Connect with us

Markets

How Global Central Banks are Responding to COVID-19, in One Chart

Published

on

| 12,970 views

Central Bank Policy COVID-19

Can I share this graphic?
Yes. Visualizations are free to share and post in their original form across the web—even for publishers. Please link back to this page and attribute Visual Capitalist.
When do I need a license?
Licenses are required for some commercial uses, translations, or layout modifications. You can even whitelabel our visualizations. Explore your options.
Interested in this piece?
Click here to license this visualization.

How Global Central Banks are Responding to COVID-19

When times get tough, central banks typically act as the first line of defense.

However, modern economies are incredibly complex—and calamities like the 2008 financial crisis have already pushed traditional policy tools to their limits. In response, some central banks have turned to newer, more unconventional strategies such as quantitative easing and negative interest rates to do their work.

In response to the COVID-19 pandemic, central banks are once again taking decisive action. To help us understand what’s being done, today’s infographic uses data from the International Monetary Fund (IMF) to compare the policy responses of 29 systemically important economies.

The Central Bank Toolkit

To begin, here are brief descriptions of each policy, which the IMF sorts into four categories:

1. Monetary Policies

Policies designed to control the money supply and promote stable economic growth.

Policy NameIntended Effect
Policy rate cutsStimulates economic activity by decreasing the cost of borrowing
Central bank liquidity supportProvides distressed markets with additional liquidity, often in the form of loans
Central bank swap linesAgreements between the U.S. Fed and foreign central banks to enhance the provision of U.S. dollar liquidity
Central bank asset purchase schemesUses newly-created currency to buy large quantities of financial assets, such as government bonds. This increases the money supply and decreases longer-term rates

2. External Policies

Policies designed to mitigate the effects of external economic shocks.

Policy NameIntended Effect
Foreign currency interventionStabilizes the national currency by intervening in the foreign exchange market
Capital flow measuresRestrictions, such as tariffs and volume limits, on the flow of foreign capital in and out of a country

3. Financial Policies for Banks

Policies designed to support the banking system in times of distress.

Policy NameIntended Effect
Easing of the countercyclical capital bufferA reduction in the amount of liquid assets required to protect banks against cyclical risks
Easing of systemic risk or domestic capital bufferA reduction in the amount of liquid assets required to protect banks against unforeseen risks
Use of capital buffersAllows banks to use their capital buffers to enhance relief measures
Use of liquidity buffersAllows banks to use their liquidity buffers to meet unexpected cash flow needs
Adjustments to loan loss provision requirementsThe level of provisions required to protect banks against borrower defaults are eased

4. Financial Policies for Borrowers

Policies designed to improve access to capital as well as provide relief for borrowers.

Policy NameIntended Effect
State loans or credit guaranteesEnsures businesses of all sizes have adequate access to capital
Restructuring of loan terms or moratorium on paymentsProvides borrowers with financial assistance by altering terms or deferring payments

Putting Policies Into Practice

Let’s take a closer look at how these policy tools are being applied in the real world, particularly in the context of how central banks are battling the effects of the COVID-19 pandemic.

1. Monetary Policies

So far, many central banks have enacted expansionary monetary policies to boost slowing economies throughout the pandemic.

One widely used tool has been policy rate cuts, or cuts to interest rates. The theory behind rate cuts is relatively straightforward—a central bank places downward pressure on short-term interest rates, decreasing the overall cost of borrowing. This ideally stimulates business investment and consumer spending.

If short-term rates are already near zero, reducing them further may have little to no effect. For this reason, central banks have leaned on asset purchase schemes (quantitative easing) to place downward pressure on longer-term rates. This policy has been a cornerstone of the U.S. Federal Reserve’s (Fed) COVID-19 response, in which newly-created currency is used to buy hundreds of billions of dollars of assets such as government bonds.

When the media says the Fed is “printing money”, this is what they’re actually referring to.

2. External Policies

External policies were less relied upon by the systemically important central banks covered in today’s graphic.

That’s because foreign currency interventions, central bank operations designed to influence exchange rates, are typically used by developing economies only. This is likely due to the higher exchange rate volatility experienced by these types of economies.

For example, as investors flee emerging markets, Brazil has seen its exchange rate (BRL/USD) tumble 30% this year.

In an attempt to prevent further depreciation, the Central Bank of Brazil has used its foreign currency reserves to increase the supply of USD in the open market. These measures include purchases of $8.8B in USD-denominated Brazilian government bonds.

3. Financial Policies for Banks

Central banks are often tasked with regulating the commercial banking industry, meaning they have the authority to ease restrictions during economic crises.

One option is to ease the countercyclical capital buffer. During periods of economic growth (and increased lending), banks must accumulate reserves as a safety net for when the economy eventually contracts. Easing this restriction can allow them to increase their lending capacity.

Banks need to be in a position to continue financing households and corporates experiencing temporary difficulties.

—Andrea Enria, Chair of the ECB Supervisory Board

The European Central Bank (ECB) is a large proponent of these policies. In March, it also allowed its supervised banks to make use of their liquidity buffers—liquid assets held by a bank to protect against unexpected cash flow needs.

4. Financial Policies for Borrowers

Borrowers have also received significant support. In the U.S., government-sponsored mortgage companies Fannie Mae and Freddie Mac have announced several COVID-19 relief measures:

  • Deferred payments for 12 months
  • Late fees waived
  • Suspended foreclosures and evictions for 60 days

The U.S. Fed has also created a number of facilities to support the flow of credit, including:

  • Primary Market Corporate Credit Facility: Purchasing bonds directly from highly-rated corporations to help them sustain their operations.
  • Main Street Lending: Purchasing new or expanded loans from small and mid-sized businesses. Businesses with up to 15,000 employees or up to $5B in annual revenue are eligible.
  • Municipal Liquidity Facility: Purchasing short-term debt directly from state and municipal governments. Counties with at least 500,000 residents and cities with at least 250,000 residents are eligible.

Longer-term Implications

Central bank responses to COVID-19 have been wide-reaching, to say the least. Yet, some of these policies come at the cost of burgeoning debt-levels, and critics are alarmed.

In Europe, the ECB has come under scrutiny for its asset purchases since 2015. A ruling from Germany’s highest court labeled the program illegal, claiming it disadvantages German taxpayers (Germany makes larger contributions to the ECB than other member states). This ruling is not concerned with pandemic-related asset purchases, but it does present implications for future use.

The U.S. Fed, which runs a similar program, has seen its balance sheet swell to nearly $7 trillion since the outbreak. Implications include a growing reliance on the Fed to fund government programs, and the high difficulty associated with safely reducing these holdings.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.
Click for Comments

Markets

Mapped: The State of Small Business Recovery in America

Compared to January 2020, 34% of small businesses are currently closed. This map looks at the small business recovery rate in 50 metro areas.

Published

on

Mapped: The State of Small Business Recovery in America

In the business news cycle, headlines are often dominated by large corporations, macroeconomic news, or government action.

While mom and pop might not always be in focus, collectively small businesses are a powerful and influential piece of the economy. In fact, 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing almost half (47.3%) of the nation’s private workforce.

Unfortunately, they’ve also been one of the hardest-hit sectors of the economy amid the pandemic. From the CARES Act to the new budget proposal, billions of dollars have been allocated towards helping small businesses to get back on their feet.

Small Business Recovery in 50 Metro Areas

During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America.

So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020.

San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses. New York City has spiralled the most since the end of September 2020.

U.S. Metro Area% Change in # of
Small Businesses Open
(As of Sep 25, 2020)
% Change in # of
Small Businesses Open
(As of Apr 23, 2021)
7-month change (p.p.)
Albuquerque-23%-34%-11
Atlanta-26%-35%-9
Austin-32%-38%-6
Bakersfield-31%-35%-4
Baltimore-28%-35%-7
Boston-33%-47%-14
Charlotte-18%-28%-10
Chicago-27%-38%-11
Cleveland-26%-34%-8
Colorado Springs-23%-28%-5
Columbus-21%-28%-7
Dallas-Fort Worth-21%-28%-7
Denver-25%-29%-4
Detroit-28%-38%-10
El Paso-25%-26%-1
Fresno-26%-30%-4
Honolulu-41%-25%+16
Houston-30%-34%-4
Indianapolis-25%-34%-9
Jacksonville-18%-28%-10
Kansas City-15%-26%-11
Las Vegas-22%-30%-8
Los Angeles-27%-34%-7
Louisville-23%-35%-12
Memphis-21%-24%-3
Miami-23%-34%-11
Milwaukee-22%-27%-5
Minneapolis-21%-29%-8
Nashville-21%-26%-5
New Orleans-45%-39%+6
New York City-21%-42%-21
Oakland-32%-35%-3
Oklahoma City-26%-35%-9
Philadelphia-24%-31%-7
Phoenix-19%-31%-12
Portland-34%-36%-2
Raleigh-16%-29%-13
Sacramento-33%-34%-1
Salt Lake City-18%-23%-5
San Antonio-34%-40%-6
San Diego-28%-38%-10
San Francisco-49%-48%+2
San Jose-35%-44%-9
Seattle-28%-30%-2
Tampa-22%-40%-18
Tucson-27%-28%-1
Tulsa-23%-32%-9
Virginia Beach--36%0
Washington DC-37%-47%-10
Wichita-15%-28%-13

Data as of Apr 23, 2021 and indexed to Jan 4-31, 2020.

On the flip side, Honolulu has seen the most improvement. As travel and tourism numbers into Hawaii have steadily risen up with lifted nationwide restrictions, there has been a 16 p.p. increase in open businesses compared to September 2020.

Road to a K-Shaped Recovery

As of April 25, 2021, nearly 42% of the U.S. population has received at least one dose of a COVID-19 vaccine. However, even with this rapid vaccine rollout, various segments of the economy aren’t recovering at the same pace.

Take for instance the stark difference between professional services and the leisure and hospitality sector. Though small business revenues in both segments have yet to return to pre-pandemic levels, the latter has much more catching up to do:

Small Business Recovery Supplemental - Business Revenues

This uneven phenomena is known as a K-shaped recovery, where some industries see more improvement compared to others that stagnate in the aftermath of a recession.

The Entrepreneurial Spirit Endures

Despite these continued hardships, it appears that many Americans have not been deterred from starting their own businesses.

Many small businesses require an Employer Identification Number (EIN) which makes EIN applications a good proxy for business formation activity. Despite an initial dip in the early months of the pandemic, there has been a dramatic spike in EIN business applications.

ein business applications

Even in the face of a global pandemic, the perseverance of such metrics prove that the innovative American spirit is unwavering, and spells better days to come for small business recovery.

Continue Reading

Markets

Pandemic Recovery: Have BEACH Stocks Bounced Back?

BEACH stocks—bookings, entertainment, airlines, cruises, and hotels—were pulverized at the beginning of the pandemic. Here’s how they’ve bounced back.

Published

on

Pandemic Recovery: Have BEACH Stocks Bounced Back?

The travel and entertainment industries have had a volatile ride over the last year.

During the initial stages of the pandemic, when panic and uncertainty ran rife, BEACH stocks–booking, entertainment, airlines, cruises, and hotels—were left scrambling. Collectively, $332 billion in market cap washed away.

Now, it appears the tide might be turning for these companies, buoyed by vaccine breakthroughs and glimmers of hope for a return to normalcy.

This infographic looks at the growth in market cap value across BEACH stocks one year from when the WHO officially declared COVID-19 a pandemic.

Washing Back to Shore?

BEACH stocks have gained a collective $376 billion in market cap in the year since the pandemic was declared, with about half the companies trading at their respective all-time highs.

In fact, about 70% of BEACH stocks have actually outperformed the S&P 500, which returned 43.7% during the same period.

CompanyTickerCategoryMarket Cap: 03/11/20 ($B)Market Cap: 03/11/21 ($B)Change
American AirlinesAALAirlines7.214.296%
Southwest AirlinesLUVAirlines23.534.446%
Alaska Air GroupALKAirlines5.78.142%
United AirlinesUALAirlines13.017.233%
Air CanadaACAirlines5.97.933%
Delta Air LinesDALAirlines29.130.96%
Expedia GroupEXPEBooking12.024.6105%
Allegiant TravelALGTBooking2.04.198%
Booking HoldingsBKNGBooking64.096.051%
Caesars EntertainmentCZRCasino & Hotel2.220.8824%
Norwegian Cruise LinesNCLHCruise & Casino4.310.9151%
Royal Caribbean CruisesRCLCruise & Casino10.822.4108%
CarnivalCCLCruise & Casino16.431.893%
Penn National GamingPENNEntertainment & Live Events2.620.4661%
Six FlagsSIXEntertainment & Live Events1.74.1142%
Live NationLYVEntertainment & Live Events10.819.379%
The Walt Disney CoDISEntertainment & Live Events201.2357.177%
Cedar FairFUNEntertainment & Live Events1.82.857%
HiltonHLTHotels25.034.638%
Marriott InternationalMARHotels35.648.235%
Choice Hotels InternationalCHHHotels4.55.930%
Hyatt HotelsHHotels6.78.729%
Marriott Vacations WorldwideVACHotels & Resorts3.87.7103%
Vail ResortsMTNHotels & Resorts7.113.488%
Park Hotels & ResortsPKHotels & Resorts3.45.358%
Wyndham Hotels & ResortsWHHotels & Resorts4.26.451%
MGM Resorts InternationalMGMResorts & Casino10.219.389%
Wynn ResortsWYNNResorts & Casino9.715.964%
Las Vegas SandsLVSResorts & Casino40.748.218%

BEACH Stocks Leaders and Laggards

When dissecting this basket of stocks by industry, it’s clear that much of the recovery story is lopsided. One reason for this, despite the pandemic, is that there are more granular, idiosyncratic trends occurring within these sectors.

Let’s look at what’s propelling the leaders, and dragging down the laggards:

Leading: Online Betting

There’s reason to be bullish on gambling stocks. Since late 2018, some 20 states have legalized sports betting, with more expecting to follow. Relative to other areas, the pandemic has been kind to gambling stocks. Many of those with an online presence have witnessed a spike in traffic, as more people continue to flock towards online betting.

Within the BEACH stocks basket, Penn National Gaming and Caesars Entertainment are clear outliers, having grown an epic 661% and 823% respectively. In addition, the broader industry (measured by the BETZ ETF) has nearly doubled the performance of the S&P 500 since its inception.

Laggard: Airlines

The return to normalcy will be much more delayed for airlines. Global RPKs, an industry metric, are not expected to reach pre-pandemic levels until 2024.

Actions of insiders also seem to match this negative sentiment. Warren Buffett, once a staunch supporter of airlines, decided to call it quits during the pandemic—dumping his entire position.

Airline COVID RPKs

U.S. airline executives have collectively been selling their stakes much more aggressively than in the last few years. To add insult to injury, there’s significant shorting of airline stocks as well. At a short interest of 11.6%, American Airlines is most heavily shorted BEACH stock.

Laggard: Hotels

In a year where social interactions and gatherings have largely disappeared, so too has much of the business activity for hotels. For instance, Hilton sales suffered a 58% decline year-over-year.

But even without the pandemic, the hotel industry had their work cut out for them, through a growing and formidable competitor in Airbnb. Airbnb can scale its network beyond what any hotel can. This is evident in its room count, which is greater than the largest hotels combined.

Airbnb room count vs hotels

More Bumps On The Road Ahead?

The investing landscape today looks to be disconnected from reality, in part because of the forward-looking nature of markets. Even though things are dire today, there’s a belief that light exists at the end of the tunnel.

But the path to recovery isn’t quite so linear. When the dust settles, it’ll become more apparent which industries will “return to normal” and which have set out permanently on a new trajectory.

Continue Reading

Subscribe

Join the 240,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular