Sunday, February 16, 2020

Sunday Evening Links

[Reuters] Asian shares ease off three-week highs as virus fears return

[Yahoo/Bloomberg] Japan Leads Asia Stock Declines After Slide in GDP: Markets Wrap\

[Reuters] Oil prices slip ahead of data pointers on impact of coronavirus on demand

[Reuters] China central bank cuts one-year MLF rate by 10 basis points to support virus-hit economy

[Reuters] Americans disembark from virus-hit cruise; China says new cases slow

[CNBC] Coronavirus live updates: China’s Hubei province confirms another 100 deaths

[Reuters] Japan economy shrinks 6.3% annualized in fourth quarter, biggest fall since 2014

[Reuters] Singapore cuts 2020 GDP forecast due to virus, flags recession chance

[Bloomberg] China’s Fiscal Coffers Are Depleted Just as Virus Spurs Spending

[Bloomberg] Indian Banks Lured by 14-Year Low Borrowing Costs Binge on Bonds

Sunday's News Links

[Reuters] Americans to fly home from coronavirus-hit cruise; China says new cases slow

[CNBC] Coronavirus live updates: Taiwan confirms first death, US ship passenger infected with virus

[Reuters] China finance minister says expects fiscal revenues to fall, expenditure to rise

[Reuters] China's Evergrande to offer discount for all properties on sale in Feb, March

[Reuters] Iran's Rouhani says Tehran will never yield to U.S. pressure for talks

[Bloomberg] There’s a Wall of Cash Eager to Buy Treasuries on Any Price Dip

[Bloomberg] Ships Are Skipping China and It’s Causing Turmoil for Trade

[WSJ] The Bond Market Might Finally Be Nearing Its Limit

Saturday, February 15, 2020

Saturday's News Links

[Reuters] Trump administration eyes 10% middle-class tax cut proposal

[Reuters] Xi says China must keep economic, social order while battling coronavirus

[CNBC] Coronavirus live updates: State Department will evacuate Americans from cruise ship, first death confirmed in Europe

[Reuters] Wall Street Week Ahead: Investors bet emerging markets will weather coronavirus impact

[CNBC] Investors are flocking to the largest US growth stocks as concerns rise over the global economy

[Reuters] China issues measures to support manufacturers, businesses hit by coronavirus

[Bloomberg] PBOC Vows Coronavirus Won’t Cause Large Price Rises in China

[NYT] To Tame Coronavirus, Mao-Style Social Control Blankets China

[WSJ] U.S. Seeks to Rally Wary Europeans Against China

[FT] US warns Europe against embracing China’s 5G technology

Weekly Commentary: One Extraordinary Year

Confirmed coronavirus cases almost doubled over the past week to 67,000. Part of the spike was the result of including a group diagnosed through CT imaging scans rather than with typical coronavirus testing. The ballooning number of patients with viral symptoms has overwhelmed the capacity for normal testing. Troubling news came Friday of 1,700 Chinese healthcare workers having been infected (with 25,000 deployed to Hubei Province). Also, quarantines were further tightened in Wuhan and Beijing. Returning Beijing residents are to remain isolated in their homes for 14 days. As the NYT put it, “It was the latest sign that China’s leaders were still struggling to set the right balance between restarting the economy and continuing to fight the coronavirus outbreak.”

Staring at a rapidly unfolding economic and financial crisis, Beijing has made the decision to move forward with efforts to get their faltering economy up and running. This comes with significant risk. Global markets, by now fully enamored with aggressive monetary and fiscal stimulus, are predisposed to fixate on potential reward (keen to disregard risk). That future students of this era will be more than a little confounded has been a long-standing theme of my contemporaneous weekly chronicle. Booming market optimism in the face of what has been unfolding in China will ensure years and even decades of head-scratching.

China is definitely not alone in gambling with aggressive late-cycle stimulus, as it desperately tries to postpone the unavoidable dreadful downside after historic Bubble Inflations. Coming at this key juncture of end-of-cycle fragilities, it’s a challenge to envisage more delicate timing for such an outbreak – in China and globally. Clearly, when global markets hear “stimulus” they immediately salivate over the thought of bubbling liquidity and ever higher securities prices. Critical nuances of global Inflation Dynamics go unappreciated.

February 9 – Bloomberg: “China’s consumer prices rose the fastest in more than eight years last month, with the outbreak of the coronavirus and subsequent shutdowns of transport links across the country making further gains in the coming months likely. Consumer prices rose 5.4%, with food prices jumping the most since 2008 in January. Even before the coronavirus, prices were likely to have risen sharply due to the normal spike in demand around the Lunar New Year and the effects of the African Swine Fever outbreak which has killed millions of pigs and damaged pork supplies. Pork prices gained the most on record.”

China has an escalating consumer price inflation problem, one manifestation of intensifying Monetary Disorder. It’s a fundamental Credit Bubble Analytical Postulate that inflationary fuel will gravitate to areas already demonstrating the strongest inflationary biases. As we’ve been witnessing globally, dump stimulus into a backdrop of powerful securities market inflationary psychology and the upshot will be more intense speculation, acute asset price inflation and increasingly destabilizing market Bubbles. China, facing its own particular Inflationary Dynamics, has now embarked on a course that never ends well: aggressive fiscal and monetary stimulus in an environment of rising consumer inflation and general monetary and economic instability.

China’s CPI Food Index posted a 20.6% y-o-y increase in January, the highest rate since March 2008. For many of its citizens, food purchases make up a significant percentage of monthly expenditures (some estimates as high as 30%). While the doubling of pork prices is inflating price aggregates, even vegetable prices were up a notable 17% y-o-y. And this was before the escalation of the coronavirus outbreak. Beijing has acknowledged the risk to social stability from the coronavirus. Policymakers, as well, face a challenge in trying to stimulate a faltering maladjusted economy without exacerbating the hardship inflicted upon much of its population from surging consumer prices. Stimulus measures are working well for global market participants. For Chinese citizens, the jury is out.

Meanwhile, China’s Credit mechanism is in disarray. Over the past two years in particular, stimulus measures stoked China’s consumer borrowing and spending boom. This upsurge was integral in sustaining China’s Bubble economy in the face of mounting manufacturing overcapacity and associated corporate Credit issues. It comes at a steep cost. In particular, China’s apartment Bubble went to even more precarious extremes.

February 10 – Bloomberg: “Home sales in China have been dealt a huge blow by the spreading coronavirus with figures showing transactions plunged in the first week of February. New apartment sales dropped 90% from the same period of 2019, according to preliminary data on 36 cities compiled by China Merchants Securities Co. Sales of existing homes plummeted 91% in eight cities where data is available. ‘The sector is bracing for a worse impact than the 2003 SARS pandemic,’ said Bai Yanjun, an analyst at property-consulting firm China Index Holdings Ltd. ‘In 2003, the home market was on a cyclical rise. Now, it’s already reeling from an adjustment.’”

The above “apartment sales dropped 90%” Bloomberg article was confirmation of the dramatic upheaval the coronavirus is having both on China’s economy and Credit system. And while Beijing stimulus will surely have significant economic impact, it will not easily replace the flow of household mortgage finance that evolved into a powerful force for Chinese and global economies.

China’s aged apartment Bubble was increasingly vulnerable prior to the coronavirus. At this point, it would appear there is a clear catalyst for the piercing of one of history’s greatest Bubbles. I’ll assume easier lending terms and additional borrowings will bolster the gargantuan - and highly indebted - Chinese homebuilders. Yet sustaining China’s highly inflated apartment prices will prove a much greater challenge. Estimates have as many as 60 million unoccupied apartment units throughout China. Homes for “living in and not speculation”? When risk aversion begins to take hold generally in Chinese housing (a break in inflationary psychology), there is potential for far-reaching economic and financial disruption.

China will inevitably face its first housing and mortgage finance bust, a painful bursting Bubble episode made much worse by Beijing repeatedly resorting to stimulus measures. It’s difficult to overstate ramifications for China’s economy, financial system and social stability.

February 9 – Bloomberg: “Just as it looked like Beijing was starting to get a handle on its regional banking crisis, a much more severe threat is engulfing the world’s largest banking system as a deadly new virus hits the country’s economy. The impact of the spreading coronavirus risks bringing to life the worst-case economic scenarios contained in China’s annual banking stress tests. Last year’s exercise envisaged annual economic growth slowing to as low as 4.15% -- a scenario which showed that the bad loan ratio at the nation’s 30 biggest banks would rise five-fold. Analysts now say that the outbreak could send first-quarter growth to as little as 3.8%. Banks are already suffering record loan defaults as the economy last year expanded at the slowest pace in three decades. The slump tore through the nation’s $41 trillion banking system, forcing the first bank seizure in two decades and bailouts of two other key lenders.”

China’s protracted Bubble aroused delusions of grandeur - within the communist party as well as throughout its population. It’s incredible to ponder what’s at stake. Beijing is in no way willing to cede its global ambitions. An assertive American administration only strengthens their resolve. Communist leadership will reject any challenge to its control and dominance. Meanwhile, a bursting Bubble throws everything into disarray.

Beijing has declared a “people’s war” against the forces of Bubble deflation. And this explains why markets so confidently operate under the assumption a bust won’t be tolerated. Extraordinary fragilities only ensure epic stimulus; Chinese and global Punchbowls Runneth Over. “Washington will never allow a U.S. housing bust.” “The West will never allow Russia to collapse.” There are monumental presumptions that underpin historic boom and bust cycles. “The Beijing meritocracy has everything under control.”

February 12 – Associated Press (Joe McDonald): “China’s auto sales plunged in January, deepening a painful downturn in the industry’s biggest global market and adding to economic pressures as the country fights a virus outbreak. Sales of SUVs, sedans and minivans fell 20.2% from a year earlier to 1.6 million, an industry group, the China Association of Automobile Manufacturers, reported… ‘Enterprises are under huge pressure,’ it said…”

Over the past decade, China’s domestic auto industry grew into a behemoth. It is another critical sector both from economic and financial standpoints. And while I don’t view it in the same context as the vulnerable apartment Bubble, it is another market that could suffer lingering effects.

I am well aware of the market's view that the coronavirus crisis will soon pass. We can expect Beijing stimulus measures to help shore up GDP figures and stock prices. At least in the near-term, it will support confidence. Hopefully the outbreak has peaked, with stimulus measures and an accommodative banking system helping China’s economy to muddle through. Global equities markets have been content to “look across the valley.” Disregarded are China’s acute financial and economic fragilities, the of risk stimulus measures exacerbating Monetary Disorder and mounting risks to social stability. How quickly does the Chinese population bounce back – again eagerly taking on debt, buying apartments and autos and dreaming of a bright and prosperous future?

That equities can run higher in the face of mounting risks is not as confounding as it might first appear. Credit drives the global Bubble – and Credit in the near-term is further benefiting from the outbreak. Overheated securities (speculative) Credit is really benefited. Global monetary stimulus is further assured - rate cuts and more QE. One can now add aggressive PBOC liquidity injections to the Fed and global central bank QE throwing gas on a speculative fire raging throughout global fixed-income markets.

February 13 – Bloomberg (Gregor Stuart Hunter): “Investors who poured money into bond funds last year are showing little sign of stopping in 2020… Inflow to fixed-income assets nearly doubled last year to $1 trillion, according to… Morningstar Inc. With fears about the coronavirus outbreak dimming growth prospects for the global economy and prompting a search for haven assets, bond funds are on track to exceed this haul in 2020. ‘We’re in uncharted territory,’ Nikolaos Panigirtzoglou, a JPMorgan... strategist, said… ‘Based on January flows, it’s going to be another very strong year for bond fund flows.’”

Equities at record prices garner all the attention. Yet the manic behavior in global bond markets is more extraordinary and consequential. U.S. fixed income ETFs attracted another $7.3bn this week (ETF.com), as “money” keeps rolling in. The $64 TN question is how much speculative leverage continues to accumulate throughout global bond and derivatives markets. Here again, the timing of the coronavirus outbreak is of great consequence – inciting speculative excess and attendant leverage when global fixed-income was already engulfed by powerful Inflationary Biases. Added leveraging works to inject additional liquidity into already over-liquefied global markets. And the last thing overheated global risk markets – with such powerful Inflationary Biases - needed at this point was additional liquidity.

I view the equities Bubble as an offshoot of the greater Bubble that continues to inflate in global debt, securities Credit and derivatives markets. On the one hand, it is extraordinary to see equities markets essentially dismiss such consequential developments in China. It does, however, present important support for the Bubble Thesis. Equities rallied to record highs just months before the LTCM/Russia collapse in 1998. Stocks rallied to record highs in 2007 even as the mortgage finance Bubble faltered.

It’s only fitting that global stocks rally to record highs as the faltering China Bubble places the global Bubble in serious jeopardy. If the coronavirus stabilizes over the coming weeks and months, attention can then shift to November U.S. elections. It’s poised to be One Extraordinary Year. A Friday CNBC headline: “White House Considering Tax Incentive for More Americans to Buy Stocks, Sources Say.” A strong equities market boosts optimism for a Trump reelection - bullishness that spurs further stock gains. Yet there is potential for self-reinforcing dynamics to the downside. A break in stock prices would incite election nervousness and heightened market risk aversion. Can this game sustain for another nine months?


For the Week:

The S&P500 rose 1.6% (up 4.6% y-t-d), and the Dow gained 1.0% (up 3.0%). The Utilities rallied 2.6% (up 9.0%). The Banks increased 0.5% (down 3.6%), and the Broker/Dealers jumped 1.9% (up 4.2%). The Transports were little changed (down 0.4%). The S&P 400 Midcaps gained 2.4% (up 1.6%), and the small cap Russell 2000 rose 1.9% (up 1.1%). The Nasdaq100 advanced 2.4% (up 10.2%). The Semiconductors surged 4.9% (up 5.8%). The Biotechs rose 2.9% (up 3.7%). Though bullion rallied $14, the HUI gold index slipped 0.5% (down 6.9%).

Three-month Treasury bill rates ended the week at 1.54%. Two-year government yields rose three bps to 1.43% (down 14bps y-t-d). Five-year T-note yields added a basis point to 1.42% (down 27bps). Ten-year Treasury yields were little changed at 1.59% (down 33bps). Long bond yields slipped one basis point to 2.04% (down 35bps). Benchmark Fannie Mae MBS yields rose four bps to 2.45% (down 26bps).

Greek 10-year yields dropped 11 bps to 0.93% (down 50bps y-t-d). Ten-year Portuguese yields fell three bps to 0.29% (down 15bps). Italian 10-year yields dipped two bps to 0.92% (down 49bps). Spain's 10-year yields added a basis point to 0.29% (down 17bps). German bund yields declined two bps to negative 0.40% (down 22bps). French yields fell two bps to negative 0.16% (down 27bps). The French to German 10-year bond spread was little changed at 26 bps. U.K. 10-year gilt yields jumped six bps to 0.63% (down 19bps). U.K.'s FTSE equities index declined 0.8% (down 0.8%).

Japan's Nikkei Equities Index slipped 0.6% (unchanged y-t-d). Japanese 10-year "JGB" yields added one basis point to negative 0.03% (down 2bps y-t-d). France's CAC40 increased 0.7% (up 1.5%). The German DAX equities index jumped 1.7% (up 3.7%). Spain's IBEX 35 equities index rose 1.5% (up 4.3%). Italy's FTSE MIB index advanced 1.6% (up 5.8%). EM equities were mostly higher. Brazil's Bovespa index gained 0.5% (down 1.1%), and Mexico's Bolsa rose 1.4% (up 3.3%). South Korea's Kospi index jumped 1.4% (up 2.1%). India's Sensex equities index increased 0.3% (unchanged). China's Shanghai Exchange rallied 1.4% (down 4.4%). Turkey's Borsa Istanbul National 100 index declined 0.7% (up 5.0%). Russia's MICEX equities index added 0.3% (up 1.7%).

Investment-grade bond funds saw inflows of $6.232 billion, and junk bond funds posted inflows of $2.827 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates increased two bps to 3.47% (down 90bps y-o-y). Fifteen-year rates were unchanged at 2.97% (down 84bps). Five-year hybrid ARM rates fell four bps to 3.28% (down 60bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down eight bps to 3.61% (down 78bps).

Federal Reserve Credit last week rose $17.1bn to $4.135 TN, with a 22-week gain of $408 billion. Over the past year, Fed Credit expanded $146bn, or 3.7%. Fed Credit inflated $1.324 Trillion, or 47%, over the past 379 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt surged $32.1 billion last week to $3.458 TN. "Custody holdings" were up 0.9% y-o-y.

M2 (narrow) "money" supply slipped $4.9bn last week to $15.490 TN. "Narrow money" surged $1.028 TN, or 7.1%, over the past year. For the week, Currency increased $0.4bn. Total Checkable Deposits surged $120.8bn, while Savings Deposits sank $128.1bn. Small Time Deposits dipped $2.4bn. Retail Money Funds rose $4.5bn.

Total money market fund assets added $7.9bn to $3.625 TN, with institutional money fund assets down $8.4bn to $2.268 TN. Total money funds jumped $545bn y-o-y, or 17.8%.

Total Commercial Paper declined $6.0bn to $1.113 TN. CP was up $52.3bn, or 4.9% year-over-year.

Currency Watch:

February 10 – Bloomberg (Satyajit Das): “Asia’s emerging-market currencies are sliding as the coronavirus outbreak threatens to slow the region’s economy and drives outflows into the dollar. Investors may consider the region’s copious foreign-exchange reserves to be a buffer against severe economic dislocation, capital flight and currency fluctuations. That would be a mistake. Asia’s reserves have expanded vastly since the 1997-98 financial crisis to reach more than $5 trillion, 40% of the global total. Often cited as a strength, they may prove of limited value in any future crisis. First, reserves aren’t profits. In addition to net export payments, they include foreign investment. The asset (reserve investments) is offset by a liability (the amount owed to foreign investors). China is the world’s biggest holder of reserves, with $3.1 trillion as of the end of January. While that looks substantial in dollar terms, it considers only one side of the coin. Since 2009, growth in China’s foreign-exchange assets has tracked accumulated investment liabilities.”

For the week, the U.S. dollar index added 0.4% to 99.124 (up 2.7% y-t-d). For the week on the upside, the the Mexican peso declined 1.2%, the British pound 1.2%, the South African rand 1.0%, the Australian dollar 0.6%, the Norwegian krone 0.6%, the Brazilian real 0.6%, the New Zealand dollar 0.6%, the Canadian dollar 0.4% and the South Korean won 0.3%. For the week on the downside, the euro declined 1.1%, the Swedish krona 0.7%, the Swiss franc 0.5%, and the Singapore dollar 0.2%. The Chinese renminbi increased 0.22% versus the dollar this week (down 0.34% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index recovered 0.8% (down 6.8% y-t-d). Spot Gold rallied 0.9% to $1,584 (up 4.3%). Silver increased 0.2% to $17.734 (down 1.0%). WTI crude recovered $1.73 to $52.05 (down 15%). Gasoline rallied 3.9% (down 6%), while Natural Gas fell 1.1% (down 16%). Copper rose 2.1% (down 7%). Wheat sank 2.7% (down 3%). Corn slipped 0.4% (down 1.5%).

Market Instability Watch:

February 14 – Bloomberg: “China’s currency and bond markets have been devoid of traders as coronavirus cases continue to climb. That has made it tougher to gauge the outbreak’s market impact. Daily transactions involving the yuan have on average halved since the market reopened on Feb. 3 after a week-plus holiday, compared to levels over the past year…”

China Watch:

February 10 – Reuters (Kevin Yao): “China’s fiscal spending climbed 8.1% in 2019 from the previous year, the finance ministry said…, outpacing economic growth as policymakers sought to ward off a sharper slowdown. Fiscal revenues increased an annual 3.8% last year, dragged by a 1.0% rise in tax receipts due to huge tax cuts…”

February 14 – Bloomberg: “A top Chinese technology company that’s struggled for months to assure creditors of its financial stability has seen its efforts to secure a fresh loan disrupted by the coronavirus crisis. With payments on a dollar loan coming due next month, Tsinghua Unigroup Co. has been engaged with lenders on a $900 million financing deal. That loan has been delayed partly due to the coronavirus outbreak and the Lunar New Year holiday…”

February 9 – Bloomberg (Sheenu Gupta and Wendy Tan): “More Chinese foreign-currency bonds have slumped toward distress in 2020, as a coronavirus slowed the economy and made it harder to refinance. Riskier bonds slid this year after creditors of… Tewoo Group Co. and Qinghai Provincial Investment Group Co. were offered haircuts of as much as 63% in dollar debt restructurings. Chinese issuers have about $100 billion of principle on foreign-currency bonds due this year, with March among the busiest months for repayments at more than $12 billion.”

February 9 – Bloomberg (Rebecca Choong Wilkins and Molly Dai): “China’s most stressed dollar debtors face a major test of their financing capacity next month, with over a tenth of all bonds coming due just as the nation grapples with the economic impact of a virus that continues to spread. About $2.1 billion of offshore notes with yields of at least 15% -- characterizing them as stressed -- are due in March, the biggest monthly maturity wall this year…”

February 11 – Wall Street Journal (Xie Yu): “China’s crushing debt burden is weighing on an unlikely place: one of its top universities. Peking University Founder Group, a conglomerate majority-owned by the school, for years used its research prowess, elite connections and implicit state backing to expand in industries from electronics to commodities trading and health-care services. International investors helped fund the rapid growth by buying up the group’s debt… But problems were bubbling up, and the bond prices began sliding. By December, after missing interest and principal payments on some short-term notes, Founder Group had to strike a deal with creditors to help avoid a default on $3 billion of U.S. dollar bonds.”

February 12 – Bloomberg (Jinshan Hong and Daniela Wei): “Neither the glitzy jewelry stores in China’s upscale shopping malls nor its spicy hotpot restaurants that once saw long waiting lines are likely to come back to life anytime soon as their owners plan to wait out the deadly coronavirus outbreak. Big consumer firms from Chow Tai Fook Jewellery Group Ltd. to Yum China Holdings Inc. have closed as many as 80% of total stores as China races to curb the contagion which has already killed over 1,100 people and infected more than 44,000 in China.”

February 8 – Bloomberg (Jason Gale): “The new coronavirus might have infected at least 500,000 people in Wuhan, the Chinese city at the epicenter of the global outbreak, by the time it peaks in coming weeks. But most of those people won’t know it. The typically bustling megacity, where the so-called 2019-nCoV virus emerged late last year, has been in effective lockdown since Jan. 23, restricting the movement of 11 million people. Recent trends in reported cases in Wuhan broadly support the preliminary mathematical modeling the London School of Hygiene & Tropical Medicine is using to predict the epidemic’s transmission dynamics.”

February 8 – Bloomberg (Clara Ferreira Marques): “Grocery runs in Asia’s financial powerhouse have begun to remind me of shopping in Russia in the chaotic summer of 1998. You grab what you can find, and if there is a queue, you consider joining it. Surgical masks and sanitizer gel are bartered for; detergent shelves are bare. A run on toilet paper last week, after an online rumor, was reminiscent of Venezuela. Crowds are irrational everywhere, and social media hardly helps. Yet the palpable anxiety in coronavirus-hit Hong Kong these days suggests worrying levels of distrust in a city where citizens have always expected private enterprise at least, if not the state, to keep things ticking over. Both have failed miserably, preparing inadequately even after the SARS outbreak that killed almost 300 people in the city in 2003.”

Global Bubble Watch:

February 9 – Bloomberg (Debby Wu and Yuan Gao): “Chinese-based manufacturers began to restart factories Monday, but no one knows for sure when they’ll be back at full-speed -- or what sort of chaos may ensue. Foxconn, which makes the majority of the world’s iPhones in Zhengzhou, a few hundred miles from the epicenter of the coronavirus outbreak, resumed some production on Monday but it wasn’t clear how many workers returned to the factory… ‘How we can make sure there will be no infection within our campuses will be the first priority, because if you put a lot of people together and one of them gets infected, that will be a nightmare,’ Foxconn investor relations chief Alex Yang told… ‘We try very hard to make sure the possibility of any on-site infection will be as low as zero, although it will be challenging.’”

February 11 – Bloomberg (Brendan Murray): “Global supply chains look to be suffering longer-than-expected disruptions tied to coronavirus as China’s government tries to nudge idled factories back to work to limit the damage to the world’s second-largest economy. To contain the crisis, Chinese authorities have ordered city lockdowns and extended holidays but the human impact is unrelenting, with deaths topping 1,000. The economic fallout could extend well into March with rising numbers of bankruptcies, increasing layoffs and worsening demand, according to economists at Nomura… Bloomberg is reporting that thousands of businesses are in limbo, waiting to hear from local authorities on when they can resume operations. Even when they get the all-clear, it might take days to get back to full staff…”

February 11 – Wall Street Journal (Benoit Faucon and Costas Paris): “China’s coronavirus outbreak has scrambled the global trade in commodities, hitting the country’s massive appetite and challenging global supply lines set up to feed it. Markets for essentials like natural gas, copper and pork have all swooned amid worry over a broad weakening of demand. Prices for some natural resources are plumbing multiyear lows. Chinese companies are canceling orders for crude oil and other commodities, and the country’s once-heaving ports are quieter. Analysts say the disruption could be long lasting, as stockpiles of commodities grow and ships lay idle.”

February 13 – Financial Times (Harry Dempsey and Sun Yu): “China’s slowdown in response to the deadly coronavirus has sent the global shipping industry veering off course, with transit rates falling to record lows as ships are turned away from ports. All shipping segments from oil tankers to container lines have been hit by the economic impact from factory shutdowns and travel restrictions… The Capesize Index, which tracks freight costs for the largest carriers of dry bulk commodities such as iron ore, coal and grain, fell into negative territory last week for the first time since its creation in 1999, indicating that shipping companies are running at a loss on certain routes. Brokers and analysts say the slump in demand for the transportation of goods in and out China… will leave its mark on the shipping industry and commodity trading for months to come.”

February 11 – New York Times (Matt Phillips): “In Australia, after hauling hundreds of thousands of tons of iron ore to China, returning freighters can face a 14-day quarantine before being able to reload. BHP, …one of the world’s largest copper mining companies, has been in talks to possibly delay shipments to Chinese ports. And from Qatar to Indonesia, exporters of liquefied natural gas face the prospect of disrupted shipments after a crucial importer in China is reportedly turning back deliveries after invoking clauses in long-term contracts that blame a ‘greater force.’ The coronavirus outbreak in China has generated economic waves that are rocking global commodities markets and disrupting the supply networks that act as the backbone of the global economy.”

February 10 – Reuters (Jan Wolfe): “As the coronavirus outbreak in China shows no signs of abating any time soon, some companies that buy and sell goods in the Chinese market are considering the legal defense of force majeure. Force majeure refers to unexpected external circumstances that prevent a party to a contract from meeting their obligations. The underlying event must be unforeseeable and not the result of actions undertaken by the party invoking force majeure. Natural disasters, strikes, and terrorist attacks can all be force majeure events. Declaring force majeure may allow a party to a contract to avoid liability for nonperformance.”

February 7 – CNBC (Emma Newburger): “Antarctica just set its hottest temperature ever recorded at 64.9 degrees Fahrenheit as climate change continues to accelerate, according to measurements from an Argentinian research station thermometer… It beats the continent’s previous record of 63.5 degrees tallied in March 2015, and comes shortly after the Earth saw its hottest January on record and hottest decade on record in the 2010s. Scientists say that they see no end to the way climate change continues to shatter temperature records across the world…”

February 12 – CNBC (Fred Imbert): “Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, issued a dire warning about the future… ‘I think there are lots of troubles coming,’ he said… ‘There’s too much wretched excess.’ Munger… highlighted how much risk investors are taking when investing, particularly in China. ‘In China, … they love to gamble in stocks. This is really stupid,’ Munger said. ‘It’s hard to imagine anything dumber than the way the Chinese hold stocks.’”

Trump Administration Watch:

February 12 – Reuters (David Lawder): “U.S. Treasury Secretary Steven Mnuchin insisted on Wednesday that President Donald Trump’s tax cuts will still pay for themselves over 10 years, even as the administration forecasts near-term deficits close to $1 trillion… The Congressional Budget Office predicted in January that U.S. deficits would average $1.3 trillion a year over the next decade, far higher than envisioned in Trump’s budget…”

February 9 – Associated Press (Andrew Taylor): “Confronted with the threat of trillion-dollar-plus deficits for as far as the eye can see, President Donald Trump is offering a $4.8 trillion budget plan for the upcoming fiscal year that rehashes previously rejected spending cuts while leaving Social Security and Medicare benefits untouched. Trump’s fiscal 2021 budget plan… isn’t likely to generate a serious Washington dialogue about what to do, if anything this election year, about entrenched fiscal problems that have deficits surging despite a healthy economy.”

February 11 – Reuters (Andrea Shalal and David Lawder): “An emboldened President Donald Trump has set his sights on restructuring the more than $1 trillion U.S. trade relationship with the European Union, raising the specter of another major trade war as the global economy slows and he seeks re-election. Trump, who has long complained that the EU’s position on trade is ‘worse than China,’ on Monday told U.S. governors that he was training his sights on Europe after signing a Phase 1 deal… with China. ‘Europe has been treating us very badly,’ he said. ‘Over the last 10, 12 years, there’s been a tremendous deficit with Europe. They have barriers that are incredible ... So we’re going to be starting that. They know that.’”

February 10 – Associated Press (Eric Tucker and Michael Balsamo): “Four members of the Chinese military have been charged with breaking into the computer networks of the Equifax credit reporting agency and stealing the personal information of tens of millions of Americans, the Justice Department said…, blaming Beijing for one of the largest hacks in history… The hackers in the 2017 breach stole the personal information of roughly 145 million Americans, collecting names, addresses, Social Security and driver’s license numbers and other data stored in the company’s databases. The intrusion damaged the company’s reputation and underscored China’s increasingly aggressive and sophisticated intelligence-gathering methods.”

February 13 – Associated Press (Eric Tucker): “The Justice Department has added new criminal charges against Chinese tech giant Huawei and several subsidiaries, accusing the company in a brazen scheme to steal trade secrets from competitors in America, federal prosecutors announced… The company also provided surveillance equipment to Iran that enabled the monitoring of protesters during 2009 anti-government demonstrations in Tehran, according to the indictment, and also sought to conceal business that it was doing in North Korea despite economic sanctions there.”

February 12 – Wall Street Journal (Bojan Pancevski): “U.S. officials say Huawei Technologies Co. can covertly access mobile-phone networks around the world through ‘back doors’ designed for use by law enforcement, as Washington tries to persuade allies to exclude the Chinese company from their networks. Intelligence shows Huawei has had this secret capability for more than a decade, U.S. officials said. Huawei rejected the allegations. The U.S. kept the intelligence highly classified until late last year, when U.S. officials provided details to allies including the U.K. and Germany… That was a tactical turnabout by the U.S., which in the past had argued that it didn’t need to produce hard evidence of the threat it says Huawei poses to nations’ security.”

February 8 – Reuters (David Brunnstrom): “U.S. Secretary of State Mike Pompeo urged governors of U.S. states and territories on Saturday to adopt a ‘cautious mindset’ when engaging in business with China, saying Beijing was seeking to use U.S. openness to undermine the United States. In a speech to the National Governors Association… Pompeo said China was pursuing a policy of exploiting U.S. freedoms to ‘gain advantage over us at the federal level, the state level and the local level.’”

February 11 – Wall Street Journal (John D. McKinnon and Deepa Seetharaman): “Federal regulators opened a new front in their investigation of big tech companies, seeking to determine whether the industry’s giants acquired smaller rivals in ways that harmed competition, hurt consumers and evaded regulatory scrutiny. The Federal Trade Commission… ordered Amazon.com Inc., Apple Inc., Facebook Inc., Microsoft Corp. and Google owner Alphabet Inc. to provide detailed information about their acquisitions of fledgling firms over the past 10 years.”

Federal Reserve Watch:

February 11 – Reuters (Heather Timmons): “Federal Reserve Chair Jerome Powell told Congress… that the U.S. economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health. With risks like trade policy uncertainty receding and global growth stabilizing, ‘we find the U.S. economy in a very good place, performing well,’ Powell told the U.S. House of Representatives Financial Services Committee. The U.S. economic expansion, now in its 11th year, is the longest on record. ‘There is no reason why the expansion can’t continue,’ he said…”

February 9 – Reuters (Gavyn Davies): “The Federal Reserve’s framework review of its monetary strategy and tools is approaching decision time, with announcements likely before mid-year. What should investors expect? Early guidance from Fed vice-chairman Richard Clarida suggested that the review would probably result in evolutionary not revolutionary changes. More recently, however, the Federal Open Market Committee has discussed more profound innovations, notably a switch to average inflation targeting (AIT). Chairman Jay Powell said… this would represent an important regime shift for the central bank. The fundamental objectives of any change in the format of the target are clear. Almost all members of the FOMC believe that the 2% inflation target introduced in 2012 has resulted in an unintended downward bias to inflation in the long term.”

February 13 – Bloomberg (Craig Torres, Christopher Condon and Erik Wasson): “President Donald Trump’s pick for the Federal Reserve Board, Judy Shelton, came under fire from Republican lawmakers…, signaling trouble ahead for her nomination. Speaking to reporters after a Senate Banking Committee hearing on her appointment, Senators Richard Shelby from Alabama, Patrick Toomey from Pennsylvania and John Kennedy from Louisiana all said they had not decided if they would vote for her confirmation. A single Republican ‘no’ vote on the committee is enough to block the Shelton nomination, assuming Democrats -- who were pointed in their criticism of her at the hearing -- are united in opposition.”

February 10 – Reuters (Ann Saphir): “A top U.S. central banker… called for using new tools to push up stubbornly low inflation as an aging population slows economic growth worldwide and globalization and other trends keep a lid on prices. ‘We need to embrace the mindset that inflation a bit above target is far better than inflation a bit below target in today’s economic environment,’ San Francisco Federal Reserve Bank President Mary Daly said…”

U.S. Bubble Watch:

February 11 – Reuters (Jonnelle Marte): “American households added $193 billion of debt in the fourth quarter, driven by a surge in mortgage loans, and overall debt levels rose to a new record at $14.15 trillion, the Federal Reserve Bank of New York said… Mortgage balances rose by $120 billion in the fourth quarter to $9.56 trillion… Mortgage originations - pushed up by an increase in refinancing - also rose to $752 billion in the fourth quarter, reaching the highest volume since the fourth quarter of 2005…”

February 8 – Wall Street Journal (Orla McCaffrey): “Mortgage rates are at their lowest level in more than three years, potentially boosting the U.S. housing market as it enters the crucial spring selling season. The average rate on the 30-year fixed-rate mortgage… dropped to 3.45%... That is down from 3.51% a week earlier and 4.41% this time last year… ‘It’s very much a historical opportunity for folks who have an existing mortgage to refinance and for credit-qualified people to lock in a low rate,’ said Doug Duncan, chief economist at Fannie Mae.”

February 14 – Bloomberg (Max Reyes): “U.S. consumer sentiment rose to the highest level in almost two years in February on brighter views of finances and the economy, adding to signs consumption will keep fueling growth. The University of Michigan’s preliminary sentiment index rose to 100.9 from 99.8 in January…”

February 11 – Wall Street Journal (Yuka Hayashi): “Credit-card debt rose to a record in the final quarter of 2019 as Americans spent aggressively amid a strong economy and job market, and the proportion of people seriously behind on their payments increased. Total credit-card balances increased by $46 billion to $930 billion, well above the previous peak seen before the 2008 financial crisis, according to… the Federal Reserve Bank of New York…”

February 10 – Financial Times (Robin Wigglesworth): “The wealthiest US households are strengthening their grip over corporate America. The richest 1% of Americans now account for more than half the value of equities owned by US households, according to Goldman Sachs. Since 1990, the wealthiest have bought a net $1.2tn in company stakes, while the rest of the population has sold more than $1tn. Three decades ago, ownership was also lopsided, but the top percentage point of Americans by wealth only controlled 46% of all US equities held by households. By the end of September 2019, that proportion had hit a record 56%, amounting to $21.4tn…”

February 9 – Wall Street Journal (Ruth Simon): “The number of people working at small companies essentially didn’t budge last year, even as larger businesses continued to expand their payrolls for a record 10th straight year. Head count at businesses with fewer than 20 employees was essentially unchanged in 2019… Small businesses are the first to feel the pinch from a tight labor market, but the challenges they face in adding workers highlight a threat to companies of all sizes and to the broader economy.”

February 11 – Wall Street Journal (Nicole Friedman and Leslie Scism): “U.S. companies are paying more for insurance, a reversal after years of flat or declining rates for property and liability policies. Insurers have raised prices aggressively in the past year on companies of all sizes across the country. And they have warned price hikes are likely to continue. The turnabout underscores a challenging landscape for U.S. insurers following several years of large catastrophe losses and continued low interest rates…”

February 10 – CNBC (Jessica Dickler): “Despite the dangers of high-interest debt, more consumers are testing the limits of plastic. To that point, more than 1 in 3 Americans — or 91 million people— said they’re afraid they’ll max out their credit card when making a large purchase, according to a new WalletHub credit cards survey. (Most of those polled considered a large purchase as anything over $100.)”

February 13 – Wall Street Journal (Benjamin Mullin): “Indiana Pacers guard Victor Oladipo was recovering from a ruptured quad tendon last year when he met with a banker from an investment firm at a workout. Before long, Mr. Oladipo… was also part of a new team, at Patricof Co., which helps athletes find potential private-equity investments. ‘I realized that I needed to start taking the necessary steps to make sure that life after basketball is still comfortable,’ Mr. Oladipo said. Flush with cash from rising salaries and lucrative endorsement deals, athletes are looking for opportunities to invest their money. Investment firms, in turn, are working to connect them with private-equity deals they might not otherwise find or have access to, across industries as varied as organic food, tech, entertainment and real estate.”

February 9 – New York Times (Nathaniel Popper): “New Orleans’s city government crippled. A maritime cargo facility temporarily closed. Hospitals forced to turn away patients. Small businesses shuttered. The cause in each of these incidents: ransomware attacks. In recent years, hackers have taken to locking down entire computer networks and demanding payments to let users back into their systems. The frequency of ransomware attacks — among the scariest and most costly online assaults — has been hard to pinpoint because many victims quietly pay off their attackers without notifying the authorities. Now, an array of new data provides perhaps the best available picture of the problem. In 2019, 205,280 organizations submitted files that had been hacked in a ransomware attack — a 41% increase from the year before…”

February 9 – Wall Street Journal (Gunjan Banerji and Gregory Zuckerman): “Fred Lande’s heart was pounding as he watched Tesla Inc. shares charge to an all-time high of $968.99 last week. It wasn’t because he was happy. He’d bet thousands of dollars that the frantic rally that has more than tripled the price of the shares in just a few months was doomed to end, and soon. Concluding his gamble was wrong, he closed the options trade at a loss… Tesla’s rocketing stock has meant an astonishing dive for investors who have staked their money on the proposition that Tesla shares were drastically overvalued and bound to fall. Their cost: $8.4 billion since January.”

Fixed-Income Bubble Watch:

February 9 – Reuters (Karen Pierog and Luis Valentin): “Puerto Rico would shed about $24 billion of debt and move closer to exiting bankruptcy under an agreement with bondholders announced on Sunday by the U.S. commonwealth’s federally created financial oversight board. The deal would cut $35 billion of bonds and claims to about $11 billion…”

Central Bank Watch:

February 13 – Bloomberg (Eric Martin): “Mexico’s central bank cut its key interest rate for a fifth straight decision, saying that economic growth is likely to be less than it previously projected. Banco de Mexico reduced its rate to 7%...”

February 13 – Financial Times (Colby Smith): “Brazil’s central bank stepped in to shore up its flagging currency after it fell to yet another record low against the dollar and solidified its ranking as the worst-performing emerging market currency this year. The central bank sold $1bn in foreign exchange swaps on Thursday as the country sought to avoid further depreciation in the real. The intervention came in the wake of a series of record lows against the dollar for Brazil’s currency that have seen the real shed 6.9% so far this year.”

EM Bubble Watch:

February 9 – Financial Times (Laura Pitel): “Turkey has further tightened controls imposed on the lira as it pushes ahead with efforts to manage the country’s currency even as it cuts interest rates and seeks a return to fast-paced growth. The banking regulator announced curbs on Sunday night aimed at limiting currency speculation by foreign traders after the lira weakened beyond 6 to the dollar on Friday — the first time that it has crossed the symbolic threshold since May.”

India Watch:

February 14 – Bloomberg (Vrishti Beniwal): “India’s trade deficit unexpectedly widened in January, as exports contracted for a sixth straight month while the decline in imports eased. The gap between exports and imports was at $15.2 billion last month, compared with $11.25 billion in December… That’s the widest gap since June and compares with the median estimate of an $11 billion deficit in a Bloomberg survey…”

Europe Watch:

February 14 – Financial Times (Martin Arnold): “The eurozone’s economy is growing at the slowest rate since the bloc’s debt crisis seven years ago…, dealing a blow to expectations that the outlook had begun to brighten. The single currency zone grew at a quarterly rate of 0.1% in the fourth quarter, its slowest rate of expansion since early 2013… Germany flatlined in the fourth quarter, producing zero growth, a performance that was below analysts’ expectations…”

February 13 – Economist: “Foreign newsreaders might have celebrated. But otherwise there was little to cheer when Annegret Kramp-Karrenbauer… announced on February 10th that she would resign as leader of Germany’s ruling Christian Democrats (cdu) and not stand as its candidate for chancellor at the next election. By forcing her party to confront its deep divisions, Ms Kramp-Karrenbauer has thrown German politics into a new era of uncertainty. Ms Kramp-Karrenbauer was tripped up by a debacle in the east German state of Thuringia, where the cdu had voted with the far-right Alternative for Germany (afd) to install a member of a third party as state premier. This ‘dam break’, the first time afd votes had secured such an office, so horrified Germany that Ms Kramp-Karrenbauer had to try to repair the damage.”

February 10 – Reuters (Angelo Amante): “Italy’s former Prime Minister Matteo Renzi… threatened a no-confidence motion against his own justice minister, posing a fresh risk to the survival of the fractious ruling coalition. Renzi’s small centrist Italia Viva party is in the coalition with the anti-establishment 5-Star Movement and the center-left Democratic Party (PD), but he has constantly taken issue with government policies since it was formed in September last year.”

February 10 – Financial Times (Arthur Beesley): “Sinn Féin’s surge to Ireland’s biggest political force delivered a historic breakthrough for the nationalist party after decades on the fringes. Even party leader Mary Lou McDonald was caught off guard: Sinn Féin recorded the highest share of the popular vote but because it did not field enough candidates, it will not hold the biggest number of seats in parliament.”

Brexit Watch:

February 12 – Associated Press (Jill Lawless): “British Prime Minister Boris Johnson tightened his grip on the government Thursday with a Cabinet shake-up that triggered the unexpected resignation of his Treasury chief, the second-most powerful figure in the administration. Sajid Javid’s resignation was the most dramatic moment in a shuffle that saw Johnson fire a handful of Cabinet members he viewed as under-performing or untrustworthy, and promote loyal lawmakers to senior jobs.”

Global Debt Bubble Watch:

February 13 – Financial Times (Colby Smith and Richard Henderson): “Global investors poured a record amount of cash into fixed-income funds for the week ending Wednesday, as the coronavirus outbreak intensified fears of a global growth slowdown. Fixed-income mutual funds and exchange traded funds took in $23.6bn, the biggest weekly intake since 2001, according to EPFR Global. Inflows into US bond funds accounted for $15.4bn of the total. This included $10.3bn into US investment grade bonds.”

February 13 – Financial Times (George Hammond and Hudson Lockett): “Companies across Asia are raising hard-currency debt at a record rate as the deadly coronavirus outbreak pushes down bond yields in the region. Since the start of the year, businesses across Asia excluding Japan have raised $37.5bn in debt denominated in dollars, euros and yen, according to Dealogic… The previous high water mark was the $27.3bn raised during the same period in 2017.”

February 12 – Bloomberg (Netty Idayu Ismail): “Lebanon’s foreign debt sank to a record low as speculation mounted that the government may not repay a $1.2 billion Eurobond due in less than a month. Investors are pondering what shape a default might take, with the crisis-ridden nation’s government wrangling over whether to continue servicing its liabilities… The $1.2 billion of notes, due on March 9, plunged 7 cents to 74.7 cents on the dollar Wednesday. Lebanon’s $2.1 billion bond maturing in April next year fell 7 cents to 39…”

February 14 – Bloomberg (Laura Benitez and Fabian Graber): “European junk-rated auto companies were just starting to show signs of a recovery after a prolonged downturn, with improving bond prices and encouraging results. Then the coronavirus struck.”

February 10 – Reuters (Chris Fournier): “Canadian consumers filed the largest number of insolvencies in almost a decade at the end of last year, stoking concern about the impact of record indebtedness on households and the economy. Insolvencies totaled 35,155 in the final three months of 2019, the most in any one quarter since 2010…”

Leveraged Speculation Watch:

February 12 – Wall Street Journal (Paul J. Davies): “The euro is cheaper than many think it ought to be. One explanation: A surge in euro-based borrowing abroad is weighing the currency down. This could make the euro prone to wild swings in the future. A variety of actors are borrowing euros and exchanging them for other currencies, taking advantage of the region’s superlow, even negative interest rates. Some of this demand comes from hedge funds putting on what are called carry trades, in which they borrow in euros and swap them into higher-yielding currencies such as the Brazilian real or the Mexican peso. Data from the Commodities Futures and Trading Commission show leveraged funds had at the start of February… nearly the biggest volume of net shorts or bets against the euro since the end of 2016.”

February 11 – Bloomberg (Tom Maloney and Hema Parmar): “Twelve billion dollars. It’s more than JPMorgan… paid all 56,000 of its investment bank employees, and almost twice as much as gamblers lost in Las Vegas last year. It’s also what 15 hedge fund managers collectively earned in 2019. Five of them—Chris Hohn, Jim Simons, Ken Griffin, Steve Cohen and Chase Coleman—reaped more than $1 billion each…”

February 12 – New York Times (Ben Dooley): “SoftBank Group has taken another multibillion-dollar hit from its ambitious but costly bets on once high-flying companies like Uber and WeWork, putting growing pressure on the Japanese conglomerate to get its financial house in order. The company and its founder and chief, Masayoshi Son, have dominated the world of technology investment through the $100 billion Vision Fund. More recently, the company has become a target for the hedge-fund giant Elliott Management, which has been urging changes at the Japanese firm, including governance overhauls and stock buybacks.”

Geopolitical Watch:

February 10 – Reuters (Ben Blanchard and Yimou Lee): “A second day of drills by China’s military close to Taiwan were aimed at improving combat capabilities, the People’s Liberation Army said, after Taiwan’s air force scrambled to intercept Chinese jets that briefly crossed the Taiwan Strait’s mid-line. Tensions have spiked between China and the island since Sunday, when Taiwan F-16s shadowed Chinese fighters and bombers which flew around the island. Beijing claims Taiwan as its territory, to be taken by force if needed. On Monday, Taiwan’s air force scrambled after Chinese jets briefly crossed an unofficial middle line in the Taiwan Strait, which both sides’ forces generally stay on their respective sides of.”

February 11 – Wall Street Journal (David Gauthier-Villars in Istanbul and Nazih Osseiran): “Five Turkish soldiers were killed during a clash with Syrian government forces in northwestern Syria, raising the country’s troop losses to 13 over the past week and testing Turkey’s resolve to support rebels in an area that President Bashar al-Assad has vowed to reclaim… Turkish officials said the Turkish military had retaliated and sent cross-border convoys to beef up its military presence in Idlib.”

February 14 – Reuters (Paul Carrel): “Germany’s president took an indirect swipe at U.S. President Donald Trump on Friday in accusing Washington, China and Russia of stoking global mistrust and insecurity with a ‘great powers competition’ that could threaten a new nuclear arms race.”

February 8 – Reuters (Parisa Hafezi): “The sanctions imposed on Iran by the United States are a ‘criminal act’ against the country, Iranian’s Supreme Leader Ayatollah Ali Khamenei said… ‘These sanctions are criminal act ... but we can turn it to an opportunity by distancing Iran’s economy from being dependent on oil exports,’ said Khamenei.”

Thursday, February 13, 2020

Thursday Evening Links

[Reuters] Wall Street dips on coronavirus concerns, mixed earnings

[Reuters] Oil prices climb on prospects for deeper OPEC+ output cuts

[CNBC] Coronavirus live updates: US confirms 15th case, global cases soar above 60,300

[Reuters] Rents lift U.S. core inflation; weekly jobless claims rise slightly

[Reuters] Trump Fed nominee Shelton hits bipartisan skepticism in Senate hearing

[AP] US brings new charges against Chinese tech giant Huawei

[Reuters] New York Fed to further reduce repo support

Thursday's News Links

[Reuters] Jump in coronavirus cases yanks rally into reverse

[Reuters] Oil prices fall on bearish demand forecasts

[CNBC] Coronavirus live updates: China’s Hubei reports 14,840 new cases, 242 additional deaths

[Reuters] Coronavirus deaths, cases leap in China; markets shiver

[Reuters] Japan records first coronavirus death, two taxi drivers test positive

[AP] China’s auto sales plunge in January, deepening market slump

[AP] A Trump Fed choice faces Senate scrutiny over policy views

[Reuters] Despite $1 trillion deficits, Trump tax cuts will still 'pay for themselves': Mnuchin

[CNS] Federal Taxes and Spending Set Records Through January

[AP] UK Treasury chief quits as Johnson shakes up Cabinet

[CNBC] Charlie Munger warns there are ‘lots of troubles coming’ because of ‘too much wretched excess’

[CNBC] Tesla shares fall after company announces $2 billion common stock offering

[Bloomberg] Bond Market Braces for Fresh Trillion-Dollar Wave of Fund Flows

[WSJ] The Latest Member of an Athlete’s Entourage? A Private-Equity Guru.

[FT] Global shipping market reels from coronavirus

Tuesday, February 11, 2020

Tuesday Evening Links

[Reuters] S&P 500, Nasdaq notch record highs as virus fears wane

[Reuters] Oil prices rise from 13-month low as new virus cases slow

[Reuters] U.S. household debt tops $14 trillion and reaches new record

[Reuters] Fed's Powell says economy in good place, warns on coronavirus

[Reuters] China's Huanggang says virus situation in city remains severe

[Bloomberg] China Home Sales Plunged 90% in First Week of February

[WSJ] FTC Expands Antitrust Investigation Into Big Tech

Tuesday's News Links

[Reuters] Stocks reach record highs on hopes virus is peaking

[Reuters] Oil rises from 13-month low as new virus cases slow

[AP] Powell: Economy looks resilient despite risk of China virus

[Reuters] Fed Chair Powell says U.S. economy "resilient," but warns on coronavirus, productivity

[CNBCs] Powell stresses that Fed is ‘closely monitoring’ coronavirus for hit to China and the world

[Reuters] As Trump takes aim at EU trade, European officials brace for fight

[CNBC] Coronavirus live updates: Singapore predicts a 25% to 30% drop in 2020 visitor arrivals

[Reuters] Coronavirus could trim 1 percentage point from China GDP growth: government researcher

[Reuters] Explainer: Companies consider force majeure as coronavirus spreads

[Reuters] Four from Hong Kong building show virus symptoms, Lam urges people to stay home

[Reuters] China says Taiwan drills are meant to hone combat capabilities

[Bloomberg] China’s Cogs in the Global Supply Chain Are Struggling to Restart

[Bloomberg] China’s Silent Factories Fuel Workers’ Fears of Virus

[Bloomberg] How the Rise of Passive Investing May Be Creating Huge Distortions in the Market

[Bloomberg] Das: $3 Trillion Can't Buy China Out of Virus Trouble

[WSJ] Fed Chairman Heads to Capitol Hill Facing New Questions Over Growth Risks

[WSJ] Insurers Drive Up Prices for U.S. Businesses

[WSJ] A Chinese College Nurtured a Sprawling Business Empire. Then Came a Debt Crisis.

[WSJ] China Outbreak Weighs on Commodities, From Oil to Hogs

[WSJ] Turkish Troop Losses Mount After Clash With Assad Forces

[FT] How America’s 1% came to dominate equity ownership

Monday, February 10, 2020

Monday Evening Links

[Reuters] S&P 500, Nasdaq reach record closing highs; Chinese workers return

[Reuters] Safe-havens rise on coronavirus concerns, stocks rebound

[CNBC] Coronavirus live updates: Contact detection app, US GDP hit, automakers restart production

[Reuters] Fed's Daly: Inflation is 'far better' a bit above target than below

[AP] US says Chinese military stole masses of Americans’ data

[CNBC] 1 in 3 consumers fear they will max out a credit card

[Reuters] Italy's Renzi threatens government with no-confidence motion in 5-Star minister

[Bloomberg] Consumer Insolvencies Approach Record in Debt-Weary Canada

[FT] What is driving Sinn Féin’s electoral surge in Ireland?

Monday's News Links

[Reuters] Wall Street subdued as investors weigh coronavirus risks

[Reuters] Coronavirus uncertainty subdues global shares, dollar eases after rally

[Reuters] Oil slips on weaker Chinese demand, traders await OPEC+ cuts

[Reuters] Metals - Zinc sinks to multi-year low on inventory jump and China fears

[Reuters] China slowly returns to work as coronavirus toll hits daily record

[CNBC] Coronavirus live updates: China’s international profile could diminish, Fitch says as death toll tops 900

[CNBC] Inflation in China is running rampant because of the coronavirus

[Reuters] China's producer prices break deflation spell but coronavirus risks grow

[Reuters] Top Apple iPhone maker Foxconn restarts key China plant with 10% of workers: source

[AP] Trump budget to face skepticism, overwhelming politics

[Reuters] Coronavirus cases outside China may be 'tip of the iceberg': WHO

[Reuters] Sixty more people confirmed with coronavirus on cruise ship in Japan: media

[MarketWatch] Merkel’s designated successor, Kramp-Karrenbauer, to quit after vote fiasco

[Bloomberg] ‘Nightmare’ for Global Tech: Coronavirus Fallout Just Beginning

[Bloomberg] China Inflation Accelerates on Holiday Demand and Outbreak

[Reuters] China 2019 fiscal spending up 8.1%, faster than economic growth

[Reuters] Taiwan scrambles armed jets as Chinese air force flies around island

[Bloomberg] China Virus to Spur Yet Higher Prices as Farm Links Disrupted

[Bloomberg] China’s Hurting Banks Brace for Worst-Case Economic Scenario

[Bloomberg] China’s Stressed Borrowers Face Wall of Debt Coming Due in March

[Bloomberg] China’s Virus-Stricken Cities Remain World’s Biggest Ghost Towns

[Bloomberg] Coronavirus May Infect Up to 500,000 in Wuhan Before It Peaks

[Bloomberg] Hong Kong Is Showing Symptoms of a Failed State

[FT] Xi Jinping faces China’s Chernobyl moment

[FT] Turkey imposes tighter controls on lira

Sunday, February 9, 2020

Sunday Evening Links

[Reuters] Asian markets fall as coronavirus concerns weigh on sentiment

[Reuters] Wall Street futures fall as coronavirus toll rises, China plans return to work

[CNBC] Coronavirus live updates: China says death toll tops 900 as confirmed cases cross 40,000

[Reuters] China reports 97 new coronavirus deaths on mainland on Sunday, toll rises to 908

[Reuters] Trump to propose cuts in foreign aid and social safety nets in budget: officials

[Reuters] Deal reached to cut bankrupt Puerto Rico's debt by $24 billion

[NYT] Ransomware Attacks Grow, Crippling Cities and Businesses

[WSJ] Smallest U.S. Firms Struggle to Find Workers

[WSJ] The Agony of the Tesla Bears: $8.4 Billion of Losses in Five Weeks

[FT] China seeks to restart economy despite coronavirus outbreak

Sunday's News Links

[CNBC] Coronavirus live updates: China pledges $10 billion to fight outbreak, UK confirms fourth case

[Reuters] Deaths from China's coronavirus outbreak surpass deaths from SARS

[Yahoo/Bloomberg] Powell Testimony in Focus Amid Growing Virus Impact: Eco Week

[Reuters] Pompeo urges U.S. state governors to be cautious in business with China

[Bloomberg] Powell to Confront ‘New Risk’ to U.S. Economy from China Virus

[Bloomberg] Experts Are Getting Creative to Measure Coronavirus Blow to Economy

[Bloomberg] El-Erian: Don’t Expect China to Rebound Quickly From Coronavirus

[WSJ] China’s Leader Wages a War on Two Fronts—Viral and Political

[WSJ] Cryptocurrency Scams Took in More Than $4 Billion in 2019

[FT] The Federal Reserve’s new inflation regime

Saturday, February 8, 2020

Saturday's News Links

[Reuters] American dies of coronavirus in China; Britons infected at French ski resort

[CNBC] Coronavirus live updates: US citizen dies in Wuhan, Italy warns of significant economic impact

[Reuters] China blocks Foxconn plan to restart plants due to coronavirus: Nikkei

[CNBC] ‘Crisis mode’: Coronavirus disrupts the heart of electronics manufacturing in China

[AP] China scrambles to keep cities in virus lockdown fed

[Reuters] Fed says risks to economy easing, but calls out coronavirus in report to Congress

[Reuters] China to allow quality virus-hit firms to issue bonds to refinance debt

[CNBC] Antarctica registers hottest temperature ever at nearly 65 degrees Fahrenheit

[Reuters] Khamenei says U.S. sanctions against Tehran are 'criminal act'

[Bloomberg] Brutal Month Has China Analysts Rethinking Everything Yet Again

[Bloomberg] Doctors in China Say They're Not Protected From Coronavirus Infection

[WSJ] Falling Rates Could Boost Mortgages Ahead of Spring Selling Season

Weekly Commentary: Dr. Li Wenliang

The S&P500 rallied 3.2% this week (trading to all-time highs Thursday), more than reversing (by 1.5 times) the previous week’s 2.1% decline. Ten-year Treasury yields rebounded as well, yet the eight bps rise was less than half the previous week’s 18 bps drop. Commodities markets couldn’t muster any recovery this week. WTI crude fell another $1.24 (2.4%) to $50.32, a fifth straight weekly decline (“longest weekly losing streak since 2018”). The Bloomberg Commodities Index was little changed on the week. Copper did recover 1.4% - a mere fraction of the previous week’s 6.2% drubbing. Ominously, the Singapore (small country, big financial sector) dollar dropped 1.8% this week, while the Japanese yen, Chinese renminbi and Malaysian ringgit all declined about 1.0%.

Sometimes it’s difficult to gauge which has the stronger underlying momentum – the safe havens or the risk markets (i.e. equities and corporate Credit). Ten-year Treasury yields are already down a notable 33 bps early in 2020. The iShares long-term Treasury ETF (“TLT”) has a noteworthy 6.78% y-t-d return, outpacing the 3.16% return for the S&P500. It’s a remarkable dynamic that no longer rouses much interest. Both markets look at the world and really like what they see.

It’s worth noting 10-year Treasury yields began the week at 1.51%, not far from the 1.46% closing low from September 3rd. Treasury and global yields collapsed throughout the summer, with Treasury yields dropping over 100 bps in about four months. The U.S. yield curve briefly inverted in late-August, eliciting talk of U.S. recession and global downturn. January’s 225k gain in non-farm payrolls is just the latest economic indictor making those recession forecasts look goofy.

I saw summer market developments as much more about China and global monetary policy than economic prospects. I believe vulnerable Chinese financial and economic Bubbles are the predominant factor behind the irrepressible demand for global sovereign debt. China has evolved into the marginal source of global Credit along with global demand for commodities and much more.

China was in a particularly fragile state over the summer, with escalating financial stress in the face of deteriorating U.S./China trade negotiations. China’s aggressive stimulus measures along with a “phase 1” trade deal reduced near-term crisis risk. Global yields then somewhat normalized. Ten-year Treasury yields ended the year at 1.92%, up almost 50 bps from early-September lows. Bund yields ended 2019 at negative 0.19%, up from negative 0.72% on August 28th. Swiss bond yields jumped 66 bps off lows to end the year at negative 0.54%.

Then arrived the coronavirus outbreak. Suddenly, Chinese economic prospects look highly uncertain at best. Even if the outbreak somehow comes under control in the coming weeks, the economy will take a significant hit. There’s a scenario where the situation continues to deteriorate and takes on longer-term significance. Global markets rallied this week on the PBOC’s aggressive liquidity injections, along with other stimulus measures. There’s no doubting Beijing’s commitment to aggressive fiscal and monetary stimulus. I just believe almost everyone is too optimistic – drowning in central bank liquidity complacency. China is confronting an unprecedented predicament, while concurrently facing acute financial and economic fragilities associated with a faltering Bubble.

Safe haven bonds and commodities have this right. Risk markets are simply playing a different game – an especially dangerous one at that. The Fed’s dual 2019 “U-turns” have profoundly altered risk market perceptions and behavior. Rates were cut and liquidity injected despite loose financial conditions, speculative markets and record stock prices. Understandably, risk market participants have been emboldened to believe the Fed and global central bankers have minimal tolerance for market instability.

To argue that the Fed’s $400 billion balance sheet expansion is neither QE nor culpable for surging stock prices completely misses the point. The Fed’s operations solidified the view that securities prices are the priority – even more so than the real economy. This fundamentally altered perceptions of market risk and, accordingly, price dynamics throughout equities, corporate Credit and derivatives.

Goldman Sachs Credit default swap (CDS) prices (5yr) ended the week at 45.7 bps. This was down from a high of 76 bps in October and compares to the 135 bps high on January 4th, 2019 – just minutes before Chairman Powell’s dramatic “U-turn”. Over the past five years, Goldman CDS have averaged 79 bps. Indeed, Thursday’s 45.08 price was the low since September 2007. JPMorgan CDS closed the week near the low going back to 2007. Investment-grade corporate CDS prices also dropped back down to the lows since before the crisis. Friday’s closing price of 46 bps compares to the five-year average of 67 bps.

Is systemic risk really at the lowest point this week since before the crisis? Of course not. For starters, China poses a clear and present danger to both the global economy and financial system. China has added a scary amount of debt over the past decade – its “miracle” economy surely the poster child for Credit excess-induced structural maladjustment. Debt has grown tremendously across the globe. Today’s global market and financial excesses are unprecedented. Risk is extraordinarily high, certainly owing to central bank stimulus and these wacky securities and derivatives prices.

In this context, it’s not difficult to explain global safe haven yields. And it is actually not much of a challenge to define the factors behind booming risk markets. Markets have become precariously distorted and dysfunctional. Central bank monetary stimulus has succeeded in completely turning risk analysis on its head. In all the craziness, China fragilities are a positive. The coronavirus is likely constructive to the U.S. economy. Even risky political and geopolitical dynamics are seen in positive light. They all ensure monetary stimulus as far as the eye can see.

And the obvious retort would be: “Doug, what’s new here?” What’s changed is the degree to which the risk markets are conditioned to disregard risk. Even a development with the clear potential to be highly disruptive to global economies and finance can be ignored. Market commentary is the most detached from reality that I can recall. In my 30 plus years following the markets, I’ve never seen such a divergence between market risk perceptions and reality.

The 2019 policy and monetary fiasco fundamentally altered market behavior. Risk markets have become incapable of adjusting for uncertainty and elevated risks. Markets instead fixate on the certainty of ongoing monetary stimulus and liquidity abundance. This incapacity for well-founded risk assessment and healthy market corrections is today a major source of systemic risk. How can eventual market adjustments not be violent and destabilizing?

Coronavirus infections have surged to 34,500, up 190% in a week. Friday’s cases increased 10% from Thursday, a slowing in the growth rate. The number of cases outside of China have increased, but there is reason for hope the outbreak to this point is largely confined to China.

There is, as well, justification for fear. Case in point: The Diamond Cruise ship now docked off Yokohama had 61 infections of the 273 passengers tested – now the largest outbreak outside of China. There are an additional 3,400 passengers that have yet to be tested. Japan’s Ministry of Defense will be prioritizing passengers for additional testing. Passengers originally believed they were subject to a 14-day quarantine. Now everything is unclear. There are even concerns that the virus may be transmitted through ventilation systems. It's clear many have tested positive for the virus despite being asymptomatic, leaving open the possibility that tens of thousands could be unknowingly infected. In Germany, a team of researchers this week reported that the coronavirus can remain infectious on surfaces for up to nine days.

But nothing compares to the nightmare unfolding in Wuhan.

February 6 – New York Times (Amy Qin, Steven Lee Myers and Elaine Yu): “The Chinese authorities resorted to increasingly extreme measures in Wuhan on Thursday to try to halt the spread of the deadly coronavirus, ordering house-to-house searches, rounding up the sick and warehousing them in enormous quarantine centers. The urgent, seemingly improvised steps come amid a worsening humanitarian crisis in Wuhan, one exacerbated by tactics that have left this city of 11 million with a death rate from the coronavirus of 4.1% as of Thursday — staggeringly higher than the rest of the country’s rate of 0.17%. With the sick being herded into makeshift quarantine camps, with minimal medical care, a growing sense of abandonment and fear has taken hold in Wuhan, fueling the sense that the city and surrounding province of Hubei are being sacrificed for the greater good of China.”

More from the NYT: “The steps were announced by the top official leading the country’s response to the virus, Vice Premier Sun Chunlan, as she visited Wuhan on Thursday. They evoked images of the emergency measures taken to combat the 1918 Spanish Flu pandemic that killed tens of millions people worldwide. Despite the severity of the new measures, however, they offered no guarantee of success. The city and country face ‘wartime conditions,’ Ms. Sun said. ‘There must be no deserters, or they will be nailed to the pillar of historical shame forever.’”

Just imagine being in Wuhan – panicked by the catastrophe overwhelming the local healthcare system – and having a medical worker arrive at your door, demand to take your temperature, and then force you leave your home to be warehoused in a stadium converted into a containment facility. While not as Draconian as Wuhan and Hubei Province, there are various degrees of quarantine in major cities throughout China.

February 6 – New York Times: “The doctor who was among the first to warn about the coronavirus outbreak in late December — only to be silenced by the police — died Friday after becoming infected with the virus… The death of the 34-year-old doctor, Li Wenliang, set off an outpouring of grief and anger on social media, with commenters on social media demanding an apology from the authorities to Dr. Li and his family…” Question last week from a NYT reporter: “How long will it take you to recover? What do you plan to do afterward?” Li: “I started coughing on Jan. 10. It will take me another 15 days or so to recover. I will join medical workers in fighting the epidemic. That’s where my responsibilities lie.”

The coronavirus will leave deep scars on the Chinese people. Trust in the government has been shaken. The future cannot appear as bright as a month ago. How could this experience not harbor deep-seated fear and insecurity? And it all crashes headlong into inflated expectations. We cannot comprehend ramifications at this point. But it goes so far beyond when automobile and technology manufacturing can return to a semblance of normality – or when western retailers will reopen their Chinese stores.

Most of all, this crisis transcends PBOC and global central bank monetary stimulus. The apt question, once again, is whether all this “money printing” is more the solution or the problem. Both the PBOC and Fed have recently expended huge amounts of stimulus in desperate measures to sustain booms. It leaves one contemplating how much stimulus will be employed when Bubbles start bursting. At this point, such stimulus measures are a losing game. They’re feeding the mania and exacerbating fragilities.


For the Week:

The S&P500 rallied 3.2% (up 3.0% y-t-d), and the Dow rose 3.0% (up 2.0%). The Utilities slipped 0.6% (up 6.3%). The Banks surged 3.7% (down 4.1%), and the Broker/Dealers recovered 2.4% (up 2.3%). The Transports rose 2.8% (down 0.4%). The S&P 400 Midcaps rose 2.1% (down 0.7%), and the small cap Russell 2000 jumped 2.6% (down 0.7%). The Nasdaq100 surged 4.6% (up 7.6%). The Semiconductors jumped 4.2% (up 0.8%). The Biotechs advanced 5.7% (up 0.8%). With bullion down $19, the HUI gold index dropped 3.4% (down 6.4%).

Three-month Treasury bill rates ended the week at 1.51%. Two-year government yields rose nine bps to 1.40% (down 17bps y-t-d). Five-year T-note yields jumped nine bps to 1.41% (down 29bps). Ten-year Treasury yields gained eight bps to 1.58% (down 33bps). Long bond yields increased five bps to 2.05% (down 34bps). Benchmark Fannie Mae MBS yields added three bps to 2.40% (down 31bps).

Greek 10-year yields dropped 12 bps to 1.04% (down 39bps y-t-d). Ten-year Portuguese yields gained five bps to 0.32% (down 12bps). Italian 10-year yields added a basis point to 0.94% (down 47bps). Spain's 10-year yields gained five bps to 0.28% (down 19bps). German bund yields rose five bps to negative 0.39% (down 20bps). French yields gained four bps to negative 0.14% (down 25bps). The French to German 10-year bond spread narrowed one to 25 bps. U.K. 10-year gilt yields rose five bps to 0.57% (down 25bps). U.K.'s FTSE equities index rallied 2.5% (down 1.0%).

Japan's Nikkei Equities Index recovered 2.7% (up 0.7% y-t-d). Japanese 10-year "JGB" yields increased three bps to negative 0.04% (down 3bps y-t-d). France's CAC40 surged 3.8% (up 0.9%). The German DAX equities index jumped 4.1% (up 2.0%). Spain's IBEX 35 equities index surged 4.7% (up 2.7%). Italy's FTSE MIB index rallied 5.3% (up 4.1%). EM equities were mixed. Brazil's Bovespa index was little changed (down 1.6%), and Mexico's Bolsa added 0.7% (up 2.0%). South Korea's Kospi index surged 4.4% (up 0.6%). India's Sensex equities index gained 1.0% (down 0.3%). China's Shanghai Exchange dropped 3.4% (down 5.7%). Turkey's Borsa Istanbul National 100 index recovered 1.6% (up 5.8%). Russia's MICEX equities index added 0.4% (up 1.4%).

Investment-grade bond funds saw inflows of $4.904 billion, while junk bond funds posted outflows of $784 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates fell six bps to 3.45% (down 96bps y-o-y). Fifteen-year rates slipped three bps to 2.97% (down 87bps). Five-year hybrid ARM rates rose eight bps to 3.32% (down 59bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down five bps to 3.69% (down 70bps).

Federal Reserve Credit last week increased $4.7bn to $4.120 TN, with a 21-week gain of $388 billion. Over the past year, Fed Credit expanded $133.6bn, or 3.4%. Fed Credit inflated $1.309 Trillion, or 47%, over the past 378 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $8.0 billion last week to $3.426 TN. "Custody holdings" were little changed y-o-y.

M2 (narrow) "money" supply jumped $34.9bn last week to a record $15.495 TN. "Narrow money" surged $1.003 TN, or 6.9%, over the past year. For the week, Currency increased $2.4bn. Total Checkable Deposits declined $16.1bn, and Savings Deposits surged $48.1bn. Small Time Deposits dipped $1.9bn. Retail Money Funds added $2.2bn.

Total money market fund assets slipped $3.9bn to $3.617 TN, with institutional money fund assets down $6.6bn to $2.276 TN. Total money funds jumped $554bn y-o-y, or 18.1%.

Total Commercial Paper slipped $0.3bn to $1.119 TN. CP was up $62.1bn, or 5.9% year-over-year.

Currency Watch:

For the week, the U.S. dollar index jumped 1.3% to 98.68 (up 2.3% y-t-d). For the week on the upside, the South Korean won increased 0.4% and the Mexican peso 0.4%. On the downside, the British pound declined 2.4%, the Singapore dollar 1.8%, the Swiss franc 1.5%, the euro 1.3%, the Japanese yen 1.3%, the Norwegian krone 1.1%, the Brazilian real 0.8%, the Canadian dollar 0.5%, the Swedish krona 0.4%, the Australian dollar 0.3% and the South African rand 0.2%. The Chinese renminbi declined 0.86% versus the dollar this week (down 0.56% y-t-d).

Commodities Watch:

February 6 – Bloomberg (Stephen Stapczynski, Mark Burton and Jackie Davalos): “Global commodity trade plunged deeper into chaos as Chinese companies started walking away from purchase contracts because of the spread of the deadly coronavirus. A Chinese buyer of liquefied natural gas and a copper importer declared what’s known as force majeure -- meaning they are reneging on deals as the virus constrains their ability to take deliveries. The cancellations are among the first known cases of the legal clause being invoked in commodity contracts due to the epidemic. ‘Everything that we were afraid of, from trade wars or global growth, doesn’t compare,’ said Jan Stuart, global energy economist at Cornerstone Macro. ‘This virus is an entirely different risk, especially in commodities where China’s role dominates.’ China is the world’s biggest consumer of most raw materials, from energy products to industrial metals, and disruptions in its purchases create havoc across global supply chains.”

February 7 – Financial Times (Harry Dempsey, Derek Brower and David Sheppard in London and Sun Yu): “The coronavirus outbreak has thrown the global gas market into turmoil with Chinese importers threatening to cancel up to 70% of seaborne imports in February as demand collapses and companies struggle to staff ports. The move by China, the world’s second-largest importer of liquefied natural gas, has sent prices to their lowest level on record and sparked a row with suppliers, which claim the Chinese companies are breaching their contracts to secure lower prices on the spot market. The stand-off is the latest sign of the economic damage being wreaked by the coronavirus outbreak…”

February 4 – Financial Times (Emiko Terazono): “The coronavirus outbreak has unsettled global markets, hitting equity and commodity prices as concerns grow about its impact on economic growth. A less obvious casualty has been the humble coffee bean. The benchmark index for coffee futures has plunged more than one-fifth since the start of the year to around $1 a pound. This is a bigger dip than crude oil marker Brent, down 17%, and copper, which has lost 9% on the London Metal Exchange. China is an important participant in the global coffee industry, with imports more than tripling over the past decade.”

The Bloomberg Commodities Index slipped 0.1% (down 7.6% y-t-d). Spot Gold declined 1.2% to $1,570 (up 3.4%). Silver dropped 1.8% to $17.69 (down 1.3%). WTI crude dropped $1.24 to $50.32 (down 18%). Gasoline gained 1.5% (down 10%), and Natural Gas increased 0.9% (down 15%). Copper recovered 1.4% (down 9%). Wheat gained 0.9% (unchanged). Corn increased 0.6% (down 1%).

Market Instability Watch:

February 6 – Reuters (Kevin Yao): “China’s central bank will step up support for the economy to cushion the blow from a coronavirus outbreak, but activity is expected to recover once the virus is brought under control, one of its deputy governors said on Friday… The PBOC injected 1.7 trillion yuan ($242.74bn) via reverse repos earlier this week to shore up confidence and cut some key money market interest rates.”

February 5 – Bloomberg (Iain Marlow): “Citigroup Inc. strategists are warning about a sense of euphoria and ‘substantive’ complacency in financial markets, when the impact of the coronavirus is not yet clear. ‘Pretty much every client we talk to wants to buy the dip, and that is not comforting,’ wrote Tobias Levkovich, chief U.S. equity strategist… ‘While there may be some good news on a potential slowing of the outbreak’s spread outside of the Hubei province, we are reticent to think that the impact is behind us now.’”

February 4 – Bloomberg (Claire Ballentine): “Investors can’t seem to make up their minds on whether U.S. stocks are headed for new highs -- or poised for a correction. Traders poured almost $5 billion into the Vanguard S&P 500 ETF on Friday, the biggest one-day inflow for the $138 billion fund since its inception in 2010, data compiled by Bloomberg show. But just three days after that vote of confidence, more than $3.7 billion exited the $307 billion SPDR S&P 500 ETF Trust, which follows the same broad index of large American companies.”

February 6 – Bloomberg (Lu Wang): “The list of warning signs for the rally that pushed U.S. stocks to another record is growing longer. As the S&P 500 Index embarked on a torrid four-day advance, corporate executives and officers have stepped up selling shares in their own companies -- so much so that there were five insider sales for every one buy, according to data compiled by Washington Service. That’s poised to be the highest since early 2017. Insiders have been stepping up the pace of sales all year…”

China Watch:

February 3 – Wall Street Journal (James T. Areddy): “China’s isolation amid the coronavirus outbreak, a rare freeze out for such a vital economic center, is rippling across the world. Uncertainty over the virus… has disrupted world-wide trade and supply chains, depressed asset prices, and forced multinational businesses to make hard decisions with limited information. The U.S., and governments in Europe and Asia are enforcing new regulations to block visitors from China and screen returning U.S. citizens, while major airlines suspended flights to the country and companies pulled out expatriate executives. ‘The calls that I get are: ‘We don’t know what to do. Our employees are panicking,’’ says Rachel Conn, an employment attorney… at Nixon Peabody LLP. ‘They’ve never dealt with a situation like this.’”

February 4 – Bloomberg (Drew Armstrong): “In the last two weeks, China locked down some 50 million people in more than a dozen cities to try and stop the new coronavirus that has sickened thousands in the province of Hubei. It may take as long as 14 days for the flu-like symptoms of the virus, dubbed 2019-nCov, to appear. Soon, China will find out if the largest mass quarantine in history has worked, or if undiscovered cases have quietly dispersed and seeded a far wider epidemic.”

February 3 – Bloomberg (Iain Marlow and Dandan Li): “Chinese President Xi Jinping called on all officials to quickly work together to contain a deadly new virus at a rare meeting of top leaders, saying the outcome would directly impact social stability in the country. The effort to contain the virus directly affects people’s health, China’s economic and social stability, and the country’s process of opening up, he told a meeting of the Communist Party’s powerful Politburo Standing Committee on Monday. Leaders also urged officials ‘to achieve the targets of economic and social development this year’ and ‘promote stable consumer spending.’”

February 3 – Bloomberg: “China’s stock market opened to the most savage wave of selling in years, with thousands of shares falling by the daily limit after just minutes of trading. Though investors turned on computers hours early to tee up their sell orders, many of them couldn’t exit the market fast enough. All but 162 of the almost 4,000 stocks in Shanghai and Shenzhen recorded losses, with about 90% dropping the maximum allowed by the country’s exchanges. Health-care shares comprised most of Monday’s gainers on speculation they will benefit from the virus outbreak.”

February 4 – Financial Times (Hudson Lockett and Sun Yu): “As the biggest sell-off in more than four years hit Chinese equities on Monday, speculation grew that China’s so-called ‘national team’ of state-backed buyers would enter the market and cushion the blow from the coronavirus-driven drop. But traders at brokerages and asset managers in China said the team mostly kept its powder dry on Monday. It was not until after market close that state media confirmed the cavalry was prepped and ready — specifically, a group of Chinese insurers with Rmb100bn ($14.3bn) ready to plough into the stock market if necessary. That helped bolster investor sentiment, with the benchmark CSI 300 index of Shanghai and Shenzhen-listed stocks climbing 2.6% on Tuesday after dropping about 8% during the previous session. But longtime observers chalked the gains up mostly due to faith in the buying power of the national team…”

February 6 – Financial Times (Don Weinland and George Hammond): “The coronavirus outbreak is delivering a painful blow to China’s $43tn property market as developers close sales centres and potential homebuyers delay the search for new flats. The impact of the crisis on China’s property market, which some estimate makes up 25% of gross domestic product, is threatening to weigh down the country’s economic growth to 4% in the first quarter, according to several analysts. That would bring the growth rate close to the full-year low of 3.9% experienced in 1990, in the wake of the Tiananmen Square massacre. ‘After four years of upcycle, the property sector was already at a turning point even before coronavirus hit,’ said Larry Hu, head of China economics at Macquarie Capital. ‘Therefore, the risk is high for the property sector, which is the single most important part of the Chinese economy.’”

February 4 – Reuters (Kevin Yao): “Chinese policymakers are readying measures to support an economy jolted by a coronavirus outbreak that is expected to have a devastating impact on first-quarter growth, policy sources said… ‘Currently, monetary policy is being loosened, but the central bank will follow a step-by-step approach and watch the virus situation,’ said a policy insider. The People’s Bank of China (PBOC) has already pumped in hundreds of billions of dollars into the financial system this week as it attempted to restore investor confidence and as global markets shuddered at the potentially damaging impact of the virus on world growth. In the past two days, the PBOC has injected 1.7 trillion yuan ($242.74bn) through open market operations.”

February 3 – Wall Street Journal (Mike Bird): “China’s major real-estate companies have shut sales centers across several cities as the number of reported coronavirus cases grows. Disruption to travel and work will slow property sales nationally, halting them fully in some of the most heavily affected areas. Exactly how big an impact the sudden halt in much economic activity will have on developers remains to be seen, but a prolonged freeze will hit a funding mechanism that has become much more important in recent years. Deposits and advance payments now make up the greatest portion of funding for real-estate developers. Almost all sales in China are made before construction is finished. The inability to build or sell properties at a normal pace will eventually put a strain on this risky funding model.”

February 4 – New York Times (Raymond Zhong): “Along the roads leading into the small eastern city of Shouguang, workers in hazmat suits stop cars and take passengers’ temperatures. The fever checks are mandatory at offices, too. Whole neighborhoods have been barricaded off to nonresidents. All the hotels are shut. Shouguang is 500 miles from the epicenter of the coronavirus. But the tight precautions reflect the city’s vital importance to China: This is where the country gets its vegetables. The virus crisis is testing China’s ability to feed its 1.4 billion people, one of the Communist Party’s proudest achievements. Cooped up at home and fearful that the epidemic could last weeks or even months, families across China are hoarding provisions, making it harder for shops and supermarkets to keep fresh food in stock.”

February 4 – Bloomberg: “China’s biggest health crisis since at least 2003 has worsened the outlook for defaults in the world’s second-biggest bond market, likely tipping a raft of distressed borrowers over the edge this year. With scores of millions of citizens barred from travel, and companies, factories and retail outlets shuttered for a period of weeks, strains on cash flow add an unexpected layer of stress on Chinese borrowers. Market participants had already anticipated that defaults in 2020 would be on par with 2019, which saw a second straight annual record high. Old-line industrial companies with excess capacity and over-leveraged firms with grand ambitions are among those that etched their names in China’s relatively recent default history.”

February 6 – Bloomberg (Krystal Chia): “The most influential mills’ group in the world’s largest steelmaker has sounded the alarm about the outlook as the coronavirus crisis rips through China’s economy, warning of transport snarls, weaker demand, and a situation this quarter that ‘does not look optimistic.’ ‘Companies are facing restrictions in logistics and transport, trades have been muted, prices of raw materials and steel have slid, which is causing the market’s value to decline,’ the China Iron & Steel Association said.”

February 5 – Reuters (Weizhen Tan): “Following its pork crisis, China’s poultry farmers are now in dire straits because of the coronavirus outbreak. Millions of chickens may soon perish in coming days as much-needed feed is not getting to them in time. The shutdowns in China’s provinces have hit supply chains, with transport restrictions preventing much needed animal feed such as soybean meal from getting delivered to poultry farms, according to analysts and Chinese state media.”

February 6 – Reuters (Donny Kwok, Greg Torode, Pak Yiu, Jessie Pang and Clare Jim): “Panicky Hong Kong residents scooped noodles, rice, meat and toilet rolls into supermarket trolleys on Friday despite government assurances of ample supplies during an outbreak of a new coronavirus that has killed 637 people in mainland China… ‘Everyone’s snatching whatever they can get. I don’t even know what’s going on,’ said a 72-year-old woman surnamed Li as she clutched two bags of toilet rolls.”

February 6 – Bloomberg: “A formula is emerging for Chinese state-run firms to resolve offshore debt failures after a major commodities trader and a prominent aluminum producer imposed nearly identical losses on holders of their defaulted bonds. The decisions by Tewoo Group Co. and Qinghai Provincial Investment Group Co., which have since December committed the two biggest dollar-bond defaults from China’s state sector in 20 years, could offer a roadmap to investors as Beijing allows more ailing state firms to go bust. The development also comes as Chinese policymakers explore ways to ensure more orderly bond defaults now that a weakening economy and trade tensions have unleashed a record wave of debt failures.”

February 2 – Wall Street Journal (Chao Deng and Xie Yu): “China’s peer-to-peer lending industry, once a world-beater, is on its last legs. Entrepreneurs had hoped to fill a gap in the Chinese financial system ignored by state-backed banks. Thousands of peer lenders flourished, gathering funds from small investors and extending credit to family restaurants, parents with tuition bills to pay and other small borrowers. Several larger players such as Yirendai Ltd., PPDAI Group Inc. and Qudian Inc. went public in the U.S. But a dramatic reversal in official attitudes has made life much harder for peer-lending entrepreneurs…”

February 6 – Bloomberg: “China will halve tariffs on some $75 billion of imports from the U.S. later this month, reciprocating a U.S. action and likely satisfying part of the interim trade deal. The cut will be effective… on Feb. 14 in Beijing…, the same time as when the U.S. will implement reductions in tariffs on Chinese products… Both nations agreed to cut tariffs on each others’ goods as part of the phase-one deal signed last month.”

February 4 – Wall Street Journal (Liza Lin): “In January, a person infected with the dangerous new Wuhan coronavirus used public transportation to crisscross the eastern Chinese city of Nanjing, potentially exposing those along the way to the highly contagious pathogen. Using the country’s pervasive digital-surveillance apparatus, authorities were able to track—down to the minute—the sick person’s exact journey through the city’s subway system.”

February 5 – Bloomberg: “Some Chinese car dealers are offering hard-to-get face masks and vegetables to encourage consumers to purchase automobiles in the wake of the coronavirus outbreak. Dealerships for the electric-vehicle unit of Guangzhou Automobile Group Co. started the service Tuesday…”

Global Bubble Watch:

February 6 – Reuters (Joseph White): “The threat from the coronavirus crisis closed in on the global auto industry on Thursday, as Fiat Chrysler Automobiles NV warned that a European plant could shut down within two to four weeks if Chinese parts suppliers cannot get back to work. The next several weeks will be critical for automakers. Parts made in China are used in millions of vehicles assembled elsewhere, and China’s Hubei province, epicenter of the coronavirus outbreak, is a major hub for vehicle parts production and shipments.”

February 6 – CNBC (Leslie Josephs): “One by one, air carriers have cut service after demand fell sharply and governments took more drastic measures that they say aim to curb the spread of the disease… These steps have left China, the world’s second-largest air travel market after the U.S., more isolated… U.S. Customs and Border Protection says it processed an average of 371,780 people at U.S. airports each day in the last fiscal year, although February travel demand is much lower than in the summer. Some 14,000 people flew into the U.S. from China each day — almost 5 million for that year. At stake are more than 165,000 scheduled flights in and out of China between Jan. 29 and March 28 that would affect 27 million travelers…”

February 5 – Associated Press (Dee-Ann Durbin): “This should have been a good year for global tourism, with trade tensions gradually easing, certain economies growing and banner events like the Summer Olympics taking place in Tokyo. But the viral outbreak in China has thrown the travel industry into chaos, threatening billions in losses and keeping millions of would-be travelers at home… Thirty airlines have suspended service to China and 25,000 flights were cancelled this week alone, according to OAG, a travel data company. Hotel rooms in China are largely empty; Chinese hotel occupancy plummeted 75% in the last two weeks of January…”

February 6 – Wall Street Journal (Ryan Dezember): “Liquefied natural gas is fetching the lowest price on record in Asia, a troubling sign for U.S. energy producers who have relied on overseas shipments of shale gas to buoy the sagging domestic market. The main price gauge for liquefied natural gas, or LNG, in Asia fell to $3 per million British thermal units Thursday, down sharply from more than $20 six years ago as U.S. deliveries have swamped markets around the world. As recently as Jan. 15, the Asian benchmark, called the Japan Korea Marker, was comfortably above $5.”

February 3 – Bloomberg: “China is preparing steps to adjust to a slower rate of economic growth as the coronavirus outbreak shows few signs of abating. Officials are evaluating whether to soften the economic-growth target for 2020, while state-owned liquefied natural gas importers are considering declaring themselves unable to fulfill some obligations on cargo deliveries -- known as force majeure -- according to people familiar with the matter. And authorities in Beijing are hoping the U.S. will agree to some flexibility on pledges in their phase-one trade deal, people close to the situation said.”

February 7 – Bloomberg: “Hon Hai Precision Industry Co. told employees at its Shenzhen facility not to return to work when the extended Lunar New Year break ends Feb. 10… The moratorium represents an extreme effort by Apple Inc.’s most important partner to curb the spread of the novel coronavirus that’s paralyzed much of China’s manufacturing. Foxconn’s main iPhone-making base is farther north in Zhengzhou but coastal Shenzhen serves as its Chinese headquarters and the majority of the tens of thousands employed there are out-of-towners.”

February 4 – Associated Press (Paul Wiseman and Anne D’Innocenzio): “Hyundai Motors is suspending production in South Korea, a sign that the economic fallout from China’s viral outbreak is spreading. For other companies bracing for losses from coronavirus, the damage has so far been delayed, thanks to a stroke of timing: The outbreak hit just when Chinese factories and many businesses were closed anyway to let workers travel home for the week-long Lunar New Year holiday. But the respite won’t last. If much of industrial China remains on lockdown for the next few weeks, a very real possibility, Western retailers, auto companies and manufacturers that depend on Chinese imports will start to run out of the goods they depend on.”

February 6 – Reuters (Paul Carrel): “German industrial output suffered its biggest fall in December since the recession-hit year of 2009, a shock drop highlighting the weakness in manufacturing that risks dragging Europe’s largest economy into contraction again. Industrial production tumbled by 3.5% on the month, undershooting expectations for a 0.2% fall…”

February 5 – Reuters (Swati Pandey): “The hit to Australia’s economy from a viral epidemic spreading from China is likely to be ‘significant’, Prime Minister Scott Morrison said on Thursday, as the country’s states and territories work out scenarios to gauge the overall impact. Morrison said the effect of the virus, which has so far killed 563 people in China, will be ‘a real weight on the economy’…”

February 3 – Bloomberg (Eric Roston): “There are dozens of climate models, and for decades they’ve agreed on what it would take to heat the planet by about 3° Celsius. It’s an outcome that would be disastrous—flooded cities, agricultural failures, deadly heat—but there’s been a grim steadiness in the consensus among these complicated climate simulations. Then last year, unnoticed in plain view, some of the models started running very hot. The scientists who hone these systems used the same assumptions about greenhouse-gas emissions as before and came back with far worse outcomes. Some produced projections in excess of 5°C, a nightmare scenario. The scientists involved couldn’t agree on why—or if the results should be trusted. Climatologists began ‘talking to each other like, ‘What’d you get?’, ‘What’d you get?’ said Andrew Gettelman, a senior scientist at the National Center for Atmospheric Research…”

Trump Administration Watch:

February 7 – NBC News (Shannon Pettypiece): “President Donald Trump said… that his impeachment should be invalidated, and he gave an ominous warning when asked how he'll pay back those responsible, saying, ‘You'll see.’ ‘Should they expunge the impeachment in the House? They should because it was a hoax,’ Trump told reporters… When asked about his press secretary's comments that the president was suggesting in his remarks Thursday on impeachment that his Democratic political opponents ‘should be held accountable,’ Trump said, ‘Well, you'll see. I mean, we'll see what happens.’”

February 4 – Reuters (Alexandra Alper and Karen Freifeld): “The Trump administration plans to meet this month to discuss further curbing technology exports to China and its flagship telecoms company Huawei, two sources said, in a bid to resolve differences within the government over the possible crackdown… The meeting, which is expected to include cabinet-level officials including Commerce Department Secretary Wilbur Ross, Defense Secretary Mark Esper and State Department Secretary Mike Pompeo, is aimed at addressing how best to approach the blacklisted Chinese company and the broader war with China over technological dominance.”

February 4 – Financial Times (Diana Choyleva): “Financial markets welcomed last month’s truce in the long-running trade war between Washington and Beijing. But the ‘phase one’ deal should fool no one. By parking core US complaints, including China’s weak intellectual property protection, forced technology transfer and pervasive state subsidies, the ceasefire merely drew attention to the difficulty of reconciling two fundamentally opposed systems. This comprehensive contest for supremacy between the two nations demands a fundamental rethink of the approach to global investment. Two issues stand out: which economic and political model offers higher returns, and where will the underlying assets be more secure. China’s handling of the coronavirus epidemic only accelerates this ‘great decoupling’ between the incumbent superpower and its rising challenger.”

February 3 – Reuters (Lindsay Dunsmuir): “The U.S. Treasury Department… said it plans to borrow less in the first quarter of this year than it previously forecast. …Treasury said it would borrow $367 billion during the January-March quarter, $22 billion less than its previous estimate, assuming an end-March cash balance of $400 billion.”

Federal Reserve Watch:

February 4 – Bloomberg (Alexandra Harris): “The Federal Reserve Bank of New York’s $30 billion operation to inject cash into the financial system for the next two weeks attracted bids of almost double that amount… Dealers submitted $59.05 billion of bids for the 14-day repurchase agreement operation, at a rate of 1.59%. That compares with a rate of about 1.64% for two-week repo funding in the open market, based on ICAP data. ‘It’s still a cheap source of funding,’ said NatWest strategist Blake Gwinn.”

U.S. Bubble Watch:

February 4 – New York Times (Clifford Krauss): “At a time when they are already cutting jobs and weighed down by debt, American oil producers are bracing for the latest shock to hit world energy markets: the economic effects of the coronavirus outbreak on China and beyond. Oil and natural gas producers have been suffering from low commodity prices for the past year and now expect a sharp drop in global prices for their products. As a result, they are preparing to slash investments in exploration and production. The price of West Texas intermediate crude, a key benchmark, fell below $50 on Monday, a 20% decline in less than a month.”

February 5 – CNBC (Jeff Cox): “The jobs market kicked off 2020 in grand fashion, adding 291,000 in private payrolls for the best monthly gain since May 2015, according to… ADP and Moody’s Analytics. That was well above the 150,000 estimate from economists…”

January 31 – Reuters (Akshay Balan and Josh Horwitz): “Apple Inc on Saturday said it would shut all of its official stores and corporate offices in mainland China until Feb 9. as fears over the coronavirus outbreak mounted and the death toll more than doubled to over 250 from a week ago.”

February 3 – Reuters (Makiko Yamazaki, Hyunjoo Jin and Munsif Vengattil): “Shares of Tesla Inc surged 20% on Tuesday to hit $940, extending a stunning rally that has more than doubled the company’s market value since the start of the year as more investors bet on Chief Executive Elon Musk’s vision.”

February 4 – Wall Street Journal (Esther Fung): “Chinese investors sold off billions more in U.S. commercial property last year than they bought, as other foreigners start to sour on the U.S. market as well. Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012, posing a fresh setback for a market that is already showing signs of strain. Chinese were by far the biggest foreign sellers of U.S. office towers, retail centers, hotels and other commercial property last year, unloading $20 billion more than they bought, according to… Real Capital Analytics.”

February 4 – Wall Street Journal (Andrew Ackerman): “On the second floor of a squat office building in a quiet Washington suburb, workers ensconced in cubicles sell millions of dollars of bonds each day, money that later flows to a range of borrowers, from community lenders to global megabanks. The trading room, 250 miles from Wall Street, is the nerve center of the Federal Home Loan Banks, a $1.1 trillion network of government-chartered cooperatives that is so obscure there isn’t even a sign on the front of the building… Founded during the Great Depression to support housing finance, the system’s role has evolved. It was an important source of liquidity during the crisis of 2008 to commercial banks. Since then, it has become a supplier of cheap funding to the likes of Wells Fargo... and JPMorgan... Now the system’s federal regulator is considering whether to allow further growth, via lending to nonbank mortgage institutions and real-estate investment trusts…”

February 5 – Reuters (Bharath Manjesh and Joshua Franklin): “Casper Sleep Inc… sold shares in its initial public offering (IPO) at the bottom end of a targeted range it had already lowered, slashing the online mattress retailer’s valuation by more than half in less than a year. The outcome of the IPO underscores the growing mismatch between the valuations that start-ups have attained in private fundraising rounds from venture capital funds and the valuations that stock market investors are willing to assign to them.”

Fixed-Income Bubble Watch:

February 6 – Bloomberg (Danielle Moran): “There’s so much money chasing after the bonds sold by America’s high-tax states that buyers don’t seem to care too much about what credit-rating companies think. The heavy demand overall has driven municipal yields to their lowest in more than six-decades. And with rates so low, the yield penalties that would typically differentiate a deeply indebted state from a thrifty one have become little more than rounding errors that in some cases contrast with their standing in the ratings pecking order. California’s general-obligation debt, for example, is yielding about 1 basis point less than the AAA benchmark, even though the state is rated as many as four steps below that…”

February 3 – Bloomberg (Liz McCormick): “It’s been more than six years since the U.S. bond market’s purest read on the global growth outlook was signaling this much concern. The so-called real yield on 10-year inflation-linked Treasuries fell on Friday to negative 0.147%, its lowest since 2013, when Europe’s sovereign debt crisis was raging. Now it’s the spread of the Wuhan coronavirus that’s fueling worries about the potential hit to the world economy.”

February 3 – Wall Street Journal (Sam Goldfarb and Alexander Gladstone): “The economic threat posed by the coronavirus is helping erode demand for energy-company debt just weeks after bond issuance in the sector surged, highlighting the virus’s far-reaching effects on companies and financial markets. Early last month, a surprise rally in the debt of energy companies allowed oil and gas businesses to issue the largest amount of speculative-grade bonds in one week since just before oil prices crashed in the fall of 2014. No sooner had companies issued the bonds, however, than fears that the coronavirus will slow global growth sapped appetite for riskier debt…”

Central Bank Watch:

February 5 – Bloomberg (Michelle Jamrisko): “Southeast Asian central banks signaled strong policy action this week to counter a hit to their economies from the new coronavirus. The Bank of Thailand cut its benchmark interest rate Wednesday to a record-low 1%, while Singapore policy makers indicated there was room for further easing in the currency. The Philippines underscored its willingness to ease…”

India Watch:

January 31 – Bloomberg (Abhijit Roy Chowdhury, Vrishti Beniwal, and Shruti Srivastava): “India’s finance minister slashed taxes for individuals, scrapped a levy on dividends and widened budget deficit targets to help spur a slowing economy… The government will miss its deficit goals for a third year, pushing the shortfall to 3.8% of gross domestic product from a planned 3.3% in the year ending March, Finance Minister Nirmala Sitharaman said… The deficit target for the coming fiscal year starting April 1 was widened to 3.5%.”

February 4 – Bloomberg (Divya Patil): “The creditworthiness of Indian companies has deteriorated to the lowest in eight years as the economy slows, and there are signs their financial health will worsen further. The quickening ratio of downgrades versus upgrades suggests that relief from the credit crisis may be hard to find. The liquidity crunch has crimped lending and hobbled plans to improve infrastructure in Asia’s third-largest economy. With the fallout from the deadly coronavirus likely to hurt global expansion, it will be harder for India to kick-start economic growth. The credit scores of 188 Indian borrowers were lowered in the nine months through December, compared with 103 upgrades…”

Europe Watch:

February 6 – Reuters (Paul Carrel): “German industrial output suffered its biggest fall in December since the recession-hit year of 2009, a shock drop highlighting the weakness in manufacturing that risks dragging Europe’s largest economy into contraction again. Industrial production tumbled by 3.5% on the month, undershooting expectations for a 0.2% fall…”

Global Debt Bubble Watch:

February 3 – Financial Times (Jennifer Ablan and Colby Smith): “New bond sales by the riskiest borrowers around the world set a monthly record in January, as businesses and other issuers sought to lock in financing while rates are low. Bond issuance is typically heavy at the start of the year, when corporations try to raise as much of their annual financing as possible, but the wave of deals this year was unusually large, according to Dealogic. New issuance through to January 31 amounted to $73.6bn, exceeding any monthly total over the past 25 years, according to Dealogic. Of that, $57.1bn was issued by companies.”

February 3 – Financial Times (Tommy Stubbington): “Emerging-market governments and companies embarked on a record borrowing spree in January, hoping to lock in very low interest costs. Issuers including Indonesia, Mexico and Saudi Arabia sold $118bn of new foreign-currency debt in the first month of 2020, up from $70bn in the same period last year and an all-time high for the month, according to… Dealogic. The record borrowing — mostly in dollars or euros — was broad-based across Latin America, the Middle East and Asia, according to Jean-Marc Mercier, vice-chairman of capital markets at HSBC.”

Leveraged Speculation Watch:

February 3 – Financial Times (Richard Henderson): “Investors betting against Tesla were still reeling from their worst monthly losses in January when they got hit again on Monday, as shares in the electric carmaker surged 20% in a single day. On top of the record dollar loss of $5.8bn in January, short-sellers lost a further $3.2bn as the extraordinary share price rally accelerated on the first day’s trading of the new month. It was the worst dollar loss for the shorts on a single day…”

February 6 – Bloomberg (Danielle Moran): “U.S. markets are ‘utterly and completely unprepared’ for the possibility that inflation might pick up after years of subdued price gains, hedge fund manager Ken Griffin said. ‘In the United States there is absolutely no preparedness for an inflationary environment,’ Griffin, founder of $30 billion hedge fund Citadel, said at an Economic Club of New York luncheon…”

Geopolitical Watch:

February 6 – Bloomberg (Iain Marlow): “Beijing is growing increasingly angry at countries imposing harsh travel restrictions on visitors from China as the world tries to contain the spread of a deadly coronavirus. Authorities have registered ‘strong objections’ with countries who have cut flights to China during the outbreak, foreign ministry spokeswoman Hua Chunying said Thursday. She said countries were ignoring recommendations from the World Health Organization and International Civil Aviation Organization, which have advised against canceling flight routes and limiting travel to affected nations.”

February 3 – Reuters (Ben Blanchard): “Taiwan’s foreign ministry said on Tuesday China is ‘vile’ for restricting the island’s access to WHO during the coronavirus outbreak, adding to tensions with Beijing over the growing health crisis.”

February 3 – Financial Times (Kathrin Hille): “Taiwan’s vice-president-elect is visiting Washington and New York in the highest-level visit by a politician from the island to the US capital since the country cut diplomatic relations with Taipei in 1979. In a trip that will probably enrage Beijing, Lai Ching-te flew to the US on Sunday night to attend the National Prayer Breakfast…”

February 4 – Reuters (Tuvan Gumrukcu and Ece Toksabay): “Turkey will not allow the Syrian government to gain territory in the northwestern region of Idlib, President Tayyip Erdogan was quoted as saying…, a day after eight Turkish personnel were killed in an attack Ankara blamed on Syrian troops. Earlier, Turkey urged Russia to rein in Syrian government forces in Idlib, after the attack rattled a fragile cooperation between the two countries, which back opposing sides in the war.”