• Joel

HUGE Risk Off as Trump Bans Flights from Europe

Risk appetite took a battering last night after the US President delivered a primetime address in which he announced a travel ban on passengers coming from Europe (excluding the UK). The ban will last for 30 days, but could be extended depending on the extent of the impact of the virus. Such measures have reinforced the notion that a Covid-19 recession in the US looks inevitable, something which markets are still apparently in the process of coming to terms with.

Markets aside, with the US already nursing its own localized outbreak of the virus, a travel ban should have been implemented weeks ago.

The President also announced three economic measures, including increased lending to small businesses, paid leave for sick workers, and a deferral of taxes. In more detail;

On paid sick leave, Trump said that he will “soon be taking emergency action…to provide financial relief…for workers who are ill, quarantined or caring for others due to coronavirus” and called on the US Congress to support this policy.

On small business lending, Trump said the White House will “exercise available authority to provide capital and liquidity to firms affected by the coronavirus. Effective immediately, the Small Business Administration (SBA) will begin providing economic loans in affected states and territories.” Moreover, he again called on Congress to approve $50bln worth of new funding for SBA, which analysts at Goldman Sachs think “likely refers to the subsidy amount for SBA loans (i.e., an amount sufficient to cover projected losses)”.

On the deferral of taxes, Trump said that the Treasury will act under emergency authority to “defer tax payments without interest or penalties for certain individuals and businesses negatively impacted.” Note: the next major corporate tax deadline is April 15. Goldman Sachs analysts not that on this date companies would normally make payments totalling $50-60bn (0.25% of GDP).

Finally, Trump again reiterated his call for Congress to pass his recently suggested payroll tax cut. Supposedly, Congress was supposed to be voting on a payroll tax tomorrow, but most desks see this as unlikely. Rather the three measures listed above will likely be the focus of debate.

These announced measures failed to lift market sentiment after risk assets were sent tumbling by Trump’s European travel ban.

Maybe they are being seen as inadequate in curtailing the worst of the economic impact from Covid-19.

Or maybe the market is losing faith in the President’s ability to deliver what he was promising only days ago, sizeable fiscal stimulus.

Or perhaps the UK set the bar for global policy makers too high yesterday with its own sizeable, twin pronged monetary and fiscal easing package.

Either way, markets appear to be coming round to the new reality that when it comes to the spread of Covid-19, things are likely to get a lot worse before they get any better.


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