Stock Markets Brace for a Forecast From the Fed
Stock Markets Brace for a Forecast From the Fed
The global economy faces a severe downturn, O.E.C.D. says.
The world economy is facing the most severe recession in a century and could experience a halting recovery as policymakers brace for a potential second wave of the coronavirus and as countries embrace protectionist policies, the Organization for Economic Cooperation and Development warned in a new report.
A grim economic outlook released by the O.E.C.D. on Wednesday depicted a world economy that is walking on a “tightrope” as countries seek to reopen after three months of lockdowns. Considerable uncertainty remains, however, as the prospects and timing of a vaccine remain unknown. Health experts fear that the spread of the virus could accelerate again later this year.
“Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the O.E.C.D.’s chief economist.
The O.E.C.D., which comprises 37 of the world’s leading economies, predicts that the global economy will contract by 6 percent this year if a second wave of the virus is avoided. If a second wave does occur, world economic output would fall 7.6 percent, before rebounding by 2.8 percent in 2021. The two scenarios are viewed as equally plausible.
Barring a second wave, the O.E.C.D. expects the United States economy to shrink by 7.3 percent and the Euro Area to shrink by 9 percent. Emerging economies, such as Brazil, Russia and South Africa, will be hit harder given the strain on their already fragile health systems.
The report is slightly more ominous than other recent forecasts from the World Bank and the International Monetary Fund.
The O.E.C.D. said that after initial rebounds in economic activity, long-lasting scars will be evident as high rates of unemployment persist and income inequality is exacerbated. The virus is already showing signs of a “great fragmentation” in global trade that could blunt growth.
European markets are flat as investors await a signal from the Fed.
European markets were flat in early Wednesday trading as investors awaited a forecast from the U.S. Federal Reserve.
Markets in Britain, Germany and France were up about one half of 1 percent in morning trading before giving up their gains. Futures markets were predicting a modest fall on Wall Street later in the day. Asian markets ended mixed.
Prices for U.S. Treasury bonds rose, though also by a modest amount, signaling some investor wariness.
Investors in Europe and the United States alike were awaiting word on the thinking of their respective central bankers. Conflicting comments from officials at the European Central Bank left investors with little guidance, according to FactSet, a data provider. In the United States, the Federal Reserve was widely expected to keep rates extremely low, but investors will be keenly interested in its economic forecast for the coming years.
Investors offered a muted reaction to a pessimistic forecast from the Organization for Economic Cooperation and Development that warned governments to prepare for a second coronavirus wave.
Federal Reserve is set to release the first economic projections of 2020.
The Federal Reserve is widely expected to leave interest rates near zero on Wednesday while pledging to continue buying bonds, but economists are watching for any hint about how the central bank might adjust policy in the longer run.
Officials are set to release their first set of economic projections of 2020, having skipped the quarterly summary in March as the pandemic gripped the United States, sowing uncertainty. The forecasts will show how they expect unemployment, inflation and growth to shape up in the years ahead.
The economic forecasts will be a major focus given that the last time they were released — December 2019 — Fed officials were projecting 2020 unemployment to close out at 3.5 percent with 1.9 percent inflation and 2 percent growth.
The coronavirus most likely upended those expectations. Now the major question is how quickly the country can recover — and Wednesday’s release will offer a sense of how the Fed is thinking about that.
Many Fed watchers expect officials to use the interest rate projections and their post-meeting statement, released at 2 p.m., to clearly signal that borrowing costs will remain at rock-bottom for some time. Policymakers could also use the statement to make clear they will try to goose the economy through their bond-buying program. The Fed has been snapping up government-backed bonds to keep markets functioning normally, but conditions have calmed, so they could make that program explicitly focused on stimulating the economy.
But the more significant moment may come when Fed Chair Jerome H. Powell holds a web-based news conference at 2:30 p.m. While he has sounded wary about the path ahead, analysts are curious to hear his take on the economy as states gradually open and the job market stages an early rebound.
Wall Street retreats a day after S&P 500 returned to break-even for the year.
Stocks fell on Tuesday, pulling back after a string of gains that had lifted Wall Street by 6 percent this month.
The S&P 500 closed down less than 1 percent. Stocks in Britain, Germany and France were nearly 2 percent lower after a mostly positive day in Asia.
The S&P 500 erased its losses for this year on Monday. Investors have taken heart in signs that the global economy is on the mend, particularly in China, Europe and the United States. They have also been cheered by government and central bank efforts to use money to fight the global freeze.
Stocks that had fared the best in the rally, like those of airlines and cruise companies, pulled back on Tuesday. Shares of Delta Air Lines fell about 8 percent, and American Airlines was down about 9 percent, while the cruise line operator Carnival Corporation was down more than 7 percent.
Tuesday brought reminders that the global situation remained tenuous. Tensions on the Korean Peninsula rose, while prospects for a quick batch of new stimulus spending in the United States looked uncertain.
In Germany, new data showed exports had plunged in April by 24 percent, much more than expected, which cast doubt over how quickly Europe’s largest economy could bounce back.
And investors are wary of a second wave of the coronavirus outbreak that could force economic activity to halt once more. Infections are still rising in many U.S. states and public health officials are concerned that the nationwide protests over police brutality may lead to new cases of the virus.
AMC Theaters, the world’s largest cineplex operator, announced on Tuesday that “almost all” of its locations in the United States and Britain would reopen next month. Over all, theaters in 90 percent of overseas markets will be running again by mid-July, according to the National Association of Theater Owners, a trade organization for movie exhibitors in 98 countries.
In just three weeks, Hollywood is scheduled to restart its supply pipeline of new films. “Unhinged,” a $33 million Russell Crowe thriller, will arrive in theaters on July 1, followed in mid-July by Christopher Nolan’s “Tenet,” a $200 million-plus mind bender.
Theater owners are desperate to start selling tickets again. AMC, based in Leawood, Kan., lost $2.18 billion in the first quarter, compared with a loss of $130 million a year earlier. Revenue totaled $942 million, a 22 percent decline. As of April 30, AMC had $718 million in cash, enough to stave off bankruptcy through the end of the year, even if theaters remain closed.
What an Amazon warehouse looks like now.
The question, however, is whether moviegoers — even while watching movies in well-sanitized theaters with limited capacity — will feel safe from the coronavirus, the spread of which rose to a record high worldwide on Sunday, as measured by new cases.
After months of being embattled over its response to the coronavirus, Amazon is working to convince the public that its workplaces — specifically, the warehouses where it stores everything from toys to hand sanitizer — are safe during the pandemic.
The giant internet retailer has started running television ads that show that its warehouse and delivery employees have masks and other protective gear. It has pushed out segments to local news stations touting its safety improvements. It has asked journalists to visit its warehouses to see for themselves.
Amazon is spreading its safety message after a period that Jeff Bezos, the company’s chief executive, has called “the hardest time we’ve ever faced.” As the coronavirus swept through the United States, Amazon struggled to balance a surge of orders with the health concerns of the one million workers and contractors at its warehouses and delivery operations.
Catch up: Here’s what else is happening.
Shares of Chesapeake Energy, a pioneer in extracting natural gas from shale rock, went on a wild ride on Tuesday amid reports that it was preparing a bankruptcy filing. Trading was halted for more than three hours in the morning. When buying and selling resumed, the trading was quickly interrupted again by circuit breakers. The company’s shares closed just below $24 for a loss of about 66 percent for the day.
Reporting was contributed by Mohammed Hadi, Brooks Barnes, Karen Weise and Clifford Krauss.