The big question about Covid-19 is: do the authorities know something we don’t?
This was not my observation but that of a UK FTSE 100 chairman employing 130,000 staff around the world with a big presence in the US and China.
The decision of America’s central bank, the Federal Reserve, to slash its key interest rate by half a percentage point to a target range of 1 per cent to 1.5 per cent is intended to be reassuring.
As a medical event, the worst-case forecasts for Covid-19 might seem grossly overdone. But for the markets it is the real deal
It is a signal that the Fed has the back of consumers and commerce. Coming as it did after finance ministers from the G7 leading nations issued a relatively calm statement, market operators also might wonder if the Fed knows something we don’t.
One possibility is that US interest rates have been unjustifiably high, as Donald Trump often claims.
With inflation well under control the Fed acted because it has the room to do so. UK rates at 0.75 per cent are much lower, so the scope for an eye-catching reduction, before the economy comes juddering to a halt, is more finely balanced.
The goalposts have moved a long way since the broader group of G20 finance ministers met in Riyadh just a couple of weeks ago.
The International Monetary Fund claimed the dial on the prospects for global output had barely moved, and lowered its official forecast by just 0.1 per cent.
The OECD has come roaring back and warned that already feeble output of 2.9 per cent for the developed world could be halved to 1.5 per cent.
Given that much of the EU is stagnating and Britain is adjusting to Brexit and Japan is in negative territory, then, at the very least, large parts of the world could be heading into recession territory.
Central banks spend a great deal of time, post the financial crisis, gaming all kinds of scenarios, from IT meltdowns to housing market collapses.
As far as one knows, a coronavirus has not recently been on the menu. This reminds us that you never quite know where the next shock will come from.
What we do understand is that when the tide goes out it is much easier to see the detritus left behind.
One of the enduring big worries about future risk, which was cited by the IMF in its Global Financial Stability Report last autumn, is the extraordinary level of corporate debt worldwide.
The Fund estimated that the company debt-to-risk ratio (borrowings by firms unable to cover their interest rate costs with earnings) could rise to $19trillion (£14.8trillion) this year, or 40 per cent of outstanding company debt. That is higher than during the financial crisis.
So while it is possible to argue that, with interest rates already at super-low levels, a cut is not going to encourage consumers to go and buy a new house or car, it could mean the difference for companies being effectively bust or kept on life support.
Last year in the UK the risks of being over-exposed to debt were starkly demonstrated when lenders withdrew support from Thomas Cook.
The problem for publicly quoted companies, as we saw during and after the financial crisis, is that most debt is covenant-heavy. When the share price falls, the debt-to-equity ratio climbs, and banks get nervy and call in or decline to renew loans.
That can create a cascade of defaults and collapses. As a medical event, the worst-case forecasts for Covid-19 might seem grossly overdone. But for the markets it is the real deal.
Australia led the field overnight by cutting rates and the Fed has played its card. Mark Carney’s last act as Governor could well be to follow the leader.
Seasoned Wood
There is nothing very impressive, you might think, about the latest result from Go Compare, with operational profits down sharply and revenues flat at £152.4million.
Look underneath the bonnet, though, and it is possible to see that chairman Peter Wood’s internally funded drive to grab a share of a market of 13m energy consumers, who never switch suppliers, is paying off.
Using the Look After My Bills, Autosave and Weflip brands, it has grabbed 300,000 customers, 80,000 more than expected.
The big selling point is that the Go Compare site does the job automatically, switching consumers to the cheapest tariff, without the customer having to do anything other than supply a meter reading.
Way to go.
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