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Rich nations tighten firehose of aid as virus outlasts early efforts By Reuters

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© Reuters. FILE PHOTO: A man on a bicycle rides past containers at an industrial port in Tokyo

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By Howard Schneider, William Schomberg and Michael Nienaber

WASHINGTON/LONDON/BERLIN (Reuters) – If Round One of the coronavirus relief effort was the economic equivalent of “shock and awe,” new plans being developed by the world’s biggest economies for more assistance to businesses and consumers are taking a narrower and more tactical approach.

Governments around the world went in big, hard and fast in their initial efforts to blunt the economic hit from the global pandemic, drumming up roughly $10 trillion in spending plans through June, according to International Monetary Fund estimates. Central banks levered that up further with rate cuts, bond purchases and a raft of other credit programs.

But with President Donald Trump in quarantine after testing positive for COVID-19 and a resurgence in cases in Europe and the United States, there is an acknowledgment that the recovery is far from complete. Government and central bank officials are now devising more targeted follow-up programs they hope will help the industries and people still displaced in the global downturn.

With tens of millions remaining unemployed, this second round of government aid will still be counted in the trillions of dollars. Major industries remain under stress from the restrictions imposed last spring to try to halt the coronavirus, and public trust in routine activities like restaurant dining has not been restored.

This time around, officials are betting the virus can be suppressed without reverting to broad lockdowns, ideally allowing a global economic recovery to largely proceed. Their gamble will determine whether the world heads into 2021 poised for recovery and able to take full advantage of any successful vaccine – or climbing from an even deeper hole.

Rising caseloads “put governments in the unenviable position of trying to limit the damage to public health, while avoiding stringent measures to limit economic and social life,” Kevin Loane of Fathom Consulting wrote in a recent note.

“All leaders will be forced to come down more clearly on the side of mitigation or suppression. Suppression was the choice for almost all in the spring. It is unlikely that it will be again.”

NEED TO ADAPT

In tandem with those efforts to suppress the virus, the global economic response last spring was unprecedented as major central banks and governments approved emergency programs to funnel cash to those whose jobs were at risk, keep credit cheap, and back a broad set of financial markets and economic sectors with bond purchases and loans.

The IMF’s estimated $10 trillion of global fiscal spending is still perhaps $2 trillion short of the hole the coronavirus has blown in the world economy, with global output seen shrinking 4.9% this year. The IMF will issue updated forecasts and policy advice ahead of its Oct. 12 to 18 fall meetings.

The world’s major central banks are not expected to do much more given the aggressive steps they have already taken, though the U.S. Federal Reserve and the Bank of England are still discussing more bond purchases and, in the BOE’s case, the possibility of using negative interest rates.

That leaves it to fiscal authorities to fill the gaps, crafting assistance for those who still need it on the supposition economies will not be forced back into broad hibernation.

Yet if the thrust of policy last spring was to get money out fast, with few strings attached, the aim now is more tailored.

In the United Kingdom, it involves swapping a blanket wage replacement program for one backing “viable” jobs – a step officials acknowledge will leave some people stranded but aid transition to a post-pandemic world.

“The sources of our economic growth and the kinds of jobs we create will adapt and evolve to the new normal. And our plan needs to adapt,” British finance minister Rishi Sunak said recently. “As the economy reopens it is fundamentally wrong to hold people in jobs that only exist” through government support.

THE NEXT SHOE?

As new COVID-19 cases hit record levels in France, the government provided extra cash only to businesses that were put under new limits, including gyms, theaters and cafes in the hardest-hit regions.

While Germany is also seeing caseloads increase, its economic response has been more forward looking, with programs already set to extend through the end of this year and in some instances through 2021.

With the economic recovery still fragile and fears of a resurgence in infections looming, Japanese officials say they are ready to deploy further fiscal stimulus to cushion the blow, though likely scaled back from earlier efforts.

In Washington, stalemated talks over more spending have resumed between Democratic leaders and the Trump administration. However Treasury Secretary Steven Mnuchin has said he wants any new spending targeted to small businesses and to programs for “kids and jobs,” rather than spread broadly and with few strings attached as it was in the $2.6 trillion CARES Act last spring.

Republicans want to limit new spending to perhaps half of the $2.2. trillion proposed by Democrats last week.

There is no guarantee of a deal of any size, though many economists feel the U.S. recovery will likely slow if one is not approved.

Moody’s (NYSE:) Analytics chief economist Mark Zandi said if no further government help is approved this year, the U.S. economy may contract in the fourth quarter and into next year, turning what began as a faster-than-expected recovery into renewed downturn and a return to double digit unemployment.

“Here is where the shoe could drop,” Zandi wrote.





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Economy

Goldman money funds’ liquidity buffer swells before U.S. election By Reuters

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© Reuters. FILE PHOTO: FILE PHOTO: The ticker symbol and logo for Goldman Sachs is displayed on a screen on the floor at the NYSE in New York

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By Tim McLaughlin

BOSTON (Reuters) – Two Goldman Sachs Group Inc (N:) money-market funds, whipsawed in March by billions of dollars of investor withdrawals, have steadily amassed a liquidity cushion much larger than rivals, as the $4.35 trillion industry braces for the outcome of the U.S. presidential election and another global surge in coronavirus cases.

The funds’ weekly liquidity – a barometer of how quickly investments can convert to cash in a week – rose to 85% of total assets this week, according to disclosures https://www.gsam.com/content/gsam/us/en/advisors/fund-center/fund-finder/gs-financial-square-prime-obligations-fund.html#activeTab=holdings by the bank. That is about double the level when Goldman Sachs in March injected nearly $2 billion of the bank’s own capital into the funds to prevent them from falling below the regulatory weekly liquidity threshold of 30%.

“We actively manage liquidity in our funds as dictated by the market environment,” Goldman said in an email statement.

Average weekly liquidity at about 111 U.S. prime institutional money-market funds, like the Goldman funds, was 66% at the end of September, up from 54% in the year-ago period, a Reuters analysis of U.S. regulatory filings show. Those 111 funds hold about $300 billion in assets, or 9% of the $4.35 trillion in money funds.

Although they are among the tamest investment vehicles, prime funds can be riskier than money-market portfolios that primarily hold U.S. government bonds. The upside is they may offer more yield from holding short-term debt issued by an array of top-rated global banks, for example.

Despite regulatory efforts to make institutional prime money-market funds more resilient in times of stress, they remain vulnerable to massive withdrawals, especially by clients who need cash immediately to meet their own obligations. A U.S. official recently warned that decade-old reforms to the industry may not be enough to avert major outflows during a future crisis.

Stocks have swung significantly in recent days and more volatility is expected in the wake of the U.S. election.

Under new rules put in place after the 2008-2009 financial crisis, prime institutional money-market funds have discretion to block redemptions or to impose fees when weekly liquidity falls below 30%. These funds are susceptible to big, rapid-fire withdrawals by corporations, pensions, sovereign wealth funds and hedge funds, said money fund expert Pete Crane, president of research firm Crane Data.

“These types of investors move quickly,” Crane said.

Meanwhile, the 30% liquidity threshold’s link to redemption gates has become an area of concern in the money fund industry. Investors see it as a bright line for slowing or blocking withdrawals, even though no fund boards used redemption gates or fees during the height of the March crisis.

A Northern Trust Corp (O:) prime fund twice fell below the 30% threshold, but redemptions were not blocked. The bank, however, liquidated the fund in May.

“The standard of 30 percent weekly liquidity became a new hair trigger,” Investment Company Institute President Paul Stevens said this week at a money-market symposium.

And that is what happened during the early days of the coronavirus pandemic. Investors pulled a net $8.1 billion from the GS Financial Square Prime Obligations Fund and the GS Financial Square Money Market Fund , according to Goldman fund disclosures. Weekly liquidity at the GS Financial Square Fund, for example, dropped to 34%, and was poised to fall more, before Goldman stepped in with capital support.

Over the two-week period from March 11 to March 24, net redemptions from publicly-offered prime institutional funds totaled 30 percent of the funds’ assets, or about $100 billion, according to an October report released by the Securities and Exchange Commission.

American households who parked their cash in retail prime funds were less twitchy, the SEC says. Withdrawals totaled $33 billion in March, or 7% of assets.

In the months after the first wave of coronavirus cases, some of the biggest players in the U.S. money market industry pulled the plug on prime institutional funds. The preference for funds primarily holding government debt, by institutions and households, has become clear, as assets in these portfolios topped $4 trillion this year.

Boston-based Fidelity Investments, for example, shut down two prime funds in August, even though their liquidity cushion was never threatened, citing the risk of large and frequent redemptions in times of market stress.





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Labor Department finalizes U.S. rule curbing sustainable investing by pension funds By Reuters

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© Reuters. The United States Department of Labor is seen in Washington, D.C., U.S.

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By Jessica DiNapoli and Ross Kerber

NEW YORK/BOSTON (Reuters) – The U.S. Department of Labor on Friday finalized a rule clarifying that pension fund managers must put retirees’ financial interests first when allocating investments, rather than other concerns such as climate change or racial justice.

The move by the department under the administration of U.S. President Donald Trump came ahead of Tuesday’s election and represents the latest in a series of efforts to make it harder to use investment assets to address social issues.

Labor officials said that they made “significant changes” to the rule governing roughly $10 trillion in pension plan assets in response to over 1,000 comments they received, many critical.

The main change is that the final rule does not include references to so-called “ESG investing” or picking stocks for environmental, social or governance reasons, officials said. The rule focuses on pecuniary factors, which the department says have a “material” effect on the risk and return of an investment.

Net deposits into ESG funds have soared on growing interest from clients and strong performance, trends cited by critics of the new rule including large asset managers.

In its rulemaking, the Labor Department noted many ESG-themed funds have over-weighted technology and under-weighted energy stocks, suggesting their outperformance could be “merely correlated with broader economic trends unrelated to a specific ESG factor.”

Sanford Lewis, director of the Shareholder Rights Group, representing progressive investors who opposed the rule changes, said via e-mail that even as adjusted, the department is still “interfering with ERISA funds from integrating investment strategies consistent with beneficiaries’ values.”

Marg Franklin, CEO of the CFA Institute, a standard-setting group for investors, said the new rules ran counter to the growing use of ESG factors to judge investment returns and risks.

“The department’s agenda to block consideration of anything ESG-related in the investment management process is a political gag order,” she said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Wall Street ‘fear gauge’ logs largest weekly gain in about 4 months By Reuters

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© Reuters. FILE PHOTO: Statue of George Washington at Federal Hall across Wall Street from New York Stock Exchange in New York

NEW YORK (Reuters) – The Cboe Volatility Index (), Wall Street’s “fear gauge,” rose 0.4 points on Friday to finish the week near a more than 4-month closing high logged earlier this week, as U.S. stock indexes wrapped up their worst week since the March sell-off, amid jitters over next week’s U.S. presidential election.

For the week, the options-based volatility index gained 10.5 points to close at 38.02, it’s largest weekly gain since mid June, as investors rushed to load up on defensive options contracts against further stock market losses.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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