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Coronavirus Business Update: Fears of ‘debt tsunami’ as governments ramp up borrowing



Your level-headed briefing on how the coronavirus pandemic is affecting the markets, global business, our workplaces and daily lives, with expert input from our reporters and specialists across the globe.

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Latest news

  • The global oil market will remain oversupplied until early 2022, according to the president of the Dallas Federal Reserve

  • UK regulator Ofgem is proposing a rise in energy bills to offset suppliers’ pandemic debts

  • Scotland plans to vaccinate up to 1m people before the end of January as the most populated parts of the country prepare to go into a stricter lockdown

UK government deficit at peacetime high

Data this morning showing the UK hitting a record peacetime deficit throws the spotlight once again on the rapid increase in debt for governments and companies across the world as they struggle to cope with the fallout from the pandemic. 

The Institute of International Finance, which represents financial institutions, on Wednesday warned of a “debt tsunami” as global borrowing accelerated at a pace that could bring “significant adverse implications for economic activity”. 

Line chart of total debt as a share of GDP (%) showing that global debts have soared during the pandemic

Debt burdens on developing economies, as emerging markets correspondent Jonathan Wheatley explains in our Big Read, are becoming especially acute — Zambia this week became the sixth such country to default or restructure debt so far this year. G20 leaders meeting this weekend are expected to agree a “common framework” to help poor countries get beyond their imminent cash flow problems and tackle the longer-term problem of debt sustainability.

Tensions are simmering in richer regions too. European Central Bank president Christine Lagarde this week refused to countenance any help for over-indebted eurozone governments while the European Commission urged EU member states not to build up unsustainable debt positions as it signed off 2021 budget plans.

Back in the UK, there were more signs that households too were feeling the strain. Nationwide, the country’s largest building society, said it was doubling the amount set aside for bad loans.

The FT’s new financial literacy foundation aims to bring personal finance skills to the most vulnerable. Read deputy editor Patrick Jenkins on why these skills matter more than ever.


A vaccine-led economic rebound could cause the US dollar to fall as much as 20 per cent next year, some analysts say. The greenback is typically in demand in times of stress, reflecting its safe haven status. “Even if the US economy performs quite well, we think the dollar can weaken substantially as investors look for higher returns outside of the US and exit the safe havens that they have been in throughout the Covid period,” said a Goldman Sachs executive.

Another safe haven asset — gold — may also be a victim of the potential recovery. There are signs that the precious metal’s two-year rally is coming to an end as investors move into commodities more connected to industrial demand such as silver, used in solar panels, and platinum, a component of catalytic converters.

Line chart of gold price ($ per troy ounce) showing that the yellow meatal has eclipsed its 2011 peak this year

An emergency pandemic rule that allowed UK companies to fast-track share issues has been scrapped. The provision had allowed for the exclusion of ordinary shareholders from large fundraisings.


Retailers across Europe are lobbying governments to lift restrictions to save the crucial Christmas shopping period beginning with Black Friday promotions next week — a month-long spell normally responsible for up to half of annual sales for many non-food companies. UK retail sales jumped in October as shoppers flocked to stores ahead of the forced closure of non-essential stores in England earlier this month.

Chart showing volume of retail trade (rebased, 2015 = 100)

BuzzFeed’s acquisition of HuffPost highlighted the effect of the pandemic on digital media titles and their reliance on advertising. Traditional publishers such as the Financial Times and New York Times by contrast are now supported mainly by subscription revenues. Condé Nast, owner of Vogue, is accelerating its shift to digital after print advertising fell off a cliff during the crisis.

The pandemic-fuelled online shopping boom means turnover for parcels for the UK’s Royal Mail has surpassed that of letters for the first time. The company last month began collecting parcels from doorsteps across the UK, with customers able to hand over items to postmen and women or leave their packages in a “safe place” for a small fee.

Global economy

The US Treasury declined to extend some of the Federal Reserve’s emergency lending measures, prompting the Fed to warn that the US economy remained “strained and vulnerable” in the face of an uncertain outlook and rising coronavirus cases. Markets were unsettled, while the US Chamber of Commerce said the decision “ties the hands of the incoming administration, and closes the door on important liquidity options for businesses at a time when they need them most”.

Column chart showing assets ($bn) of emergency Fed facilities

The pandemic has shown the need for a remodelling of food supply chains, with more investment in local suppliers and distributors, improvements in tackling waste and a greater emphasis on food security. Read our special report: Sustainable Food and Agriculture

UK consumer confidence has fallen to its lowest level in six months while the closure of bars and restaurants has had a serious effect on spending, according to two surveys. Watch our video on how the pandemic has hit the UK hospitality sector.

Get in touch

How is your workplace dealing with the pandemic? How are you dealing with it as a professional or a manager? And what do you think business and markets — and our daily lives — will look like after we eventually emerge? Also — tell us what you think about this newsletter and how we can make it more useful to you. Email us at We may publish your contribution in an upcoming newsletter. Thanks.

Adrian_Nantwich comments on Gita Gopinath: ‘Fiscal policy plays an essential role in recovery’.

Investment in ‘health’ and expenditure on ‘healthcare’ requires a careful distinction. Inputs into our health status include other policies and investments (housing, child development) as well as those we would typically recognise as healthcare expenditure (beds, number of doctors). Indeed, income inequality is related to aggregate and individual measures of health status so health policy encompasses education. There is an ongoing discussion about the income elasticity of healthcare expenditure, so it would be interesting to know if the public sector expenditure is replicating market spending in countries with Beveridge and Bismarck type models.

The essentials

Coronavirus cases in the US jumped by a record number on Thursday, while hospitalisations topped 80,000 for the first time and deaths rose by the most in more than six months. States reported 182,832 infections, topping the previous record on November 13 by more than 10,000. Compare the country’s performance with its peers using our interactive tool.

Millions of workers have seen their pension plans thrown into question by the pandemic. FT Money tackles some of the key issues facing savers.


An encouraging week for vaccine developments ended with news that Pfizer and BioNTech will be the first to submit a candidate for regulatory approval — in this case by the US Federal Drug Administration — potentially paving the way for shipping by mid-December.

It follows news that the vaccine in development by Oxford university and AstraZeneca is showing promising initial results for the elderly.

Science editor Clive Cookson looks at the mRNA technology behind the Pfizer-BioNTech and Moderna candidates while magazine columnist Tim Harford warns us not to get carried away: many obstacles still stand in the way of our dream of inoculating the world.

Infographic explaining how mRNA vaccines work

Final thought

Lockdowns may have upended the traditional Christmas shopping dash for presents but fear not: from dandyish objects of desire to foodie finds and home comforts — the How to Spend It gift guide has got you covered.

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European stocks stabilise ahead of US inflation data




European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.

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Potash/grains: prices out of sync with fundamentals




The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue




Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.

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