By Geoffrey Smith
Investing.com -- The airline industry, which spent almost all of its free cash flow on stock buybacks for the last 10 years, is asking for $50 billion in government assistance, and President Trump seems inclined to give it. A bounce in stock futures overnight has fizzled, and the mood is turning more risk-averse by the hour. The Philippines became the first country to shut its financial markets entirely, while some regulators in Europe imposed short-selling bans on some stocks and index products. Volkswagen (DE:VOWG_p) and Airbus announced production halts and Europe's leaders knock heads together again to coordinate their response to the growing crisis. Here's what you need to know in financial markets on Tuesday, March 17th.
1. Airlines seek $50 billion bailout as Trump warns of recession
U.S. airlines have approached the federal government with a request for $50 billion in financial assistance, plus tax relief, as they struggle with a crisis that threatens to eclipse even the period after the 9/11 attacks.
Airlines for America, the industry association, said on its website it has asked for grants of up to $25 billion and loans of up to another $25 billion.
At a press conference on Monday, President Donald Trump had said: ““We’re going to back the airlines 100…We have to back the airlines. It’s not their fault.”
Bloomberg reported on Tuesday that, over the last 10 years, the U.S.'s biggest airlines spent 96% of free cash flow on stock buybacks.
In a significant change of tone, Trump had said at the press conference that the coronavirus could last through August, and that the U.S. economy may tip into recession as a result.
2. Philippines Shuts Financial Markets
The Philippines became the first country to shut its financial markets due to the Covid-19 crisis.
The Manila Stock Exchange has fallen by around one-third since the virus started to make headlines in mid-January, despite the government ordering state pension funds to increase their purchases of equities last week.
The Philippines only has a relatively modest 142 cases of Covid-19 confirmed, according to John Hopkins data. The move follows an order on Monday by President Rodrigo Duterte to impose emergency quarantine measures in Luzon, which accounts for some two-thirds of the country’s GDP.
More modest restrictions on financial markets have also been imposed in Europe on Tuesday. France, Spain and Italy all imposed short-selling bans on selected stocks and index products.
3. Risk aversion gains upper hand again
The overnight bounce in U.S. stock futures has fizzled, setting cash markets up for only a weak bounce when they open.
By 6:40 AM ET (1040 GMT), the Dow 30 futures contract was up 208 points, or 1.0%, while the S&P 500 futures contract was also up 1.0% and the Nasdaq 100 futures contract up 1.6%.
The S&P VIX index, which closed at its highest since 2008 on Monday, was down only fractionally at 80.66.
The dollar, which had plunged last week as the Federal Reserve wiped out the greenback’s interest rate premium, is now rebounding sharply as investors put an increasingly high premium on the world’s most liquid and trusted financial asset. By 6:40 AM ET, the dollar index, which tracks the greenback against a basket of developed-market currencies, was up 0.8% at 98.975.
4. Europe in Lockdown
President Emmanuel Macron instructed France’s population to self-isolate for 15 days to stop the spread of the coronavirus. It’s the most restrictive public health measure in Europe outside Italy.
Macron promised to set aside 300 billion euros in state support for the economy, around 13% of GDP, without providing too much detail about how it would be spent.
He also promised that no French business would be allowed to fail during the outbreak. For context, over 4,000 French enterprises failed each month on average in 2019.
Europe continues to report sharp increases in new infections, albeit the pace of increase in Italy, which has suffered the worst outbreak, appears to be slowing.
European heads of government are due to hold another teleconference at 12 PM ET (1600 GMT). The EU has already said it will effectively suspend its fiscal rules for the duration of the crisis.
5. Volkswagen, Airbus, Renault to suspend production
More of Europe’s biggest companies said they will suspend production at their factories, against a backdrop of increasingly severe quarantining measures across the continent.
Volkswagen said it will suspend production at most of its European plants from Saturday, initially for a period of two weeks.
In addition, Airbus (PA:AIR) said it would stop production at its plants in France and Spain. Automaker Renault (PA:RENA), having said it would halt production in France on Monday, now says it will also suspend production in Spain.