuel Macron warned his fellow European Union leaders on Thursday that the coronavirus outbreak risked undoing the bloc’s central pillars such as its no-border zone if they failed to show solidarity in this crisis, a diplomat said.

“What’s at stake is the survival of the European project,” he told the 26 other leaders in a conference call, according to a French diplomat. “The risk we are facing is the death of Schengen,” Macron added, according to the same source. (Reporting by Michel Rose; Editing by Sandra Maler)

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UPDATE 2-Higher-rated yields tick up as U.S. fiscal boost soothes nerves

* Italy/Germany bond yield gap well off highs

* U.S., European fiscal stimulus gives heart to investors

* But lock downs could severely hurt global economy

* Eurozone periphery bond yields tmsnrt.rs/2ii2Bqr (Adds inflation expectations, updates prices)

By Abhinav Ramnarayan

LONDON, March 25 (Reuters) – Most euro zone bond yields edged higher on Wednesday after policymakers in Europe and the United States approved extraordinary measures to lessen the impact of the coronavirus crisis, although stock markets suffered some losses.

The closely-watched spread between Italian and German 10-year yields was a few basis points tighter at 182 basis points, well off last week’s 14-month high of 319 bps.

“That spread volatility should continue to stabilise from the highs we have seen recently after quite swift responses from the U.S.,” said DZ Bank rates strategist Christian Lenk.

U.S. senators and officials in President Donald Trump’s administration agreed on a massive economic stimulus bill to alleviate the economic impact of the coronavirus outbreak.

Meanwhile, European Central Bank (ECB) head Christine Lagarde asked euro zone finance ministers on Tuesday to seriously consider a one-off joint debt issue of “coronabonds” to help fight the epidemic, two officials said.

Germany is open to using the European Stability Mechanism to prop up economies hit by the coronavirus under certain circumstances, Der Spiegel magazine reported.

Germany’s 10-year government bond, the benchmark for the region, saw its yield edge 3 basis points higher in late trade to -0.29%.

Dutch and Austrian bonds underperformed, with their 10-year yields up 10 and 8 basis points respectively . Italian 10-year borrowing costs were down a basis point at 1.59% or nearly half last week’s high of 3.01%.

Other government bond markets referred to as peripheral, such as Spain, saw a pick-up in demand with yields 5-6 bps lower across the curve.,

“Risk assets bounced yesterday in the aftermath of positive noises for the U.S. fiscal deal’s progress and the Fed’s commitment to buy unlimited U.S. Treasuries and MBS,” Mizuho analysts said in a note.

A key gauge of long-term euro zone inflation expectations, the five-year, five-year forward, bounced to a one-week high above 0.80%.

However, analysts said the relative calm depended on the success of the battle to contain the spread of the coronavirus, and also on how long lockdowns continue and the potential impact on supply chains and industry.

“Even the boldest measures announced are likely to do no more than put the economy on ice,” Richard McGuire, a strategist at Rabobank, said.

Surveys this week showed business activity collapsed from Australia, Japan and Western Europe to the United States at a record pace in March as measures to contain the coronavirus pandemic hammered the world economy. (Reporting by Abhinav Ramnarayan, additional reporting by Yoruk Bahceli; editing by Barbara Lewis and Alexander Smith and Kirsten Donovan)

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TREASURIES-Yields flat as Fed's bond buying pledge sinks in

NEW YORK, March 25 (Reuters) – U.S. Treasury yields were roughly flat on Wednesday morning as the scope of the Federal Reserve’s effort to stabilize markets by purchasing assets registered with investors and demand for safe-haven assets cooled.

The Fed announced on Monday it would buy bonds in unlimited numbers and backstop direct loans to companies, the latest in a series of policy steps taken over the past two weeks to calm markets and support the economy.

Yields had risen on Tuesday after falling for three consecutive sessions, and were trading slightly lower on Wednesday, but roughly in the range of the previous session.

The benchmark 10-year yield was 1.8 basis points lower to 0.800%, the 30-year yield was 2.6 basis points lower to 1.343% and the two-year yield was 3.2 basis points lower to 0.344%.

“The market is finally coming around to digesting the fact that the QE program will actually be unlimited. You’re starting to see a little bit of a reversal in the selloff we saw last week given the fact that there was concern about the increase in deficits and the potential for overwhelming long-end supply,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

“I think those fears are going away now that the Fed is going to be buying an unlimited amount of Treasuries, potentially.”

The market was also awaiting the outcome of a vote later on Wednesday about the passage of a fiscal stimulus bill in Congress. U.S. senators will vote on Wednesday on a $2 trillion bipartisan package of legislation to alleviate the devastating economic impact of the coronavirus pandemic, hoping it will become law quickly. (Reporting by Kate Duguid Editing by Alistair Bell)

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US health clubs become biggest losers as pandemic clears gym floors

NEW YORK, March 24 (LPC) – US health clubs are among the biggest losers in the loan market, as the spreading coronavirus has forced some gym operators to close their doors on government order while patrons adhere to strict social distancing measures and avoid crowded spaces.

A loan for luxury fitness club operator Equinox has fallen to an average bid of roughly 70-72 cents on the dollar this week, down from levels near 100 cents on the dollar, referred to as par, last month, according to two sources monitoring the transaction. Life Time Fitness, which designs and builds multi-use fitness centers, has a term loan quoted at a bid of 69-70 cents this week, down roughly 21 cents from February, sources said.

With US state and city governments enforcing tough restrictions on local businesses, residents are being encouraged to stay indoors to limit the spread of the respiratory virus. With health clubs closed, trainers are hosting online workouts to ensure gym goers can exercise in isolation.

“Gyms’ loans are one of those sectors that was bound to get hit. Add them to oil and gas and services,” one banker said.

San Ramon, California-headquartered 24 Hour Fitness Worldwide has drawn down on all available funds under a US$120m revolving credit facility, according to the Wall Street Journal, joining a growing list of companies that have either drawn on existing revolvers or signed new bank loans to shore up liquidity in the last two weeks.

Companies in the travel, leisure and oil and gas sectors have so far bore the brunt of the pandemic, with airlines and casino operators drawing on bank facilities as holiday cancelations have piled up. And now, fitness centers, which drive revenues from an active member base, could fall victim to a virus that is keeping people away from large gatherings.

Low-cost gym chain Planet Fitness was the latest US health club operator to tap the institutional term loan market, raising a US$590m first-lien loan to support its buyout by private equity firm American Securities in February.

The seven-year loan was offered at 400bp over Libor with a 0% floor on February 7, sources said. Lead arranger Jefferies was able to price the transaction on the tight end of guidance of 400bp-425bp over Libor, and enjoyed what was effectively the final weeks of an investor base clamoring for new leveraged loans.

The loan was sold last month at a discount of 99.5 cents, but has since dropped to an average bid of 77-78 cents on Tuesday, a source said.

Spokespeople for Equinox, Planet Fitness, Life Time Fitness and 24 Hour Fitness were not immediately available for comment.

EQUINOX’S CHOICE

Equinox, known for its higher-priced membership fees and scented towels, has roughly 75% of its health clubs in the affluent New York City metro area and in coastal California, according to a February 24 report from Moody’s Investors Service.

With both regions reporting new cases of the coronavirus this week, investors are concerned the gym chain will have no choice but to remain closed for the foreseeable future, according to sources.

Moody’s also said that for the 12 months ending last September, the company’s adjusted debt to earnings before interest, tax, depreciation and amortization (Ebitda) was approximately 7.8 times for Equinox operations alone. This increases to 8.6 times when including losses from subsidiaries that Equinox funds, according to the ratings firm.

Equinox last tapped the term loan B market for a US$225m incremental transaction to its existing facility in March 2019, Refinitiv LPC reported at the time.

“My gym shut (last) Tuesday. I’m thinking I’ll probably have to break in. Not really any way for me to replicate 600 pound squats at home,” said an investor monitoring fitness centers’ loans, and their operating hours.

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UPDATE 1-Japan banks borrow record $89.3 bln from BOJ as dollar shortage lingers

(Adds details, analyst comments)

By Hideyuki Sano

TOKYO, March 24 (Reuters) – Japanese banks borrowed a record $89.3 billion in two Bank of Japan funding operations on Tuesday, suggesting strong demand for the dollar from the country’s financial institutions.

The take-up in the BOJ operations – one for one-week and the other for three-month – was well beyond its previous record of $50.2 billion, hit on October 21, 2008, during the global financial crisis.

Liquidity demand is particularly tight ahead of March 31, the end of the financial year for many Japanese companies.

Even after the BOJ’s operations, the three-month dollar/yen currency basis swap spread, seen as the market premium demanded for swapping yen for dollar, stood at 80 basis points, or 0.80% , down from a peak of around 1.4% last week but still far above normal levels around 0.2%-0.4%.

Were it not for the life-saving ring from Japan’s central bank, the dollar/yen premiums would have gone much higher, analysts said.

In contrast, basis swap premiums in other currency pairs such as euro/dollar and sterling/dollar, have shrunk nearly to normal levels this week after similarly spiking last week.

As fears of the coronavirus pandemic knocked down global asset markets starting from late February, demand for safe-haven dollars has soared globally.

Leveraged investors needed U.S. dollars to deal with margin calls, while some companies started hoarding them, anticipating a sharp slowdown in economies as governments around the world imposed lockdowns to stop the highly contagious pathogen.

“History shows that once you have a liquidity crunch, it takes some time for central banks to end it,” said Masao Muraki, global financial strategist at SMBC Nikko Securities.

“For each player, cutting risk assets and piling up dollar cash is a right response to protect themselves.”

The U.S. Federal Reserve on Monday rolled out an extraordinary array of programs, offering unlimited quantitative easing and programmes to support credit markets.

Many market players are hopeful the tight conditions are slowly starting to ease after the world’s central banks took a raft of unprecedented measures to calm the financial markets.

“We may also be seeing the beginning of the impact of the Fed and other central banks’ actions in the market,” said Marshall Gittler, head of investment research at BDSwiss Group. (Reporting by Hideyuki Sano, additional reporting by Saikat Chatterjee in London; Editing by Muralikumar Anantharaman and Tom Hogue)

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PRESS DIGEST – Wall Street Journal – March 24

March 24 (Reuters) – The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

– Major U.S. airlines are drafting plans for a potential voluntary shutdown of virtually all passenger flights across the country as government agencies also consider ordering such a move and the nation’s air-traffic control system continues to be ravaged by the coronavirus contagion. (on.wsj.com/2xnqV2Z)

– PG&E Corp said it would accept criminal responsibility for starting the deadliest wildfire in California’s history, becoming one of a small number of U.S. corporations to plead guilty to felony charges of involuntary manslaughter. (on.wsj.com/2J7fcZh)

– Japan’s SoftBank Group Corp said on Monday it would sell billions of dollars in assets to prop up its plunging stock price and shore up its debt-laden balance sheet following the threat of a ratings downgrade. (on.wsj.com/33E6mM2)

– The National Rifle Association is cutting salaries by 20% across the board and laying off an unspecified number of employees amid a plunge in fundraising during the coronavirus crisis. (on.wsj.com/2Ueu4eE) (Compiled by Bengaluru newsroom)

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