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Central banks aren’t the answer to coronavirus fears

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

Following a brutal week, stocks in Asia pushed higher Monday on hopes that central banks and other policymakers will come to the rescue of a global economy at serious risk from the novel coronavirus outbreak.

The Bank of Japan said in an unscheduled statement that it would provide “ample liquidity” to ensure stability in financial markets. That follows the Federal Reserve’s commitment on Friday to “act as appropriate to support the economy.”

French Finance Minister Bruno Le Maire also said Monday that he will speak to his G7 counterparts by phone this week to coordinate their responses. China is expected to roll out a big stimulus package at some point, too.

But questions remain about how much policymakers can really do to mitigate the coronavirus shock to the economy and markets — raising the possibility that any stabilization in risky assets will be short-lived. S&P 500 futures are now trading in the red.

“While we expect the policy cavalry to arrive soon, central bank easing may have a more limited ability to address this type of real economic shock,” Zach Pandl and Kamakshya Trivedi of Goldman Sachs told clients on Sunday.

Put another way by Hussein Sayed, chief market strategist at FXTM, a currency broker: Even if the Fed cut interest rates to zero, the European Central Bank pushed interest rates further into negative territory and the Bank of Japan stepped up monetary stimulus, it would do little to restore public confidence. The problem isn’t access to cheap money, but the growing health crisis.

“Will these measures encourage you to buy a new [apartment], a new car or even a new iPhone? … Are you likely to consider expanding your business given the cheap liquidity? Most likely, the answer is no,” he said Monday.

Central banks also have far less ammunition to deploy than they did a decade ago. Interest rates remain at or near record lows, and the balance sheets of many central banks remain swollen from years of bond purchases. The ECB and BOJ might have to get creative — an experiment that would unfold in real time.

Just in: The Organization for Economic Cooperation and Development warned Monday that the coronavirus is plunging the world economy into its worst downturn since the global financial crisis, and that growth could be cut in half this year if the outbreak continues to spread.

It cautioned that a “swift and sizable” fiscal response is necessary to supplement action by central banks as some reach the limits of what they can do.

The global travel industry under serious strain

The travel industry has already taken a huge hit due to travel restrictions and canceled trips tied to the coronavirus outbreak. But for a vital sector of the global economy, responsible for roughly one in 10 jobs, it’s likely just the beginning.

My CNN Business colleague Chris Isidore reports that the travel industry is facing what could be its worst crisis since the September 11 terrorist attacks on the United States.

“It’s on the front line of the fallout,” Mark Zandi, chief economist with Moody’s Analytics, told Chris. “It’s the most directly and immediately impacted.”

That’s clear from the recent stock performance of companies in the travel business. In a recent note to clients, Goldman Sachs pointed out that some of the worst performing industry groups since the US market peaked last month are airlines (down 22%), hotels (down 19%) and casinos (down 19%).

The investment bank observed that consumer worries about coronavirus are likely to persist as negative sentiment sets in.

“No one rings a bell when a contagion ends, so a near-term reversal of behavior seems unlikely,” chief US equity strategist David Kostin said.

An activist investor is targeting Twitter’s Jack Dorsey

Activist investor Elliott Management built a stake in Twitter and is pushing for changes, including the replacement of CEO Jack Dorsey, according to multiple news reports.

Elliott has amassed a stake of more than $1 billion, per Bloomberg, and has nominated four directors to the company’s board.

Among its reported concerns: The firm is worried that Dorsey splits his time between Twitter and payments platform Square, where he also serves as CEO. Dorsey has also said he could spend up to six months of the year working in Africa at a time when the platform seems to be moving a slower pace than other social media companies.

Twitter’s stock has dropped more than 6% since Dorsey, who co-founded the company in 2006, returned as CEO in 2015. Facebook’s stock has risen roughly 121% during the same period. Shares of Twitter are up more than 4% in premarket trading.

Up next reports results before US markets open. Tilray follows after the close.

Also today:

  • The closely-watched ISM Manufacturing Index for February posts at 10 a.m. ET. Economists expect to learn that US manufacturing grew slightly for the second month in a row.

Coming tomorrow: Target reports earnings as investors keep a close eye on US consumer spending amid the coronavirus outbreak.

Article Topic Follows: Biz/Tech

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