[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
[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.”
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.”
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.”
Thursday, February 6, 2020
Friday's News Links
[Reuters] Rally in stocks runs out of steam as coronavirus toll climbs
[Reuters] Oil falls as Russia needs time on more OPEC+ cuts
[CNBC] US added 225,000 jobs in January, vs 158,000 expected
[CNBC] Coronavirus live updates: More stores in China close, Trump heaps praise on Xi
[Reuters] China's central bank says coronavirus outbreak could disrupt economy in first-quarter, has many policy tools
[Reuters] Coronavirus cases on cruise liner off Japan jump to 61
[Reuters] China says banks' non-performing loan ratios to rise due to virus outbreak
[Reuters] Hong Kong shoppers snap up rice and noodles as coronavirus fears mount
[Reuters] Chinese public mourns, rages over death of doctor who raised early alarm on coronavirus
[Reuters] Quarles says Fed could better align Treasuries, reserves to ease repo pressure
[Reuters] Biggest German industry slump in a decade revives recession fears
[Bloomberg] Quarles Says Fed Eyeing Tweaks to Improve Money Market Liquidity
[Bloomberg] IPhone Maker Foxconn Warns Staff to Keep Away From Shenzhen Base
[FT] Global gas market in crisis as China rebuffs imports
[Reuters] Oil falls as Russia needs time on more OPEC+ cuts
[CNBC] US added 225,000 jobs in January, vs 158,000 expected
[CNBC] Coronavirus live updates: More stores in China close, Trump heaps praise on Xi
[Reuters] China's central bank says coronavirus outbreak could disrupt economy in first-quarter, has many policy tools
[Reuters] Coronavirus cases on cruise liner off Japan jump to 61
[Reuters] China says banks' non-performing loan ratios to rise due to virus outbreak
[Reuters] Hong Kong shoppers snap up rice and noodles as coronavirus fears mount
[Reuters] Chinese public mourns, rages over death of doctor who raised early alarm on coronavirus
[Reuters] Quarles says Fed could better align Treasuries, reserves to ease repo pressure
[Reuters] Biggest German industry slump in a decade revives recession fears
[Bloomberg] Quarles Says Fed Eyeing Tweaks to Improve Money Market Liquidity
[Bloomberg] IPhone Maker Foxconn Warns Staff to Keep Away From Shenzhen Base
[FT] Global gas market in crisis as China rebuffs imports
Thursday Evening Links
[Reuters] Wall St. reaches new highs as China moves to limit coronavirus impact
[Reuters] Stocks rally, safe-haven currencies drop, on China plan to cut tariffs
[CNBC] Coronavirus live updates: China more isolated as airlines cancel flights, Hubei confirms 2,447 new cases, 69 deaths
[Reuters] Shares of U.S. LNG firms tumble as China demand slumps
[CNBC] China grows isolated as airlines cancel more than 50,000 flights amid coronavirus epidemic
[AP] Global tourism takes major hit as virus halts Chinese travel
[Reuters] Global automaker supplies threatened by China coronavirus crisis
[Reuters] Federal Reserve says 2020 stress test will include 'heightened stress' in leveraged loans
[Bloomberg] Red Flags Emerge in U.S. Stocks With Insiders Rushing to Sell
[Bloomberg] High-Tax States’ Bonds Are So in Demand That Ratings Don’t Matter
[Bloomberg] Ken Griffin Says Markets Are Unprepared for Inflation
[WSJ] Shale Gas Swamps Asia, Pushing LNG Prices to Record Lows
[Reuters] Stocks rally, safe-haven currencies drop, on China plan to cut tariffs
[CNBC] Coronavirus live updates: China more isolated as airlines cancel flights, Hubei confirms 2,447 new cases, 69 deaths
[Reuters] Shares of U.S. LNG firms tumble as China demand slumps
[CNBC] China grows isolated as airlines cancel more than 50,000 flights amid coronavirus epidemic
[AP] Global tourism takes major hit as virus halts Chinese travel
[Reuters] Global automaker supplies threatened by China coronavirus crisis
[Reuters] Federal Reserve says 2020 stress test will include 'heightened stress' in leveraged loans
[Bloomberg] Red Flags Emerge in U.S. Stocks With Insiders Rushing to Sell
[Bloomberg] High-Tax States’ Bonds Are So in Demand That Ratings Don’t Matter
[Bloomberg] Ken Griffin Says Markets Are Unprepared for Inflation
[WSJ] Shale Gas Swamps Asia, Pushing LNG Prices to Record Lows
Wednesday, February 5, 2020
Thursday's News Links
[Reuters] China tariff cut buoys stocks as investors look beyond virus
[Reuters] Oil rises for a second day as OPEC+ weighs coronavirus action
[CNBC] China to halve tariffs on hundreds of US goods worth about $75 billion
[CNBC] Coronavirus live updates: Tesla closes stores, Tokyo Olympics sets up task force
[Reuters] China drafts banks, brokerages and funds into war on virus
[Reuters] China virus death toll jumps past 500, more cases found on cruise ship off Japan
[Reuters] Ten more virus infections on cruise ship in Japan, test results for 171 still pending
[Reuters] Australia economy to take 'significant' hit from coronavirus: Morrison
[CNBC] Hundreds of millions of chickens at risk of being wiped out with much of China locked down due to virus
]Bloomberg] China Lashes Out at Countries Restricting Travel Over Virus
[Bloomberg] Citi Warns of Euphoria, ‘Substantive’ Complacency on Stock Surge
[Bloomberg] China’s Banks Are Going to Suffer. But Not Equally
[WSJ] Wuhan Coronavirus Hospitals Turn Away All but Most Severe Cases
[FT] China’s property market stalls amid coronavirus outbreak
[FT] Coronavirus: the cost of China’s public health cover-up
[Reuters] Oil rises for a second day as OPEC+ weighs coronavirus action
[CNBC] China to halve tariffs on hundreds of US goods worth about $75 billion
[CNBC] Coronavirus live updates: Tesla closes stores, Tokyo Olympics sets up task force
[Reuters] China drafts banks, brokerages and funds into war on virus
[Reuters] China virus death toll jumps past 500, more cases found on cruise ship off Japan
[Reuters] Ten more virus infections on cruise ship in Japan, test results for 171 still pending
[Reuters] Australia economy to take 'significant' hit from coronavirus: Morrison
[CNBC] Hundreds of millions of chickens at risk of being wiped out with much of China locked down due to virus
]Bloomberg] China Lashes Out at Countries Restricting Travel Over Virus
[Bloomberg] Citi Warns of Euphoria, ‘Substantive’ Complacency on Stock Surge
[Bloomberg] China’s Banks Are Going to Suffer. But Not Equally
[WSJ] Wuhan Coronavirus Hospitals Turn Away All but Most Severe Cases
[FT] China’s property market stalls amid coronavirus outbreak
[FT] Coronavirus: the cost of China’s public health cover-up
Wednesday Evening Links
[Reuters] S&P 500, Nasdaq mint record highs after strong U.S. data, waning virus fears
[Reuters] China reports 73 new deaths on mainland from virus outbreak on February 5
[CNBC] Coronavirus live updates: US can’t keep virus ‘out of our border,’ NYC has 2 new ‘patients under investigation’
[Reuters] China virus hits cruise ships, carmakers, airlines and Airbus
[Reuters] Mattress seller Casper's IPO slashes valuation by more than half
[Bloomberg] Virus Hits Copper Trade as China Asks Chile to Defer Cargoes
[Bloomberg] Virus Hits Hong Kong Insurers Already Reeling From Protests
[Bloomberg] China Risks Exporting Its Market Volatility Like Never Before
[Reuters] China reports 73 new deaths on mainland from virus outbreak on February 5
[CNBC] Coronavirus live updates: US can’t keep virus ‘out of our border,’ NYC has 2 new ‘patients under investigation’
[Reuters] China virus hits cruise ships, carmakers, airlines and Airbus
[Reuters] Mattress seller Casper's IPO slashes valuation by more than half
[Bloomberg] Virus Hits Copper Trade as China Asks Chile to Defer Cargoes
[Bloomberg] Virus Hits Hong Kong Insurers Already Reeling From Protests
[Bloomberg] China Risks Exporting Its Market Volatility Like Never Before
Tuesday, February 4, 2020
Wednesday's News Links
[Reuters] Stimulus hope, virus containment steps fuel renewed equity surge
[Reuters] Oil jumps 3% on reports of effective coronavirus drug
[CNBC] Private payrolls soar in January, the best monthly gain in nearly 5 years
[CNBC] Coronavirus live updates: WHO says there are ‘no known’ treatments, ECB chief says outbreak fuels economic uncertainty
[Reuters] China virus toll nears 500; cruise ships, Hong Kong flights hit
[Reuters] Passengers quarantined on coronavirus-hit cruise ship off Japan
[Reuters] China's services sector growth hits three-month low in January: Caixin PMI
[Reuters] Companies feel impact of coronavirus outbreak in China
[Reuters] U.S. to review new curbs on Huawei, China in Feb meeting: sources
[Bloomberg] Central Bankers Roll Out Anti-Virus Efforts in Southeast Asia
[Bloomberg] China Epidemic Threatens a Broader Wave of Defaults in 2020
[Bloomberg] Weak Growth Drags Credit Health of India Firms to 8-Year Low
[FT] Investors need to position for a US-China clash of civilisations
[FT] Why coffee has been caught up in the coronavirus sell-off
[Reuters] Oil jumps 3% on reports of effective coronavirus drug
[CNBC] Private payrolls soar in January, the best monthly gain in nearly 5 years
[CNBC] Coronavirus live updates: WHO says there are ‘no known’ treatments, ECB chief says outbreak fuels economic uncertainty
[Reuters] China virus toll nears 500; cruise ships, Hong Kong flights hit
[Reuters] Passengers quarantined on coronavirus-hit cruise ship off Japan
[Reuters] China's services sector growth hits three-month low in January: Caixin PMI
[Reuters] Companies feel impact of coronavirus outbreak in China
[Reuters] U.S. to review new curbs on Huawei, China in Feb meeting: sources
[Bloomberg] Central Bankers Roll Out Anti-Virus Efforts in Southeast Asia
[Bloomberg] China Epidemic Threatens a Broader Wave of Defaults in 2020
[Bloomberg] Weak Growth Drags Credit Health of India Firms to 8-Year Low
[FT] Investors need to position for a US-China clash of civilisations
[FT] Why coffee has been caught up in the coronavirus sell-off
Tuesday Evening Links
[Reuters] Wall Street jumps as China stimulus measures soothe virus worries
[Reuters] Treasuries - Yields rise as traders encouraged by China response to coronavirus
[CNBC] Coronavirus live updates: Death toll in China hits 490, as confirmed cases cross 24,000
[AP] China’s virus outbreak weighs on global business
[Reuters] Another day, another record: Tesla shares march toward $1,000
[CNBC] Tesla draws comparisons to past speculative bubbles: ‘Stock is going to get absolutely clobbered’
[Bloomberg] China Is About to Find Out Whether Its Mass Quarantine Worked
[Bloomberg] A $9 Billion Flip-Flop by ETF Traders Shows Unease Over Stocks
[NYT] U.S. Oil Industry Is Already Suffering From the Coronavirus
[WSJ] China Marshals Its Surveillance Powers Against Coronavirus
[FT] House price growth falters globally
[Reuters] Treasuries - Yields rise as traders encouraged by China response to coronavirus
[CNBC] Coronavirus live updates: Death toll in China hits 490, as confirmed cases cross 24,000
[AP] China’s virus outbreak weighs on global business
[Reuters] Another day, another record: Tesla shares march toward $1,000
[CNBC] Tesla draws comparisons to past speculative bubbles: ‘Stock is going to get absolutely clobbered’
[Bloomberg] China Is About to Find Out Whether Its Mass Quarantine Worked
[Bloomberg] A $9 Billion Flip-Flop by ETF Traders Shows Unease Over Stocks
[NYT] U.S. Oil Industry Is Already Suffering From the Coronavirus
[WSJ] China Marshals Its Surveillance Powers Against Coronavirus
[FT] House price growth falters globally
Monday, February 3, 2020
Tuesday's News Links
[Reuters] Wall Street recovery continues on China stimulus measures
[Reuters] Global stocks, commodities firmer as virus fever abates
[Reuters] Chinese markets, yuan claw back some lost ground after virus-led wipeout
[Reuters] Oil prices rebound from China virus slump amid ginger recovery across markets
[Reuters] Exclusive: As virus fallout widens, China readies more measures to stabilize economy - sources
[Reuters] China c.bank to inject 500 bln yuan via reverse repos on Tuesday - traders
[AP] Clock is ticking for companies that depend on China imports
[Reuters] China state media urges investors not to panic over market slide on coronavirus outbreak
[CNBC] Coronavirus updates: Hong Kong reports first death as mainland China cases cross 20,000
[Reuters] China cbank says huge cash injections to stabilise market expectations, restore confidence
[Reuters] Taiwan calls China 'vile' for restricting island's access to WHO on coronavirus
[Reuters] Erdogan says Turkey will not allow Syrian government to advance in Idlib: CNN Turk
[Bloomberg] China Adds Market Support With More Cash, Strong Yuan Fix
[Bloomberg] Xi Jinping Warns Virus May Impact China’s Social Stability
[Bloomberg] Climate Models Are Running Red Hot, and Scientists Don’t Know Why
[NYT] $9 Cabbages, Emergency Pork: Coronavirus Tests China on Food
[WSJ] Chinese Lead Foreign Selling of U.S. Commercial Property
[WSJ] Coronavirus Outbreak a Major Test of China’s System, Says Xi Jinping
[WSJ] Home-Loan Banks May Soon Channel Funds to More Mortgage Players
[FT] Emerging markets set January record for foreign-currency debt
[FT] Global junk bond issuance hits monthly record
[FT] How the invisible hand of the state works in Chinese stocks
[Reuters] Global stocks, commodities firmer as virus fever abates
[Reuters] Chinese markets, yuan claw back some lost ground after virus-led wipeout
[Reuters] Oil prices rebound from China virus slump amid ginger recovery across markets
[Reuters] Exclusive: As virus fallout widens, China readies more measures to stabilize economy - sources
[Reuters] China c.bank to inject 500 bln yuan via reverse repos on Tuesday - traders
[AP] Clock is ticking for companies that depend on China imports
[Reuters] China state media urges investors not to panic over market slide on coronavirus outbreak
[CNBC] Coronavirus updates: Hong Kong reports first death as mainland China cases cross 20,000
[Reuters] China cbank says huge cash injections to stabilise market expectations, restore confidence
[Reuters] Taiwan calls China 'vile' for restricting island's access to WHO on coronavirus
[Reuters] Erdogan says Turkey will not allow Syrian government to advance in Idlib: CNN Turk
[Bloomberg] China Adds Market Support With More Cash, Strong Yuan Fix
[Bloomberg] Xi Jinping Warns Virus May Impact China’s Social Stability
[Bloomberg] Climate Models Are Running Red Hot, and Scientists Don’t Know Why
[NYT] $9 Cabbages, Emergency Pork: Coronavirus Tests China on Food
[WSJ] Chinese Lead Foreign Selling of U.S. Commercial Property
[WSJ] Coronavirus Outbreak a Major Test of China’s System, Says Xi Jinping
[WSJ] Home-Loan Banks May Soon Channel Funds to More Mortgage Players
[FT] Emerging markets set January record for foreign-currency debt
[FT] Global junk bond issuance hits monthly record
[FT] How the invisible hand of the state works in Chinese stocks
Monday Evening Links
[Reuters] Asia shares fragile amid China worries, oil sinks
[Reuters] Stocks jump as China markets reopen, dollar gains
[Reuters] Oil hits 13-month lows as coronavirus cuts demand
[Reuters] U.S. Treasury expects to borrow $367 billion in first quarter
[Bloomberg] Virus Jolts China Economy, Forcing Rethink on Almost Everything
[Bloomberg] Wall Street Gauges of Virus Fear, From Volatility to Dr. Copper
[Bloomberg] Negative Real Yields Show Bond Traders’ Growth Worries Deepening
[Bloomberg] Asia Faces Rate-Cut Pressure to Curb Economic Fallout From Virus
[WSJ] Coronavirus Outbreak a Major Test of China’s System, Says Xi Jinping
[FT] Goldman warns coronavirus to dent 2020 global economic growth
[Reuters] Stocks jump as China markets reopen, dollar gains
[Reuters] Oil hits 13-month lows as coronavirus cuts demand
[Reuters] U.S. Treasury expects to borrow $367 billion in first quarter
[Bloomberg] Virus Jolts China Economy, Forcing Rethink on Almost Everything
[Bloomberg] Wall Street Gauges of Virus Fear, From Volatility to Dr. Copper
[Bloomberg] Negative Real Yields Show Bond Traders’ Growth Worries Deepening
[Bloomberg] Asia Faces Rate-Cut Pressure to Curb Economic Fallout From Virus
[WSJ] Coronavirus Outbreak a Major Test of China’s System, Says Xi Jinping
[FT] Goldman warns coronavirus to dent 2020 global economic growth
Sunday, February 2, 2020
Monday's News Links
[Reuters] Wall Street higher after steep selloff
[Reuters] Global stocks hover near seven-week lows as virus fears hit China markets after holiday
[Reuters] Virus fears wipe $393 billion off China's stock market despite government support moves
[Reuters] China's yuan weakens but resilient yen points to risk recovery
[Reuters] Global stocks hover near seven-week lows as virus fears hit China markets after holiday
[Reuters] Virus fears wipe $393 billion off China's stock market despite government support moves
[Reuters] China's yuan weakens but resilient yen points to risk recovery
[CNBC] Coronavirus updates: Hong Kong closes most border crossings with mainland China, death toll at 361
[Reuters] China accuses U.S. of whipping up panic over virus as stocks tumble
[Reuters] Fearing virus, Hong Kong residents stock up on food, essentials
[Bloomberg] China’s Worst Rout in Years Has 3,257 Stocks Falling by Daily Limit
[Bloomberg] China Considers Lowering 2020 Growth Expectations on Virus
[Bloomberg] Hit to Chinese Property Market From Virus Temporary, Analysts Say
[Reuters] China accuses U.S. of whipping up panic over virus as stocks tumble
[Reuters] Fearing virus, Hong Kong residents stock up on food, essentials
[Bloomberg] China’s Worst Rout in Years Has 3,257 Stocks Falling by Daily Limit
[Bloomberg] China Considers Lowering 2020 Growth Expectations on Virus
[Bloomberg] Hit to Chinese Property Market From Virus Temporary, Analysts Say
[WSJ] Coronavirus Closes China to the World, Straining Global Economy
[WSJ] The New Threat to Energy-Company Bonds: Virus Fears
[WSJ] How Long Can Chinese Property Developers Go Without Sales?
[WSJ] The New Threat to Energy-Company Bonds: Virus Fears
[WSJ] How Long Can Chinese Property Developers Go Without Sales?
Sunday Evening Links
[CNBC] Chinese markets plummet beyond 7% amid virus fears on first trading day after Lunar New Year holiday
[Reuters] Asian shares drop, commodities sink on virus fears after Lunar New Year break
[Yahoo/Bloomberg] U.S. Stock Index Futures Rebound, Paring Two Weeks of Declines
[Reuters] Offshore Chinese yuan up 0.1% vs dollar ahead of China market re-opening
[Reuters] Oil extends decline on concerns about virus' impact on China demand
[Reuters] China cbank unexpectedly cuts reverse repo rates to help economy as virus spreads
[Reuters] China to subsidize interest payments for some firms hit by virus outbreak - state media
[Reuters] China moves to limit short selling as virus looms over market reopening
[Yahoo/Bloomberg] China Vows to Support Market, U.S. Limits Flights: Virus Update
[CNBC] Coronavirus live updates: China says death toll hits 361 as confirmed cases rise to 17,205
[CNN] US travel restrictions go into place Sunday evening to combat coronavirus spread
[Bloomberg] Yen Slips and Aussie Firms as Traders Brace for China Reopening
[Bloomberg] Asia Stocks Set to Drop as China Traders Return: Markets Wrap
[Bloomberg] China Culls 18,000 Chickens After H5N1 Bird Flu Cases in Hunan
[NYT] Wuhan Coronavirus Looks Increasingly Like a Pandemic, Experts Say
[NYT] Virus Pummels Wuhan, a City Short of Supplies and Overwhelmed
[WSJ] Traders Brace for More Stock Volatility
[Reuters] Asian shares drop, commodities sink on virus fears after Lunar New Year break
[Yahoo/Bloomberg] U.S. Stock Index Futures Rebound, Paring Two Weeks of Declines
[Reuters] Offshore Chinese yuan up 0.1% vs dollar ahead of China market re-opening
[Reuters] Oil extends decline on concerns about virus' impact on China demand
[Reuters] China cbank unexpectedly cuts reverse repo rates to help economy as virus spreads
[Reuters] China to subsidize interest payments for some firms hit by virus outbreak - state media
[Reuters] China moves to limit short selling as virus looms over market reopening
[Yahoo/Bloomberg] China Vows to Support Market, U.S. Limits Flights: Virus Update
[CNBC] Coronavirus live updates: China says death toll hits 361 as confirmed cases rise to 17,205
[CNN] US travel restrictions go into place Sunday evening to combat coronavirus spread
[Bloomberg] Yen Slips and Aussie Firms as Traders Brace for China Reopening
[Bloomberg] Asia Stocks Set to Drop as China Traders Return: Markets Wrap
[Bloomberg] China Culls 18,000 Chickens After H5N1 Bird Flu Cases in Hunan
[NYT] Wuhan Coronavirus Looks Increasingly Like a Pandemic, Experts Say
[NYT] Virus Pummels Wuhan, a City Short of Supplies and Overwhelmed
[WSJ] Traders Brace for More Stock Volatility
Saturday, February 1, 2020
Sunday's News Links
[Reuters] China to inject $174 billion of liquidity on Monday as markets reopen
[CNBC] Coronavirus live updates: White House studying economic impact, France evacuates citizens
[AFP] China shuts down city of Wenzhou, far from virus epicentre
[Reuters] China facing global isolation as virus toll rises
[AP] Fears of new virus trigger anti-China sentiment worldwide
[Reuters] Vietnam bans all flights to and from China over coronavirus
[Reuters] Indonesia to stop flights to and from China amid coronavirus epidemic
[Sky News] Panic buying in Hong Kong amid 'alarming' spread of coronavirus
[CNN] Outcasts in their own country, the people of Wuhan are the unwanted faces of China's coronavirus outbreak
[Bloomberg] China Pledges Market Support, Quarantine Expanded: Virus Update
[Bloomberg] China Promises Cash and Support to Calm Financial Markets
[NYT] As New Coronavirus Spread, China’s Old Habits Delayed Fight
[WSJ] China’s Once-Hot Peer-to-Peer Lending Business Is Withering
[FT] China steps in to support financial system as coronavirus spreads
[FT] Global dealmaking gets off to sluggish start in 2020
[FT] Tesla short-sellers take record losses in battle with Elon Musk
[CNBC] Coronavirus live updates: White House studying economic impact, France evacuates citizens
[AFP] China shuts down city of Wenzhou, far from virus epicentre
[Reuters] China facing global isolation as virus toll rises
[AP] Fears of new virus trigger anti-China sentiment worldwide
[Reuters] Vietnam bans all flights to and from China over coronavirus
[Reuters] Indonesia to stop flights to and from China amid coronavirus epidemic
[Sky News] Panic buying in Hong Kong amid 'alarming' spread of coronavirus
[CNN] Outcasts in their own country, the people of Wuhan are the unwanted faces of China's coronavirus outbreak
[Bloomberg] China Pledges Market Support, Quarantine Expanded: Virus Update
[Bloomberg] China Promises Cash and Support to Calm Financial Markets
[NYT] As New Coronavirus Spread, China’s Old Habits Delayed Fight
[WSJ] China’s Once-Hot Peer-to-Peer Lending Business Is Withering
[FT] China steps in to support financial system as coronavirus spreads
[FT] Global dealmaking gets off to sluggish start in 2020
[FT] Tesla short-sellers take record losses in battle with Elon Musk
Saturday's News Links
[Reuters] Earnings volatility set to kick in as coronavirus worries mount
[CNBC] Coronavirus live updates: Death toll passes 250, China cancels tariffs on US virus prevention products
[CNBC] US companies suspend China operations, restrict travel as coronavirus outbreak becomes global crisis
[Reuters] Travel curbs mount on China as virus toll rises
[Reuters] China central bank sees temporary economic impact from virus, pledges support measures
[Reuters] Apple to close all China mainland stores due to virus outbreak
[Reuters] Factbox: Companies feel impact of coronavirus outbreak in China
[Reuters] India raises import taxes in move set to spook some foreign firms
[Bloomberg] China Vows Financial Stability With Markets Bracing for Selloff
[Bloomberg] China Travel Curbs Widen With Global Virus Contagion Fears Rising
[Bloomberg] India Stocks Fall as Country Slashes Taxes, Widens Budget Deficit
[WSJ] In Virus-Hit China, Markets Brace for a Fall as Authorities Urge Calm
[FT] Investors give up stocks for bonds despite frothy returns
[CNBC] Coronavirus live updates: Death toll passes 250, China cancels tariffs on US virus prevention products
[CNBC] US companies suspend China operations, restrict travel as coronavirus outbreak becomes global crisis
[Reuters] Travel curbs mount on China as virus toll rises
[Reuters] China central bank sees temporary economic impact from virus, pledges support measures
[Reuters] Apple to close all China mainland stores due to virus outbreak
[Reuters] Factbox: Companies feel impact of coronavirus outbreak in China
[Reuters] India raises import taxes in move set to spook some foreign firms
[Bloomberg] China Vows Financial Stability With Markets Bracing for Selloff
[Bloomberg] China Travel Curbs Widen With Global Virus Contagion Fears Rising
[Bloomberg] India Stocks Fall as Country Slashes Taxes, Widens Budget Deficit
[WSJ] In Virus-Hit China, Markets Brace for a Fall as Authorities Urge Calm
[FT] Investors give up stocks for bonds despite frothy returns
Friday, January 31, 2020
Weekly Commentary: The First Major Pandemic Scare
January 31 – Bloomberg: “Chinese officials took issue with U.S. comments about the country’s response to the coronavirus outbreak, and promised they would bring the infection under control. ‘U.S. comments are inconsistent with the facts and inappropriate.’ Chinese Ministry of Foreign Affairs Spokeswoman Hua Chunying said… ‘The World Health Organization ‘called on countries to avoid adopting travel bans. Yet shortly afterward, the U.S. went in the opposite direction, and started a very bad turn. It is so unkind.’”
The World Health Organization (WHO) declared the coronavirus outbreak an international public-health emergency, while praising China’s virus containment efforts during its Thursday afternoon press briefing. The DJIA rallied 260 points, apparently on WHO officials’ opposition to travel bans and trade restrictions.
This is an extraordinarily complex developing crisis. Understandably, Beijing fears economic hardship could be pushed into an intractable downward spiral by the world essentially quarantining the entire Chinese nation. Meanwhile, Beijing has taken unprecedented Draconian measures to quarantine 60 million of its citizens. Photographs are circulating of roads surrounding Wuhan and neighboring cities blocked by large boulders and impassible mounds of dirt.
The number of confirmed coronavirus infections jumped 34% on Tuesday, 27% Wednesday, 26% Thursday and 22% on Friday. Almost reaching 12,000, the outbreak has escalated much more rapidly and has already surpassed the SARS peak. If cases expand 15% daily over the next two weeks, the number of infections would quickly surpass 80,000. The official tally of coronavirus cases is likely but a fraction of those actually infected.
January 29 – Bloomberg (Jason Gale): “The case of a 10-year-old boy who was diagnosed with the Wuhan coronavirus even though he showed no symptoms is raising concern that people may be spreading the virus undetected by the front-line screening methods implemented to contain the epidemic. The boy was part of a family who visited relatives in the central Chinese city over the New Year. While his parents and grandparents fell ill and were treated after they returned to their hometown, the 10-year-old appeared healthy and was only diagnosed with the virus after his parents insisted he too was tested, his doctors said, adding that he ‘was shedding virus without symptoms.’”
Friday's U.S. Coronavirus Taskforce press briefing was not comforting. A U.S. public health emergency was declared, with significant travel restrictions imposed for travelers from China. U.S. citizens returning from China are now subject to quarantine, while “foreign nationals” that have been in China within the previous 14 days will be denied entry. Risk to the U.S. public is said to be low. However, the Taskforce covered a list of factors that made the situation extraordinary, including asymptomatic virus transmission and issues with the accuracy of current coronavirus testing. CNBC: “CDC issues mandatory quarantine for first time in more than 50 years to Wuhan passengers in California.”
Hopefully, China's herculean efforts are successful in rapidly getting their outbreak under control. In the meantime, this pandemic is replete with great uncertainty. It will surely be months before pilots and flight attendants feel safe flying into China. Tourists, business travelers, students and academics will avoid visiting for some time. WHO and Chinese officials are wishful thinking if they actually believe travel and trade won’t face large-scale disruptions. Investment – business and financial – will be on hold. If things go poorly, a run on China’s financial assets and currency can’t be ruled out.
An assortment of Bloomberg headlines: “At Least Two-Thirds of China Economy to Stay Shut Next Week.” “China Plant Closures to Accelerate, IHS says.” “Shipping Rates Plunge 90% as Coronavirus Paralyzes Cargoes.” “Singapore’s Ban on Chinese Visitors to Have Severe Impact.” Other headlines: “Delta, United and American Airlines are Suspending All Flights Between the U.S. and Mainland China.” “There Could be More than 75,000 Cases of Coronavirus in China, Researchers Say.” “Coronavirus Outbreak Tests World’s Dependence on China.” “Trump Administration Temporarily Bars Foreigners Who Visited China.”
Welcome to The First Major Pandemic Scare for – after a most freakishly protracted boom – a highly integrated world. Moreover, unprecedented monetary stimulus, debt growth, financial flows and speculation ensure unmatched latent financial fragility – in China and globally. Throw in unparalleled mal- and over-investment and other economic imbalances and the world today confronts lurking economic fragilities. Central banks have ensured that markets (trading at near all-time highs) are keen to disregard myriad risks. This dynamic has greatly exacerbated the risk of global financial and economic disruption.
January 31 – Wall Street Journal (Mike Bird): “As the spread of the new coronavirus in China causes more factory shutdowns, the effect on global industrial supply chains could linger for years. China now makes up more than twice the share of global merchandise exports it did in 2003, when the SARS virus hit. Guangdong province alone exported more in 2018 than China did as a whole 17 years ago. Manufacturers already gripe about the effect of the Lunar New Year holiday… on their business as Chinese factories shutter. But the public health response to the virus this year effectively means extending the holiday. China’s industrial output could be running at a similarly low level for a much longer period.”
January 30 – Financial Times (Kathrin Hille, Mercedes Ruehl and Christian Shepherd): “The Wuhan coronavirus is wreaking havoc within the global technology supply chain, as many Chinese provinces extend the new year holiday in an effort to contain the spread of the deadly disease. Underlining the concerns for the tech industry, Taiwan’s Hon Hai Precision Industry, which is also known as Foxconn and makes the majority of the world’s iPhones, suffered its biggest share price fall in almost 20 years on Thursday.”
Markets celebrated this week’s stellar earnings reports from the technology heavyweights. Stock prices at record highs envisage nothing but booming earnings as far as the eye can see. That’s fine, but there is today major uncertainty with respect to global supply chains – technology and otherwise. And does Chinese consumer demand bounce right back as everyone assumes? Business investment?
I closely monitor China’s monthly Credit data. Bank loans to China’s Households rose 15.5% over the past year, 37% in two years and 139% in five. This data series doesn’t go back to the 2003 SARS outbreak. Yet Household borrowings surged almost 13-fold since 2007 to about $8.0 TN. The Chinese consumer not only has much more debt than ever before, she and he have unprecedented exposure to inflated apartment prices, securities markets and financial instruments more generally.
With expectations now incredibly inflated, there is maximum vulnerability these days to a rather precipitous reassessment. Even before this outbreak, the economy, apartment prices, Chinese finance and policymaking were all increasingly susceptible to a crisis of confidence. At this point, I’m skeptical Humpty Dumpty can be so simply restored. As a society, there exists all the essential elements for a period of troubling insecurity.
Chinese markets are to open Monday. We can assume the People’s Bank of China and the so-called “national team” will be playing tough defense. We’ll have to wait a couple weeks for the data, but it will be interesting to see the virus impact on Chinese Credit. Traditionally, January is by far the largest lending month of the year. Last January saw a remarkable $680 billion increase in “All-System” Aggregate Finance. I would expect much slower lending growth and problematic interruptions in the flow of finance, especially to heavily impacted cities and regions. This could prove a backbreaker for scores of struggling businesses (and banks?).
A few facts courtesy of Friday’s Bloomberg Businessweek article, “Coronavirus Is More Dangerous for the Global Economy Than SARS.” Looking back, SARS “knocked two full percentage points off China’s economic growth, which dipped from 11.1% in the first quarter of 2003 to 9.1% the following quarter. With the outbreak contained, growth recovered to 10% in the third quarter.” The “types of industries that were most affected by government-imposed bans on travel and other measures to contain the outbreak—such as retail, restaurants, entertainment, and tourism—accounted for 42% of gross domestic product. Since then, services industries’ share of GDP has risen to 54%.” “Back in 2003, China’s GDP was an insignificant 4% of the global total. That share now stands at 17%...”
“Virus May Drag China GDP to 4.5%...”, read a Friday Bloomberg headline. Other estimates have growth slowing to 5.0%.” Yet a full-fledged economic contraction seems a high probability. At least that’s what industrial commodities prices are suggesting. Copper dropped 6.2% this week and 9.8% for the “worst month since 2015.” Nickel fell 5.5% this week, Palladium 5.7%, Platinum 4.5%, Lead 7.2%, Tin 5.9%, Zinc 7.1% and Aluminum 3.6%. Crude (WTI) sank 4.2% this week, pushing the January decline to 15.4%. Ominously, the commodities self-off broadened this week. Coffee sank 6.8%, Wheat 3.4%, Soybeans 3.3%, Cotton 2.7% and Corn 1.5%.
There were ominous moves in global equities. Hong Kong’s China Financials Index sank 7.1%, boosting January losses to 10.4%. Taiwan’s TAIEX equities index fell 4.9%. South Korea’s KOSPI index sank 6.5%. The Jakarta Composite was down 4.9%. The Bangkok SET slumped 3.6%, and the Philippines PSE index dropped 5.5%. Germany’s DAX index fell 4.4%, and UK’s FTSE 100 dropped 4.0%. Brazil’s Bovespa index sank 3.9%.
From a global perspective, dire market signals continue to blare from sovereign safe haven bonds. Ten-year Treasury yields dropped another 10 bps this week to 1.51%, the low since September 4th. German bund yields fell 10 bps to negative 0.43%, and French 10-year yields were down 10 bps to negative 0.18%. Japanese JGB yields declined five bps to negative 0.07%. For the month, Treasury yields were down 41 bps and bund yields dropped 25 bps. In the realm of the wacky, Italian 10-year yields sank 30 bps this week (48bps for the month) to 0.94%.
Bond markets are increasingly anticipating a potent solution of antiviral central bank stimulus administered to neutralize the Novel Wuhan Coronavirus (2019- nCoV). Once eradicated, central bankers can move expeditiously to counteract CO2 and climate change. Untold QE will be available in the event of political or geopolitical instability. Formations of bazookas will be primed for any equities correction. Pundits reckon the Fed will be ready to respond in the event of a 5% market pullback. It’s good to have insurance against giving back any more than a fraction of last year’s huge gains. Not sure why a slug of monetary stimulus couldn’t do the trick for homelessness, placate Middle East strife and even bridge the divide between increasingly Balkanized societies and nations.
January 29 – Bloomberg (Rich Miller, Christopher Condon, and Matthew Boesler): “Federal Reserve Chairman Jerome Powell signaled that the central bank would pull out the stops to combat a global disinflationary downdraft, foreshadowing a potential shift toward an easier monetary policy over time. Speaking to reporters… after the Fed left its benchmark interest rate unchanged, Powell said he is intent on evading the downward spiral in inflation and inflation expectations that’s bedeviled other countries. ‘We have seen this dynamic play out in other economies around the world, and we are determined to avoid it here in the U.S.,’ he said.”
I vividly recall talk of economic depression in the aftermath of the 1987 stock market crash. Deflation was a major worry in the early nineties after the collapse of various late-eighties Bubbles (S&Ls, coastal real estate, junk bonds, M&A, etc.). Global policymakers were fretting deflationary forces after the 1995 Mexico collapse, SE Asia in ’97 and Russia/LTCM in 1998. The Fed was ready to resort to “helicopter money” and the “government printing press” to counteract the powerful forces of deflation after the collapse of the “tech” Bubble early in the new Millennium. And it’s now been 11 years of history’s most radical monetary stimulus to fight deflationary forces since the collapse of the last Bubble.
It all amounts to the greatest misdiagnosis in the history of central banking. The predominant risk has not been – and is not today – disinflation or deflation. Bubbles remain the overriding risk – and further inflation only intensifies historic Bubble risk. To be sure, foolhardy policy measures that work to neutralize Bubble deflation only ensure larger and more threatening Bubbles. Last year’s Monetary Fiasco unleashed precarious “blow-off” speculative excess – stocks, bonds, corporate Credit and structured finance.
The entire world inflated into the proverbial Bubble in Search of a Pin. At the epicenter of the global Bubble, trouble in China has been headlining my list of potential catalysts. The coronavirus outbreak poses a clear and present danger of pushing China into a dangerous predicament. The most alarming aspect of all this: few contemplate China as a catalyst because virtually everyone remains oblivious to Global Bubble Risk. How about those fantastic earnings from Apple, Tesla, Microsoft and Amazon…
The World Health Organization (WHO) declared the coronavirus outbreak an international public-health emergency, while praising China’s virus containment efforts during its Thursday afternoon press briefing. The DJIA rallied 260 points, apparently on WHO officials’ opposition to travel bans and trade restrictions.
This is an extraordinarily complex developing crisis. Understandably, Beijing fears economic hardship could be pushed into an intractable downward spiral by the world essentially quarantining the entire Chinese nation. Meanwhile, Beijing has taken unprecedented Draconian measures to quarantine 60 million of its citizens. Photographs are circulating of roads surrounding Wuhan and neighboring cities blocked by large boulders and impassible mounds of dirt.
The number of confirmed coronavirus infections jumped 34% on Tuesday, 27% Wednesday, 26% Thursday and 22% on Friday. Almost reaching 12,000, the outbreak has escalated much more rapidly and has already surpassed the SARS peak. If cases expand 15% daily over the next two weeks, the number of infections would quickly surpass 80,000. The official tally of coronavirus cases is likely but a fraction of those actually infected.
January 29 – Bloomberg (Jason Gale): “The case of a 10-year-old boy who was diagnosed with the Wuhan coronavirus even though he showed no symptoms is raising concern that people may be spreading the virus undetected by the front-line screening methods implemented to contain the epidemic. The boy was part of a family who visited relatives in the central Chinese city over the New Year. While his parents and grandparents fell ill and were treated after they returned to their hometown, the 10-year-old appeared healthy and was only diagnosed with the virus after his parents insisted he too was tested, his doctors said, adding that he ‘was shedding virus without symptoms.’”
Friday's U.S. Coronavirus Taskforce press briefing was not comforting. A U.S. public health emergency was declared, with significant travel restrictions imposed for travelers from China. U.S. citizens returning from China are now subject to quarantine, while “foreign nationals” that have been in China within the previous 14 days will be denied entry. Risk to the U.S. public is said to be low. However, the Taskforce covered a list of factors that made the situation extraordinary, including asymptomatic virus transmission and issues with the accuracy of current coronavirus testing. CNBC: “CDC issues mandatory quarantine for first time in more than 50 years to Wuhan passengers in California.”
Hopefully, China's herculean efforts are successful in rapidly getting their outbreak under control. In the meantime, this pandemic is replete with great uncertainty. It will surely be months before pilots and flight attendants feel safe flying into China. Tourists, business travelers, students and academics will avoid visiting for some time. WHO and Chinese officials are wishful thinking if they actually believe travel and trade won’t face large-scale disruptions. Investment – business and financial – will be on hold. If things go poorly, a run on China’s financial assets and currency can’t be ruled out.
An assortment of Bloomberg headlines: “At Least Two-Thirds of China Economy to Stay Shut Next Week.” “China Plant Closures to Accelerate, IHS says.” “Shipping Rates Plunge 90% as Coronavirus Paralyzes Cargoes.” “Singapore’s Ban on Chinese Visitors to Have Severe Impact.” Other headlines: “Delta, United and American Airlines are Suspending All Flights Between the U.S. and Mainland China.” “There Could be More than 75,000 Cases of Coronavirus in China, Researchers Say.” “Coronavirus Outbreak Tests World’s Dependence on China.” “Trump Administration Temporarily Bars Foreigners Who Visited China.”
Welcome to The First Major Pandemic Scare for – after a most freakishly protracted boom – a highly integrated world. Moreover, unprecedented monetary stimulus, debt growth, financial flows and speculation ensure unmatched latent financial fragility – in China and globally. Throw in unparalleled mal- and over-investment and other economic imbalances and the world today confronts lurking economic fragilities. Central banks have ensured that markets (trading at near all-time highs) are keen to disregard myriad risks. This dynamic has greatly exacerbated the risk of global financial and economic disruption.
January 31 – Wall Street Journal (Mike Bird): “As the spread of the new coronavirus in China causes more factory shutdowns, the effect on global industrial supply chains could linger for years. China now makes up more than twice the share of global merchandise exports it did in 2003, when the SARS virus hit. Guangdong province alone exported more in 2018 than China did as a whole 17 years ago. Manufacturers already gripe about the effect of the Lunar New Year holiday… on their business as Chinese factories shutter. But the public health response to the virus this year effectively means extending the holiday. China’s industrial output could be running at a similarly low level for a much longer period.”
January 30 – Financial Times (Kathrin Hille, Mercedes Ruehl and Christian Shepherd): “The Wuhan coronavirus is wreaking havoc within the global technology supply chain, as many Chinese provinces extend the new year holiday in an effort to contain the spread of the deadly disease. Underlining the concerns for the tech industry, Taiwan’s Hon Hai Precision Industry, which is also known as Foxconn and makes the majority of the world’s iPhones, suffered its biggest share price fall in almost 20 years on Thursday.”
Markets celebrated this week’s stellar earnings reports from the technology heavyweights. Stock prices at record highs envisage nothing but booming earnings as far as the eye can see. That’s fine, but there is today major uncertainty with respect to global supply chains – technology and otherwise. And does Chinese consumer demand bounce right back as everyone assumes? Business investment?
I closely monitor China’s monthly Credit data. Bank loans to China’s Households rose 15.5% over the past year, 37% in two years and 139% in five. This data series doesn’t go back to the 2003 SARS outbreak. Yet Household borrowings surged almost 13-fold since 2007 to about $8.0 TN. The Chinese consumer not only has much more debt than ever before, she and he have unprecedented exposure to inflated apartment prices, securities markets and financial instruments more generally.
With expectations now incredibly inflated, there is maximum vulnerability these days to a rather precipitous reassessment. Even before this outbreak, the economy, apartment prices, Chinese finance and policymaking were all increasingly susceptible to a crisis of confidence. At this point, I’m skeptical Humpty Dumpty can be so simply restored. As a society, there exists all the essential elements for a period of troubling insecurity.
Chinese markets are to open Monday. We can assume the People’s Bank of China and the so-called “national team” will be playing tough defense. We’ll have to wait a couple weeks for the data, but it will be interesting to see the virus impact on Chinese Credit. Traditionally, January is by far the largest lending month of the year. Last January saw a remarkable $680 billion increase in “All-System” Aggregate Finance. I would expect much slower lending growth and problematic interruptions in the flow of finance, especially to heavily impacted cities and regions. This could prove a backbreaker for scores of struggling businesses (and banks?).
A few facts courtesy of Friday’s Bloomberg Businessweek article, “Coronavirus Is More Dangerous for the Global Economy Than SARS.” Looking back, SARS “knocked two full percentage points off China’s economic growth, which dipped from 11.1% in the first quarter of 2003 to 9.1% the following quarter. With the outbreak contained, growth recovered to 10% in the third quarter.” The “types of industries that were most affected by government-imposed bans on travel and other measures to contain the outbreak—such as retail, restaurants, entertainment, and tourism—accounted for 42% of gross domestic product. Since then, services industries’ share of GDP has risen to 54%.” “Back in 2003, China’s GDP was an insignificant 4% of the global total. That share now stands at 17%...”
“Virus May Drag China GDP to 4.5%...”, read a Friday Bloomberg headline. Other estimates have growth slowing to 5.0%.” Yet a full-fledged economic contraction seems a high probability. At least that’s what industrial commodities prices are suggesting. Copper dropped 6.2% this week and 9.8% for the “worst month since 2015.” Nickel fell 5.5% this week, Palladium 5.7%, Platinum 4.5%, Lead 7.2%, Tin 5.9%, Zinc 7.1% and Aluminum 3.6%. Crude (WTI) sank 4.2% this week, pushing the January decline to 15.4%. Ominously, the commodities self-off broadened this week. Coffee sank 6.8%, Wheat 3.4%, Soybeans 3.3%, Cotton 2.7% and Corn 1.5%.
There were ominous moves in global equities. Hong Kong’s China Financials Index sank 7.1%, boosting January losses to 10.4%. Taiwan’s TAIEX equities index fell 4.9%. South Korea’s KOSPI index sank 6.5%. The Jakarta Composite was down 4.9%. The Bangkok SET slumped 3.6%, and the Philippines PSE index dropped 5.5%. Germany’s DAX index fell 4.4%, and UK’s FTSE 100 dropped 4.0%. Brazil’s Bovespa index sank 3.9%.
From a global perspective, dire market signals continue to blare from sovereign safe haven bonds. Ten-year Treasury yields dropped another 10 bps this week to 1.51%, the low since September 4th. German bund yields fell 10 bps to negative 0.43%, and French 10-year yields were down 10 bps to negative 0.18%. Japanese JGB yields declined five bps to negative 0.07%. For the month, Treasury yields were down 41 bps and bund yields dropped 25 bps. In the realm of the wacky, Italian 10-year yields sank 30 bps this week (48bps for the month) to 0.94%.
Bond markets are increasingly anticipating a potent solution of antiviral central bank stimulus administered to neutralize the Novel Wuhan Coronavirus (2019- nCoV). Once eradicated, central bankers can move expeditiously to counteract CO2 and climate change. Untold QE will be available in the event of political or geopolitical instability. Formations of bazookas will be primed for any equities correction. Pundits reckon the Fed will be ready to respond in the event of a 5% market pullback. It’s good to have insurance against giving back any more than a fraction of last year’s huge gains. Not sure why a slug of monetary stimulus couldn’t do the trick for homelessness, placate Middle East strife and even bridge the divide between increasingly Balkanized societies and nations.
January 29 – Bloomberg (Rich Miller, Christopher Condon, and Matthew Boesler): “Federal Reserve Chairman Jerome Powell signaled that the central bank would pull out the stops to combat a global disinflationary downdraft, foreshadowing a potential shift toward an easier monetary policy over time. Speaking to reporters… after the Fed left its benchmark interest rate unchanged, Powell said he is intent on evading the downward spiral in inflation and inflation expectations that’s bedeviled other countries. ‘We have seen this dynamic play out in other economies around the world, and we are determined to avoid it here in the U.S.,’ he said.”
I vividly recall talk of economic depression in the aftermath of the 1987 stock market crash. Deflation was a major worry in the early nineties after the collapse of various late-eighties Bubbles (S&Ls, coastal real estate, junk bonds, M&A, etc.). Global policymakers were fretting deflationary forces after the 1995 Mexico collapse, SE Asia in ’97 and Russia/LTCM in 1998. The Fed was ready to resort to “helicopter money” and the “government printing press” to counteract the powerful forces of deflation after the collapse of the “tech” Bubble early in the new Millennium. And it’s now been 11 years of history’s most radical monetary stimulus to fight deflationary forces since the collapse of the last Bubble.
It all amounts to the greatest misdiagnosis in the history of central banking. The predominant risk has not been – and is not today – disinflation or deflation. Bubbles remain the overriding risk – and further inflation only intensifies historic Bubble risk. To be sure, foolhardy policy measures that work to neutralize Bubble deflation only ensure larger and more threatening Bubbles. Last year’s Monetary Fiasco unleashed precarious “blow-off” speculative excess – stocks, bonds, corporate Credit and structured finance.
The entire world inflated into the proverbial Bubble in Search of a Pin. At the epicenter of the global Bubble, trouble in China has been headlining my list of potential catalysts. The coronavirus outbreak poses a clear and present danger of pushing China into a dangerous predicament. The most alarming aspect of all this: few contemplate China as a catalyst because virtually everyone remains oblivious to Global Bubble Risk. How about those fantastic earnings from Apple, Tesla, Microsoft and Amazon…
For the Week:
The S&P500 dropped 2.1% (down 0.2% y-t-d), and the Dow fell 2.5% (down 1.0%). The Utilities gained 0.9% (up 6.9%). The Banks slumped 2.7% (down 7.6%), and the Broker/Dealers declined 1.4% (unchanged). The Transports sank 4.5% (down 3.1%). The S&P 400 Midcaps fell 2.8% (down 2.7%), and the small cap Russell 2000 dropped 2.9% (down 3.3%). The Nasdaq100 declined 1.6% (up 3.0%). The Semiconductors sank 7.0% (down 3.2%). The Biotechs fell 2.5% (down 4.7%). Though bullion was up $18, the HUI gold stock index declined 0.8% (down 3.0%).
Three-month Treasury bill rates ended the week at 1.51%. Two-year government yields sank 18 bps to 1.31% (down 26bps y-t-d). Five-year T-note yields fell 19 bps to 1.31% (down 38bps). Ten-year Treasury yields dropped 18 bps to 1.51% (down 41bps). Long bond yields declined 13 bps to 2.00% (down 39bps). Benchmark Fannie Mae MBS yields dropped 11 bps to 2.38% (down 34bps).
Greek 10-year yields fell 14 bps to 1.16% (down 28bps y-t-d). Ten-year Portuguese yields declined 11 bps to 0.27% (down 18bps). Italian 10-year yields sank 30 bps to 0.94% (down 48bps). Spain's 10-year yields fell 11 bps to 0.24% (down 23bps). German bund yields dropped 10 bps to negative 0.43% (down 25bps). French yields fell 10 bps to negative 0.18% (down 29bps). The French to German 10-year bond spread was little changed at 25 bps. U.K. 10-year gilt yields declined four bps to 0.52% (down 30bps). U.K.'s FTSE equities index sank 4.0% (down 3.4%).
Japan's Nikkei Equities Index slumped 2.6% (down 1.9% y-t-d). Japanese 10-year "JGB" yields declined five bps to negative 0.07% (down 6bps y-t-d). France's CAC40 dropped 3.6% (down 2.9%). The German DAX equities index sank 4.4% (down 2.0%). Spain's IBEX 35 equities index fell 2.0% (down 1.9%). Italy's FTSE MIB index dropped 3.1% (down 1.1%). EM equities were under pressure. Brazil's Bovespa index sank 3.9% (down 1.6%), and Mexico's Bolsa declined 2.3% (up 1.3%). South Korea's Kospi index was clobbered 5.7% (down 3.6%). India's Sensex equities index fell 2.1% (down 1.2%). China's Shanghai Exchange will open back up Monday (down 2.4%). Turkey's Borsa Istanbul National 100 index dropped 2.5% (up 4.1%). Russia's MICEX equities index fell 2.2% (up 1.0%).
Investment-grade bond funds saw inflows of $4.382 billion, while junk bond funds posted outflows of $2.869 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates dropped nine bps to 3.51% (down 95bps y-o-y). Fifteen-year rates declined four bps to 3.00% (down 89bps). Five-year hybrid ARM rates fell four bps to 3.24% (down 72bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 21 bps to 3.74% (down 66bps).
Federal Reserve Credit last week added $0.9bn to $4.115 TN, with a 20-week gain of $388 billion. Over the past year, Fed Credit expanded $114bn, or 2.9%. Fed Credit inflated $1.304 Trillion, or 46%, over the past 377 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt surged $21.2 billion last week to $3.434 TN. "Custody holdings" increased $20.3 billion, or 0.6%, y-o-y.
M2 (narrow) "money" supply surged $62.3bn last week to a record $15.460 TN. "Narrow money" surged $1.023 TN, or 7.1%, over the past year. For the week, Currency increased $1.9bn. Total Checkable Deposits jumped $28.1bn, and Savings Deposits expanded $26.3bn. Small Time Deposits slipped $1.8bn. Retail Money Funds rose $7.8bn.
Total money market fund assets declined $12.8bn to $3.621 TN, with institutional money fund assets declining $6.6bn to $2.273 TN. Total money funds surged $583bn y-o-y, or 19.2%.
Total Commercial Paper gained $4.4bn to $1.119 TN. CP was up $40.9bn, or 3.8% year-over-year.
Currency Watch:
For the week, the U.S. dollar index declined 0.5% to 97.39 (up 0.9% y-t-d). For the week on the upside, the British pound increased 1.0%, the Japanese yen 0.9%, the Swiss franc 0.9%, and the euro 0.6%. On the downside, the South African rand declined 4.2%, the Brazilian real 2.3%, the New Zealand dollar 2.2%, the Australian dollar 2.1%, the South Korean won 1.9, the Norwegian krone 1.7%, the Singapore dollar 1.0%, the Canadian dollar 0.7%, the Swedish krona 0.6% and the Mexican peso 0.3%. The Chinese off-shore renminbi declined 0.97% versus the dollar this week (down 0.52% y-t-d).
Commodities Watch:
January 27 – Bloomberg (Ranjeetha Pakiam): “Gold is once again showcasing its long-standing reputation as an effective haven in troubled times, trading near the highest close in more than six years on rising concern over the economic and human impact of China’s deadly coronavirus.”
January 29 – Financial Times (Henry Sanderson): “Investors around the world are hurrying back to bullion. Holdings in gold-backed exchange traded funds have risen to their highest levels in seven years, following $19.2bn in inflows last year. Analysts say interest has picked up for a variety of reasons, including fears over slowdowns in big economies, rising geopolitical risks and an apparent loss of faith in traditional ‘haven’ assets such as Japan’s yen. But chief among them is a giant mound of negative-yielding debt, now tipping the scales at more than $13tn. If buyers of bonds are being asked to pay for the privilege of holding them to maturity, then the appeal of gold — which yields nothing but also costs nothing to hold on to — is burnished.”
January 26 – Bloomberg (James Poole): “Crop futures traded in Chicago sank as China’s death toll from the coronavirus surged amid government reports that the infection was spreading more quickly, threatening demand in the world’s largest consumer of agricultural commodities and the biggest soybean importer. Soybeans dropped below $9 a bushel for the first time since early December and have lost more than 6% this month. Corn was down over 1% and wheat fell 2% as selling gripped global financial markets in a deepening risk-off mood.”
The Bloomberg Commodities Index dropped 3.2% (down 7.5% y-t-d). Spot Gold advanced 1.1% to $1,589 (up 4.7%). Silver slipped 0.6% to $18.012 (up 0.5%). WTI crude dropped $2.63 to $51.56 (down 15.6%). Gasoline declined 0.9% (down 11%), and Natural Gas fell 2.4% (down 16%). Copper sank 6.2% (down 10%). Wheat dropped 3.4% (down 1%). Corn fell 1.5% (down 2%).
Market Instability Watch:
January 30 – Bloomberg (Sofia Horta e Costa and Tian Chen): “Every other market has already reacted to the deadly virus threatening China’s economy. Soon it will be China’s turn, and it’s likely to be brutal. Stocks and commodities will almost certainly sink when financial markets reopen Monday for the first time since Jan. 23, while bond yields will drop. For equities, the declines are likely to be exacerbated by the amount of leverage in the market -- near the highest in 11 months. That could create a downward spiral where steep losses become steeper as traders face margin calls.”
January 27 – Bloomberg (Sam Potter and John Ainger): “The global rush for safer assets has fueled a huge jump in the world’s stockpile of negative-yielding bonds, snapping months of decline in the value of subzero debt. The pool of securities with a yield below zero surged by $1.16 trillion last week, the largest weekly increase since at least 2016 when Bloomberg began tracking the data daily. Another injection looked certain on Monday, as investors worldwide ditched riskier assets and piled into bonds amid mounting fears over a deadly virus spreading from China.”
January 27 – Bloomberg: “China’s financial markets will remain closed until next Monday after authorities extended the Lunar New Year break by three days as they grapple with the worsening virus crisis. Trading will resume Feb. 3, the Shanghai and Shenzhen stock exchanges said. Shanghai authorities separately advised that companies shouldn’t start work until at least Feb. 9.”
January 26 – Reuters (Ghaida Ghantous): “Lebanon’s central bank said on Saturday there would be no ‘haircut’ on deposits at banks due to the country’s financial crisis, responding to concerns voiced by a prominent Arab billionaire about risks to foreign investments there.”
January 29 – Bloomberg (Annie Lee): “The sizzling start to the year for Chinese company dollar bond sales risks fading as the coronavirus epidemic darkens investor mood. Bond offerings have totaled about $27 billion so far this month, the busiest pace in January ever even before the Lunar New Year holiday…”
January 28 – Wall Street Journal (James Mackintosh): “The world’s business elite is convinced that Donald Trump will win a second term in the White House in November, and investors seem to believe there’s little risk they will end up victims of the U.S. election. In reality, investors face triple uncertainty about the outcome—and should be concerned. The election is highly likely to be close, because modern America is split down the middle—and that makes it inherently uncertain. The Democratic candidate isn’t yet chosen, and could be radical. And a victory by Mr. Trump might not provide the relief that investors expect. Discussions with CEOs and executives from the U.S. and Europe at the World Economic Forum in Davos last week showed great confidence that Mr. Trump will win.”
China Watch:
January 30 – Bloomberg: “More than a dozen Chinese provinces announced an extension of the current Lunar New Year holiday by more than a week as the nation attempts to halt the spread of the novel coronavirus that has killed hundreds of people and sickened thousands. Fourteen provinces and cities have said businesses need not start operations until at least the second week of February. They accounted for almost 69% of China’s gross domestic product in 2019… The 14 provinces included in the extended holiday were the source of 78% of China’s exports in December last year… Those same provinces account for 90% of copper smelting, at least 60% of steel production, 65% of crude oil refining and 40% of coal output.”
January 31 – Bloomberg (Tara Patel, Masatsugu Horie and Chester Dawson): “Forget about clinging to hopes that China, the world’s largest car market, will recover from its unprecedented two-year slump anytime soon. Though concrete estimates on the financial toll of the coronavirus outbreak are still scarce, signs are emerging that the final cost will far outweigh that of the 2003 SARS epidemic, when China’s auto market was one-sixth the size it is today and smaller than that of Japan. Companies from Tesla Inc. to Volkswagen AG and Toyota Motor Corp. have warned they anticipate disruptions, while a top parts supplier predicted automakers will cut China production 15% this quarter. China’s car sales were already heading for the lowest in at least five years before the current outbreak…”
January 27 – Wall Street Journal (James T. Areddy): “China was counting on consumers to underpin its already slowing economy. Now, authorities are advising people to stay home, and many residents are too frightened anyway to eat out, shop, see movies or travel as a deadly virus passes person to person. Anxiety may be spreading faster than the coronavirus that emerged from the central Chinese city of Wuhan in recent weeks. That adds risks to what was already expected to be a very challenging year for the economy in China. Many services core to China’s consumer boom are grinding to a halt as people forgo plans to spend money during the country’s biggest annual holiday…”
January 29 – Bloomberg (Eric Lam): “Rising food costs in China have added to the country’s growing list of concerns as authorities struggle to contain the impact of a rapidly spreading viral outbreak. The China Shouguang vegetable price index, a daily indicator of the nation’s produce, surged 4.9% to its highest level in almost four years at 195.45… The surge in vegetable costs is another strain on household budgets already stretched by elevated pork prices from swine fever. Adding to inflation pressures, consumers and businesses alike may seek to hoard essential items in response to efforts to contain the virus, said Sean Darby, global equity strategist with Jefferies… ‘The shock of supply chains being disrupted will probably lead to households and businesses ‘overstocking’ in anticipation of further transport restrictions,’ Darby said… ‘This can cause a ‘run’ on essential items as well as critical parts and components -- potentially leading to a spike in inflation.’”
January 30 – Financial Times (Christian Shepherd and Sue-Lin Wong): “When the mayor of Wuhan was asked on China’s state broadcaster why he had not disclosed the severity of the coronavirus outbreak in his city, he replied that his hands were tied by laws that required him to seek authorisation from Beijing. ‘I hope everyone can understand why there wasn’t timely disclosure,’ Zhou Xianwang said in the unusually frank interview… ‘After I received information, I needed authorisation before making it public,’ he explained. In a country that insists on political unity, the interview stands as a rare example of stresses between central and local government breaking into the open, as China’s response to the deadly respiratory virus becomes one of the biggest challenges to Xi Jinping’s presidency since he took power in 2012.”
January 29 – New York Times (Li Yuan): “With anger rising over the response to the coronavirus outbreak, even some with ties to China's leaders have called for acknowledging divisions, not papering them over. From the outside, China's Communist Party appears powerful and effective. It has tightened its control over Chinese politics and culture, the economy and everyday life, projecting the image of a gradually unifying society. The coronavirus outbreak has blown up that facade. Staff members at prestigious Union Hospital in Wuhan, the city at the center of the outbreak, have joined others around China in begging online for medical supplies. Videos show patients in Wuhan beseeching medical staff for treatment. Residents of Wuhan and its province, Hubei, are being chased off planes and ousted from hotels and villages. Online critics are comparing current leaders unfavorably with past ones… As cracks show in China's veneer of stability, even some with ties to the party leadership are calling for those in power to shine light on divisions rather than papering them over.”
January 29 – Bloomberg (Eric Pfanner): “Airlines halt flights from China. Schools in Europe uninvite exchange students. Restaurants in South Korea turn away Chinese customers. As a deadly virus spreads beyond China, governments, businesses and educational institutions are struggling to find the right response. Safeguarding public health is a priority. How to do that without stigmatizing the entire population of the country where the outbreak began -- and where nearly a fifth of all humans reside -- is the challenge.”
January 31 – Bloomberg (Alfred Liu): “China’s banking system is facing greater risks than it seems as some bigger regional lenders are under pressure just like their smaller counterparts. ‘Some of the relatively larger stress-tested banks could require sizable recapitalization,’ said S&P Global Ratings credit analyst Ming Tan, citing tests conducted by the People’s Bank of China. China’s vast network of regional banks is under pressure amid the slowest economic growth in three decades and rising loan defaults.”
January 26 – Financial Times (Henry Sanderson and Don Weinland): “China’s largest lithium producer is struggling to repay debt that helped finance an aggressive overseas expansion, the latest Chinese company to hit setbacks going global. Tianqi Lithium is facing mounting pressure to repay part of a $3.5bn loan from state-owned Citic Bank this year, which it used to buy a 24% stake in Chilean lithium producer SQM in May 2018. The global lithium market has been hit by rising supply from new mines…”
Trump Administration Watch:
January 27 – Reuters (Lisa Lambert and Makini Brice): “The U.S. State Department on Monday warned against visiting China and said Americans should not travel to the Hubei province, given that the province's city of Wuhan is ground zero for a new deadly coronavirus.”
Federal Reserve Watch:
January 29 – CNBC (Jeff Cox): “While the Federal Reserve kept its benchmark rate steady, it did make an adjustment… to the interest it pays on funds stored at the central bank. The Fed boosted the interest on excess reserves rate 5 bps to 1.6% even as it kept the benchmark funds rate in a target range of 1.5% to 1.75%. Fed officials characterize the moves on the IOER as technical adjustments, though markets are watching the situation because it also is a reflection of where the funds rate trades while the central bank figures out the level where it needs to keep its balance sheet.”
January 29 – Reuters (Jonnelle Marte): “The Federal Reserve will keep injecting cash into the banking system and buying billions of dollars of Treasury bills for a few more months, but it aims to start dialing back on both in the second quarter, Chair Jerome Powell said… Since mid-October, the Fed has been buying $60 billion a month of T-bills, and reserve levels have risen by more than $270 billion since then to roughly $1.67 trillion. Powell said… officials expect to reach an ‘ample’ level of reserves, where the market is less reliant on the Fed, at some point in the second quarter.”
January 27 – Associated Press (Christopher Rugaber): “For the first time in years, Federal Reserve officials will hold their latest policy meeting this week feeling broadly satisfied with where interest rates are and with seemingly no inclination to change them anytime soon. Chairman Jerome Powell has expressed a sense of gratification with Fed policy, thanks to a steady if unspectacular economy driven by a robust job market. The unemployment rate is at a 50-year low. Economic growth remains solid if modest at a roughly 2% annual rate. With inflation low, the Fed could potentially stand pat for months.”
U.S. Bubble Watch:
January 28 – Financial Times (Brendan Greeley): “The US will rack up budget deficits totalling $13.1tn over the coming decade and continuing to rise to levels ‘unprecedented in US history’, according to projections from the non-partisan Congressional Budget Office. In its twice-yearly report…, the CBO predicted a budget shortfall of $1tn in 2020, or 4.6% of gross domestic product, and set out a deteriorating longer-term picture based on recent changes to the tax code and the ageing US population. ‘Not since World War II has the country seen deficits during times of low unemployment that are as large as those we project, nor, in the past century, has it experienced large deficits for as long as we project,’ CBO director Phillip Swagel said…”
January 28 – CNBC (Jeff Cox): “The U.S. budget deficit likely will break the $1 trillion barrier in 2020, the first time that has happened since 2012, according to Congressional Budget Office estimates… After passing that mark this year, the deficit is expected to average $1.3 trillion between 2021-30, rising from 4.6% of GDP to 5.4% over the period. That’s well above the long-term average since around the end of World War II. The deficit since then has not topped 4% of GDP for more than five consecutive years, averaging just 1.5% over the period. As part of a spending pattern that the CBO deemed unsustainable, the national debt is expected to hit $31.4 trillion by 2030.”
January 24 – Financial Times (Joe Rennison and Colby Smith): “Stress in US financial markets has dropped to its lowest level on record, according to a widely-watched index, after the Federal Reserve sought to ease strains in short-term borrowing with a huge injection of cash. The St Louis Fed financial stress index fell to minus 1.6 for the week ending January 17, it said this week — the lowest reading since the index was created at the end of 1993. The measure has been negative for several years but has lurched lower in recent months, as the US central bank has tried to boost the amount of cash in the financial system following an unusual bout of volatility in the overnight repo market, where investors borrow cash in exchange for high-quality collateral like US Treasuries.”
January 29 – Reuters (Lucia Mutikani): “The U.S. goods trade deficit rose sharply in December as imports rebounded and businesses became more cautious on accumulating inventory, prompting some economists to cut their fourth quarter economic growth estimates. …The goods trade gap, which had dropped for three straight months due to declining imports, surged 8.5% to $68.3 billion last month.”
January 28 – CNBC (Fred Imbert): “Consumer confidence in the U.S. grew more than expected in January as the outlook around the labor market improved, …The Conference Board showed. The Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. Economists… expected consumer confidence to rise to 128… The data… showed 49% of consumers think U.S. jobs are ‘plentiful,’ up from 46.5%. Those saying jobs are ‘hard to get’ decreased to 11.6% from 13%.”
January 29 – CNBC (Diana Olick): “Mortgage rates fell to their lowest level since November, and that sent current borrowers and potential homebuyers rushing to their lenders… Mortgage applications to purchase a home increased 5% for the week and were a strong 17% higher than a year ago. Housing demand is incredibly strong right now, and real estate agents are reporting seeing much higher buyer traffic than normal. The spring season appears to have started very early. The only thing standing in the way of more home sales is the tight supply…”
January 28 – CNBC (Diana Olick): “After cooling for much of last year, home price gains are accelerating again. Nationally, prices increased 3.5% annually in November, up from 3.2% in October, according to… S&P CoreLogic Case-Shiller… ‘With the month’s 3.5% increase in the national composite index, home prices are currently 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak,’ said Craig J. Lazzara, managing director… at S&P Dow Jones Indices. ‘November’s results were broad-based, with gains in every city in our 20-city composite.’”
January 27 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes unexpectedly fell in December, likely held down by a shortage of more affordable homes, but the housing market remains supported by lower mortgage rates… New home sales slipped 0.4% to a seasonally adjusted annual rate of 694,000 units last, with sales in the South dropping to more than a one-year low.”
January 29 – Bloomberg (Max Reyes): “Contract signings to purchase U.S. previously owned homes unexpectedly slumped in December, depressed by fewer listings of properties and representing a blemish after a recent spate of positive housing-market news. An index of pending home sales decreased 4.9% from the month prior, the largest decline since May 2010… ‘Due to the shortage of affordable homes, home sales growth will only rise by around 3%,’ Lawrence Yun, chief economist at the NAR, said…, adding that mortgage rates will probably hold below 4% for most of the year. ‘Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.’”
January 28 – Bloomberg (Katia Dmitrieva): “Stronger-than-expected U.S. economic growth that’s pushed the jobless rate to a five-decade low will contribute to an uptick in inflation this year, according to the Congressional Budget Office. The CBO, in its budget and economic outlook through 2030, expects gross domestic product to rise 2.2% this year, up 0.1 percentage point from its August estimate. A measure of prices excluding food and energy is projected to increase 2.2%, just above the Federal Reserve’s goal. At the same time, the U.S. budget deficit will exceed $1 trillion in the fiscal year that ends in September, similar to the agency’s previous forecast.”
January 28 – Reuters (Lucia Mutikani): “New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and was a drag on economic growth.”
January 30 – Reuters (P.J. Huffstutter): “U.S. farm bankruptcy rates jumped 20% in 2019 - to an eight-year high - as financial woes in the U.S. agricultural economy continued in spite of massive federal bail-out funding, according to federal court data.”
January 28 – Bloomberg (Vince Golle): “The Federal Reserve Bank of Richmond’s regional manufacturing index surged at the start of 2020 as rebounds in sales and orders offered signs of stabilization in an otherwise beleaguered factory sector. The gauge jumped to 20 in January, the highest since September 2018, from minus 5 a month earlier… It marked the largest monthly advance since March 2016.”
January 30 – Bloomberg (Matthew Boesler): “The U.S. government could be pumping half a trillion dollars of extra deficit spending into the economy each year without risking a jump in inflation, according to the economist who’s become the public face of Modern Monetary Theory. ‘We could safely increase the deficit, let’s say by another $500 billion or so, before we begin to see inflation accelerating to something that we would consider problematic,’ Stephanie Kelton, a professor at Stony Brook University in New York…, told Bloomberg…”
Fixed-Income Bubble Watch:
January 29 – Financial Times (Joe Rennison and Jennifer Ablan): “Junk-rated energy bonds have plummeted after the spread of coronavirus hit oil prices, highlighting the strains on a sector that already led US defaults last year. …Laredo Petroleum’s $600m bond, which was priced at 100 cents on the dollar in mid-January, dropped to as low as 90 cents after just a week of trading. Meanwhile, the yield on a widely watched junk-rated energy bond index run by Ice Data Services jumped 0.77 percentage points to a high of 9.02% this week, reflecting a broad sell-off in lower quality debt from the sector.”
January 28 – Bloomberg (Brian Smith): “The U.S. high-grade primary market was back to business as usual on Tuesday after a two-day deal hiatus. After electing to stand down Monday as coronavirus containment concerns roiled risk assets, four companies printed $6.225 billion Tuesday… Today’s haul brings monthly volume to $129.3b, surpassing 2018 for the second largest January on record. As has largely been the case all year, robust investor appetite translated into upsized deals and minimal to negative relative borrowing costs.”
January 30 – Bloomberg (Davide Scigliuzzo): “Tilman Fertitta is looking to take advantage of red-hot investor demand for leveraged loans to finance a $200 million payday. Fertitta’s Golden Nugget Inc., the company on top of his hotel and casino empire, is seeking to finance the dividend as part of a broader refinancing deal. The payout is double what the billionaire had initially targeted and it’s going to cost less than originally expected…”
January 30 – Bloomberg (James Hirai and Hannah Benjamin): “It sounds like a tough sales pitch: buy this debt to lose money for the next decade. Yet for bankers helping Austria raise money this week, it proved smart business -- investors threw more than 30 billion euros ($33bn) at the country as they vied for a chunk of the world’s first syndicated 10-year government bond to carry a negative yield. The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds.”
January 27 – Reuters (Kristen Haunss): “Concerns over an outbreak of the coronavirus weighed on the US$1.2trn US leveraged loan market Monday, with secondary prices dipping slightly amid volatility across markets. Prices on leveraged loans to companies that could be affected by an outbreak, which was first identified in Wuhan, China, were down about a half-point to a point, according to traders, with travel-related industries hit the hardest.”
Brexit Watch:
January 31 – Reuters (John Chalmers): “Britain’s Union Jack was removed from lines of EU member state flags at the European Council and European Parliament buildings in Brussels on Friday evening ahead of the United Kingdom’s exit from the bloc at midnight. Britain will become the first country to quit the European Union after 47 years in the club, leaving 27 member states that will now regard it as a third country. Two solemn-looking officials, a man and a woman, took less than a minute to take down the flag in the cavernous entrance to the European Council, which represents national leaders and sets EU policy. They took away the flagstand, folded the Union Jack twice into a rectangle and walked without comment out of a door.”
Central Bank Watch:
January 30 – Financial Times (Gillian Tett): “Earlier this week, the Japanese government nominated Seiji Adachi to the board of the Bank of Japan. The news made few waves outside Japan, since Mr Adachi is little known. However, global investors should pay attention. Mr Adachi is a renowned ‘reflationist’ who favours massive monetary expansion. So his selection suggests that after two decades of eye-poppingly loose monetary policy, the BoJ is set to double down in 2020. That is remarkable. Moreover, Japan is not alone. This week the Federal Reserve left US rates unchanged, after three cuts last year. However, Jay Powell, Fed chair, gave such dovish signals in his press conference amid a pattern of reasonable US growth that markets expect another rate cut later this year.”
January 28 – Bloomberg (Toru Fujioka): “Concern at the Bank of Japan over the effectiveness of prolonged low interest rates appears to be growing, with one board member indicating that a policy review may be needed, a summary of views from the central bank’s January meeting signaled.”
EM Watch:
January 27 – Bloomberg (Dana Khraiche): “Lebanese lawmakers approved a 2020 budget plan with a crucial Eurobond payment weeks away, leaving it to the new government to decide on whether to pay creditors or save what’s left of the country’s reserves… The market is on edge before a $1.2 billion Eurobond that comes due on March 9 as Lebanon’s political struggles and the absence of external funding have sent its default risk soaring.”
January 28 – Bloomberg (Nguyen Dieu Tu Uyen): “Vietnam’s inflation accelerated to its highest in more than six years in January, while exports plunged, putting the economy on an uncertain footing at the beginning of the year. Consumer prices rose 6.4% in January from a year ago, the fastest pace since August 2013…”
India Watch:
January 31 – Bloomberg (Abhijit Roy Chowdhury and Vrishti Beniwal): “The top economic adviser to India’s government favors relaxing the budget deficit target to boost economic growth from an 11-year low. India’s fiscal deficit is seen slipping to 3.8% of gross domestic product in the year to March, against a budgeted 3.3%, as the slowdown lowered revenue collections and the government provided a tax stimulus to spur investments.”
Europe Watch:
January 31 – Reuters (Gavin Jones and Leigh Thomas): “The economies of France and Italy, respectively the euro zone’s second and third largest, shrank unexpectedly in the last quarter of 2019 causing GDP growth for the 19 countries sharing the single currency to miss forecasts… Gross domestic product in the 19 countries sharing the euro rose 0.1% quarter-on-quarter for a 1.0% year-on-year gain…”
January 30 – Bloomberg (Piotr Skolimowski): “German inflation accelerated to a nine-month high at the start of 2020 amid mounting signs that the economy started to stabilize. The rate climbed to 1.6% in January, slightly below economists’ expectations. The pickup follows reports showing German unemployment unexpectedly fell this month and European manufacturers turned more optimistic.”
January 27 – Reuters (Michael Nienaber, Holger Hansen und Christian Kraemer): “The German government expects Europe’s largest economy to grow by 1.1% this year, up from a previous estimate of 1.0%...”
Japan Watch:
January 28 – Reuters (Yoshifumi Takemoto, Kaori Kaneko and Ritsuko Ando): “Japanese Economy Minister Yasutoshi Nishimura warned… that corporate profits and factory production might take a hit from the coronavirus outbreak in China that has rattled global markets and chilled confidence.”
January 30 – Reuters (Kaori Kaneko): “Japan’s factory output fell at the fastest pace on record in October-December amid sluggish demand at home and abroad, reinforcing views the economy likely contracted in the fourth quarter… Factory output fell 4.0% in October-December, the fastest pace of decline since comparable data began in 2013…”
Global Bubble Watch:
January 28 – Bloomberg (Cecile Gutscher): “Add carry trades to the growing list of investing strategies hit by the coronavirus panic. Deutsche Bank AG’s G10 FX Carry Basket Index is on course for a near 3% loss in January, the worst start to a year since 2015. The gauge posted its steepest decline in almost 12 months on Monday as the global advance of the deadly Chinese virus spurred a fierce dash for havens. Meanwhile, a Bloomberg currency index that measures returns from eight emerging markets, funded by short positions in the greenback, has fallen 1.6% in January…”
January 28 – Bloomberg (Chris Anstey): “Japan and a clutch of industrialized east Asian economies are increasingly snapping up overseas bonds, in such magnitude that it may be storing up financial risk, according to Oxford Economics. ‘The increase in cross-border portfolio allocation might create a further buildup of vulnerabilities, especially among some Asian pension funds and life insurers,’ Guillermo Tolosa and Giuliano Simoncelli wrote… Japan, Taiwan, Singapore and Hong Kong snapped up $330 billion of foreign bonds in the first nine months of 2019, a similar pace to China’s peak years of 2006-08…”
Leveraged Speculation Watch:
January 27 – Financial Times (Laurence Fletcher): “Pension funds and endowments have been the backbone of the hedge fund industry for much of the past decade. But many of these institutional investors are now turning away from the $3tn-in-assets sector, dismayed by high fees and relatively lacklustre returns… The reshuffle comes after years of largely uninspiring performance from the hedge fund sector. Managers have underperformed the S&P 500 stock index every year since 2009, both in rising and falling markets. Last year provided hedge funds with their best returns in a decade, but they were still well behind the market.”
Geopolitical Watch:
January 28 – Bloomberg (Philip Heijmans and Lucille Liu): “China’s armed forces accused the U.S. of ‘ill intentions’ in the South China Sea after an American warship entered waters near the contested Spratly Islands last week. ‘The U.S. ship’s deliberate provocation during the traditional lunar Chinese New Year festival, which harbored ill intentions, is a naked act of navigational hegemony,’ Senior Colonel Li Huamin, spokesman for the People’s Liberation Army’s… said… ‘China has indisputable sovereignty over the South China Sea and its islands, and no matter how the U.S. deliberately schemes, comes up with new tricks, provokes and stirs up trouble, its efforts will be fruitless.’”
January 29 – Associated Press (Kelvin Chan and Danica Kirka): “Britain decided… to let Chinese tech giant Huawei have a limited role supplying new high-speed network equipment to wireless carriers, ignoring the U.S. government’s warnings that it would sever intelligence sharing if the company was not banned. Britain’s decision is the first by a major U.S. ally in Europe, and follows intense lobbying from the Trump administration… It sets up a diplomatic clash with the Americans…”
The S&P500 dropped 2.1% (down 0.2% y-t-d), and the Dow fell 2.5% (down 1.0%). The Utilities gained 0.9% (up 6.9%). The Banks slumped 2.7% (down 7.6%), and the Broker/Dealers declined 1.4% (unchanged). The Transports sank 4.5% (down 3.1%). The S&P 400 Midcaps fell 2.8% (down 2.7%), and the small cap Russell 2000 dropped 2.9% (down 3.3%). The Nasdaq100 declined 1.6% (up 3.0%). The Semiconductors sank 7.0% (down 3.2%). The Biotechs fell 2.5% (down 4.7%). Though bullion was up $18, the HUI gold stock index declined 0.8% (down 3.0%).
Three-month Treasury bill rates ended the week at 1.51%. Two-year government yields sank 18 bps to 1.31% (down 26bps y-t-d). Five-year T-note yields fell 19 bps to 1.31% (down 38bps). Ten-year Treasury yields dropped 18 bps to 1.51% (down 41bps). Long bond yields declined 13 bps to 2.00% (down 39bps). Benchmark Fannie Mae MBS yields dropped 11 bps to 2.38% (down 34bps).
Greek 10-year yields fell 14 bps to 1.16% (down 28bps y-t-d). Ten-year Portuguese yields declined 11 bps to 0.27% (down 18bps). Italian 10-year yields sank 30 bps to 0.94% (down 48bps). Spain's 10-year yields fell 11 bps to 0.24% (down 23bps). German bund yields dropped 10 bps to negative 0.43% (down 25bps). French yields fell 10 bps to negative 0.18% (down 29bps). The French to German 10-year bond spread was little changed at 25 bps. U.K. 10-year gilt yields declined four bps to 0.52% (down 30bps). U.K.'s FTSE equities index sank 4.0% (down 3.4%).
Japan's Nikkei Equities Index slumped 2.6% (down 1.9% y-t-d). Japanese 10-year "JGB" yields declined five bps to negative 0.07% (down 6bps y-t-d). France's CAC40 dropped 3.6% (down 2.9%). The German DAX equities index sank 4.4% (down 2.0%). Spain's IBEX 35 equities index fell 2.0% (down 1.9%). Italy's FTSE MIB index dropped 3.1% (down 1.1%). EM equities were under pressure. Brazil's Bovespa index sank 3.9% (down 1.6%), and Mexico's Bolsa declined 2.3% (up 1.3%). South Korea's Kospi index was clobbered 5.7% (down 3.6%). India's Sensex equities index fell 2.1% (down 1.2%). China's Shanghai Exchange will open back up Monday (down 2.4%). Turkey's Borsa Istanbul National 100 index dropped 2.5% (up 4.1%). Russia's MICEX equities index fell 2.2% (up 1.0%).
Investment-grade bond funds saw inflows of $4.382 billion, while junk bond funds posted outflows of $2.869 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates dropped nine bps to 3.51% (down 95bps y-o-y). Fifteen-year rates declined four bps to 3.00% (down 89bps). Five-year hybrid ARM rates fell four bps to 3.24% (down 72bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 21 bps to 3.74% (down 66bps).
Federal Reserve Credit last week added $0.9bn to $4.115 TN, with a 20-week gain of $388 billion. Over the past year, Fed Credit expanded $114bn, or 2.9%. Fed Credit inflated $1.304 Trillion, or 46%, over the past 377 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt surged $21.2 billion last week to $3.434 TN. "Custody holdings" increased $20.3 billion, or 0.6%, y-o-y.
M2 (narrow) "money" supply surged $62.3bn last week to a record $15.460 TN. "Narrow money" surged $1.023 TN, or 7.1%, over the past year. For the week, Currency increased $1.9bn. Total Checkable Deposits jumped $28.1bn, and Savings Deposits expanded $26.3bn. Small Time Deposits slipped $1.8bn. Retail Money Funds rose $7.8bn.
Total money market fund assets declined $12.8bn to $3.621 TN, with institutional money fund assets declining $6.6bn to $2.273 TN. Total money funds surged $583bn y-o-y, or 19.2%.
Total Commercial Paper gained $4.4bn to $1.119 TN. CP was up $40.9bn, or 3.8% year-over-year.
Currency Watch:
For the week, the U.S. dollar index declined 0.5% to 97.39 (up 0.9% y-t-d). For the week on the upside, the British pound increased 1.0%, the Japanese yen 0.9%, the Swiss franc 0.9%, and the euro 0.6%. On the downside, the South African rand declined 4.2%, the Brazilian real 2.3%, the New Zealand dollar 2.2%, the Australian dollar 2.1%, the South Korean won 1.9, the Norwegian krone 1.7%, the Singapore dollar 1.0%, the Canadian dollar 0.7%, the Swedish krona 0.6% and the Mexican peso 0.3%. The Chinese off-shore renminbi declined 0.97% versus the dollar this week (down 0.52% y-t-d).
Commodities Watch:
January 27 – Bloomberg (Ranjeetha Pakiam): “Gold is once again showcasing its long-standing reputation as an effective haven in troubled times, trading near the highest close in more than six years on rising concern over the economic and human impact of China’s deadly coronavirus.”
January 29 – Financial Times (Henry Sanderson): “Investors around the world are hurrying back to bullion. Holdings in gold-backed exchange traded funds have risen to their highest levels in seven years, following $19.2bn in inflows last year. Analysts say interest has picked up for a variety of reasons, including fears over slowdowns in big economies, rising geopolitical risks and an apparent loss of faith in traditional ‘haven’ assets such as Japan’s yen. But chief among them is a giant mound of negative-yielding debt, now tipping the scales at more than $13tn. If buyers of bonds are being asked to pay for the privilege of holding them to maturity, then the appeal of gold — which yields nothing but also costs nothing to hold on to — is burnished.”
January 26 – Bloomberg (James Poole): “Crop futures traded in Chicago sank as China’s death toll from the coronavirus surged amid government reports that the infection was spreading more quickly, threatening demand in the world’s largest consumer of agricultural commodities and the biggest soybean importer. Soybeans dropped below $9 a bushel for the first time since early December and have lost more than 6% this month. Corn was down over 1% and wheat fell 2% as selling gripped global financial markets in a deepening risk-off mood.”
The Bloomberg Commodities Index dropped 3.2% (down 7.5% y-t-d). Spot Gold advanced 1.1% to $1,589 (up 4.7%). Silver slipped 0.6% to $18.012 (up 0.5%). WTI crude dropped $2.63 to $51.56 (down 15.6%). Gasoline declined 0.9% (down 11%), and Natural Gas fell 2.4% (down 16%). Copper sank 6.2% (down 10%). Wheat dropped 3.4% (down 1%). Corn fell 1.5% (down 2%).
Market Instability Watch:
January 30 – Bloomberg (Sofia Horta e Costa and Tian Chen): “Every other market has already reacted to the deadly virus threatening China’s economy. Soon it will be China’s turn, and it’s likely to be brutal. Stocks and commodities will almost certainly sink when financial markets reopen Monday for the first time since Jan. 23, while bond yields will drop. For equities, the declines are likely to be exacerbated by the amount of leverage in the market -- near the highest in 11 months. That could create a downward spiral where steep losses become steeper as traders face margin calls.”
January 27 – Bloomberg (Sam Potter and John Ainger): “The global rush for safer assets has fueled a huge jump in the world’s stockpile of negative-yielding bonds, snapping months of decline in the value of subzero debt. The pool of securities with a yield below zero surged by $1.16 trillion last week, the largest weekly increase since at least 2016 when Bloomberg began tracking the data daily. Another injection looked certain on Monday, as investors worldwide ditched riskier assets and piled into bonds amid mounting fears over a deadly virus spreading from China.”
January 27 – Bloomberg: “China’s financial markets will remain closed until next Monday after authorities extended the Lunar New Year break by three days as they grapple with the worsening virus crisis. Trading will resume Feb. 3, the Shanghai and Shenzhen stock exchanges said. Shanghai authorities separately advised that companies shouldn’t start work until at least Feb. 9.”
January 26 – Reuters (Ghaida Ghantous): “Lebanon’s central bank said on Saturday there would be no ‘haircut’ on deposits at banks due to the country’s financial crisis, responding to concerns voiced by a prominent Arab billionaire about risks to foreign investments there.”
January 29 – Bloomberg (Annie Lee): “The sizzling start to the year for Chinese company dollar bond sales risks fading as the coronavirus epidemic darkens investor mood. Bond offerings have totaled about $27 billion so far this month, the busiest pace in January ever even before the Lunar New Year holiday…”
January 28 – Wall Street Journal (James Mackintosh): “The world’s business elite is convinced that Donald Trump will win a second term in the White House in November, and investors seem to believe there’s little risk they will end up victims of the U.S. election. In reality, investors face triple uncertainty about the outcome—and should be concerned. The election is highly likely to be close, because modern America is split down the middle—and that makes it inherently uncertain. The Democratic candidate isn’t yet chosen, and could be radical. And a victory by Mr. Trump might not provide the relief that investors expect. Discussions with CEOs and executives from the U.S. and Europe at the World Economic Forum in Davos last week showed great confidence that Mr. Trump will win.”
China Watch:
January 30 – Bloomberg: “More than a dozen Chinese provinces announced an extension of the current Lunar New Year holiday by more than a week as the nation attempts to halt the spread of the novel coronavirus that has killed hundreds of people and sickened thousands. Fourteen provinces and cities have said businesses need not start operations until at least the second week of February. They accounted for almost 69% of China’s gross domestic product in 2019… The 14 provinces included in the extended holiday were the source of 78% of China’s exports in December last year… Those same provinces account for 90% of copper smelting, at least 60% of steel production, 65% of crude oil refining and 40% of coal output.”
January 31 – Bloomberg (Tara Patel, Masatsugu Horie and Chester Dawson): “Forget about clinging to hopes that China, the world’s largest car market, will recover from its unprecedented two-year slump anytime soon. Though concrete estimates on the financial toll of the coronavirus outbreak are still scarce, signs are emerging that the final cost will far outweigh that of the 2003 SARS epidemic, when China’s auto market was one-sixth the size it is today and smaller than that of Japan. Companies from Tesla Inc. to Volkswagen AG and Toyota Motor Corp. have warned they anticipate disruptions, while a top parts supplier predicted automakers will cut China production 15% this quarter. China’s car sales were already heading for the lowest in at least five years before the current outbreak…”
January 27 – Wall Street Journal (James T. Areddy): “China was counting on consumers to underpin its already slowing economy. Now, authorities are advising people to stay home, and many residents are too frightened anyway to eat out, shop, see movies or travel as a deadly virus passes person to person. Anxiety may be spreading faster than the coronavirus that emerged from the central Chinese city of Wuhan in recent weeks. That adds risks to what was already expected to be a very challenging year for the economy in China. Many services core to China’s consumer boom are grinding to a halt as people forgo plans to spend money during the country’s biggest annual holiday…”
January 29 – Bloomberg (Eric Lam): “Rising food costs in China have added to the country’s growing list of concerns as authorities struggle to contain the impact of a rapidly spreading viral outbreak. The China Shouguang vegetable price index, a daily indicator of the nation’s produce, surged 4.9% to its highest level in almost four years at 195.45… The surge in vegetable costs is another strain on household budgets already stretched by elevated pork prices from swine fever. Adding to inflation pressures, consumers and businesses alike may seek to hoard essential items in response to efforts to contain the virus, said Sean Darby, global equity strategist with Jefferies… ‘The shock of supply chains being disrupted will probably lead to households and businesses ‘overstocking’ in anticipation of further transport restrictions,’ Darby said… ‘This can cause a ‘run’ on essential items as well as critical parts and components -- potentially leading to a spike in inflation.’”
January 30 – Financial Times (Christian Shepherd and Sue-Lin Wong): “When the mayor of Wuhan was asked on China’s state broadcaster why he had not disclosed the severity of the coronavirus outbreak in his city, he replied that his hands were tied by laws that required him to seek authorisation from Beijing. ‘I hope everyone can understand why there wasn’t timely disclosure,’ Zhou Xianwang said in the unusually frank interview… ‘After I received information, I needed authorisation before making it public,’ he explained. In a country that insists on political unity, the interview stands as a rare example of stresses between central and local government breaking into the open, as China’s response to the deadly respiratory virus becomes one of the biggest challenges to Xi Jinping’s presidency since he took power in 2012.”
January 29 – New York Times (Li Yuan): “With anger rising over the response to the coronavirus outbreak, even some with ties to China's leaders have called for acknowledging divisions, not papering them over. From the outside, China's Communist Party appears powerful and effective. It has tightened its control over Chinese politics and culture, the economy and everyday life, projecting the image of a gradually unifying society. The coronavirus outbreak has blown up that facade. Staff members at prestigious Union Hospital in Wuhan, the city at the center of the outbreak, have joined others around China in begging online for medical supplies. Videos show patients in Wuhan beseeching medical staff for treatment. Residents of Wuhan and its province, Hubei, are being chased off planes and ousted from hotels and villages. Online critics are comparing current leaders unfavorably with past ones… As cracks show in China's veneer of stability, even some with ties to the party leadership are calling for those in power to shine light on divisions rather than papering them over.”
January 29 – Bloomberg (Eric Pfanner): “Airlines halt flights from China. Schools in Europe uninvite exchange students. Restaurants in South Korea turn away Chinese customers. As a deadly virus spreads beyond China, governments, businesses and educational institutions are struggling to find the right response. Safeguarding public health is a priority. How to do that without stigmatizing the entire population of the country where the outbreak began -- and where nearly a fifth of all humans reside -- is the challenge.”
January 31 – Bloomberg (Alfred Liu): “China’s banking system is facing greater risks than it seems as some bigger regional lenders are under pressure just like their smaller counterparts. ‘Some of the relatively larger stress-tested banks could require sizable recapitalization,’ said S&P Global Ratings credit analyst Ming Tan, citing tests conducted by the People’s Bank of China. China’s vast network of regional banks is under pressure amid the slowest economic growth in three decades and rising loan defaults.”
January 26 – Financial Times (Henry Sanderson and Don Weinland): “China’s largest lithium producer is struggling to repay debt that helped finance an aggressive overseas expansion, the latest Chinese company to hit setbacks going global. Tianqi Lithium is facing mounting pressure to repay part of a $3.5bn loan from state-owned Citic Bank this year, which it used to buy a 24% stake in Chilean lithium producer SQM in May 2018. The global lithium market has been hit by rising supply from new mines…”
Trump Administration Watch:
January 27 – Reuters (Lisa Lambert and Makini Brice): “The U.S. State Department on Monday warned against visiting China and said Americans should not travel to the Hubei province, given that the province's city of Wuhan is ground zero for a new deadly coronavirus.”
Federal Reserve Watch:
January 29 – CNBC (Jeff Cox): “While the Federal Reserve kept its benchmark rate steady, it did make an adjustment… to the interest it pays on funds stored at the central bank. The Fed boosted the interest on excess reserves rate 5 bps to 1.6% even as it kept the benchmark funds rate in a target range of 1.5% to 1.75%. Fed officials characterize the moves on the IOER as technical adjustments, though markets are watching the situation because it also is a reflection of where the funds rate trades while the central bank figures out the level where it needs to keep its balance sheet.”
January 29 – Reuters (Jonnelle Marte): “The Federal Reserve will keep injecting cash into the banking system and buying billions of dollars of Treasury bills for a few more months, but it aims to start dialing back on both in the second quarter, Chair Jerome Powell said… Since mid-October, the Fed has been buying $60 billion a month of T-bills, and reserve levels have risen by more than $270 billion since then to roughly $1.67 trillion. Powell said… officials expect to reach an ‘ample’ level of reserves, where the market is less reliant on the Fed, at some point in the second quarter.”
January 27 – Associated Press (Christopher Rugaber): “For the first time in years, Federal Reserve officials will hold their latest policy meeting this week feeling broadly satisfied with where interest rates are and with seemingly no inclination to change them anytime soon. Chairman Jerome Powell has expressed a sense of gratification with Fed policy, thanks to a steady if unspectacular economy driven by a robust job market. The unemployment rate is at a 50-year low. Economic growth remains solid if modest at a roughly 2% annual rate. With inflation low, the Fed could potentially stand pat for months.”
U.S. Bubble Watch:
January 28 – Financial Times (Brendan Greeley): “The US will rack up budget deficits totalling $13.1tn over the coming decade and continuing to rise to levels ‘unprecedented in US history’, according to projections from the non-partisan Congressional Budget Office. In its twice-yearly report…, the CBO predicted a budget shortfall of $1tn in 2020, or 4.6% of gross domestic product, and set out a deteriorating longer-term picture based on recent changes to the tax code and the ageing US population. ‘Not since World War II has the country seen deficits during times of low unemployment that are as large as those we project, nor, in the past century, has it experienced large deficits for as long as we project,’ CBO director Phillip Swagel said…”
January 28 – CNBC (Jeff Cox): “The U.S. budget deficit likely will break the $1 trillion barrier in 2020, the first time that has happened since 2012, according to Congressional Budget Office estimates… After passing that mark this year, the deficit is expected to average $1.3 trillion between 2021-30, rising from 4.6% of GDP to 5.4% over the period. That’s well above the long-term average since around the end of World War II. The deficit since then has not topped 4% of GDP for more than five consecutive years, averaging just 1.5% over the period. As part of a spending pattern that the CBO deemed unsustainable, the national debt is expected to hit $31.4 trillion by 2030.”
January 24 – Financial Times (Joe Rennison and Colby Smith): “Stress in US financial markets has dropped to its lowest level on record, according to a widely-watched index, after the Federal Reserve sought to ease strains in short-term borrowing with a huge injection of cash. The St Louis Fed financial stress index fell to minus 1.6 for the week ending January 17, it said this week — the lowest reading since the index was created at the end of 1993. The measure has been negative for several years but has lurched lower in recent months, as the US central bank has tried to boost the amount of cash in the financial system following an unusual bout of volatility in the overnight repo market, where investors borrow cash in exchange for high-quality collateral like US Treasuries.”
January 29 – Reuters (Lucia Mutikani): “The U.S. goods trade deficit rose sharply in December as imports rebounded and businesses became more cautious on accumulating inventory, prompting some economists to cut their fourth quarter economic growth estimates. …The goods trade gap, which had dropped for three straight months due to declining imports, surged 8.5% to $68.3 billion last month.”
January 28 – CNBC (Fred Imbert): “Consumer confidence in the U.S. grew more than expected in January as the outlook around the labor market improved, …The Conference Board showed. The Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. Economists… expected consumer confidence to rise to 128… The data… showed 49% of consumers think U.S. jobs are ‘plentiful,’ up from 46.5%. Those saying jobs are ‘hard to get’ decreased to 11.6% from 13%.”
January 29 – CNBC (Diana Olick): “Mortgage rates fell to their lowest level since November, and that sent current borrowers and potential homebuyers rushing to their lenders… Mortgage applications to purchase a home increased 5% for the week and were a strong 17% higher than a year ago. Housing demand is incredibly strong right now, and real estate agents are reporting seeing much higher buyer traffic than normal. The spring season appears to have started very early. The only thing standing in the way of more home sales is the tight supply…”
January 28 – CNBC (Diana Olick): “After cooling for much of last year, home price gains are accelerating again. Nationally, prices increased 3.5% annually in November, up from 3.2% in October, according to… S&P CoreLogic Case-Shiller… ‘With the month’s 3.5% increase in the national composite index, home prices are currently 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak,’ said Craig J. Lazzara, managing director… at S&P Dow Jones Indices. ‘November’s results were broad-based, with gains in every city in our 20-city composite.’”
January 27 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes unexpectedly fell in December, likely held down by a shortage of more affordable homes, but the housing market remains supported by lower mortgage rates… New home sales slipped 0.4% to a seasonally adjusted annual rate of 694,000 units last, with sales in the South dropping to more than a one-year low.”
January 29 – Bloomberg (Max Reyes): “Contract signings to purchase U.S. previously owned homes unexpectedly slumped in December, depressed by fewer listings of properties and representing a blemish after a recent spate of positive housing-market news. An index of pending home sales decreased 4.9% from the month prior, the largest decline since May 2010… ‘Due to the shortage of affordable homes, home sales growth will only rise by around 3%,’ Lawrence Yun, chief economist at the NAR, said…, adding that mortgage rates will probably hold below 4% for most of the year. ‘Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.’”
January 28 – Bloomberg (Katia Dmitrieva): “Stronger-than-expected U.S. economic growth that’s pushed the jobless rate to a five-decade low will contribute to an uptick in inflation this year, according to the Congressional Budget Office. The CBO, in its budget and economic outlook through 2030, expects gross domestic product to rise 2.2% this year, up 0.1 percentage point from its August estimate. A measure of prices excluding food and energy is projected to increase 2.2%, just above the Federal Reserve’s goal. At the same time, the U.S. budget deficit will exceed $1 trillion in the fiscal year that ends in September, similar to the agency’s previous forecast.”
January 28 – Reuters (Lucia Mutikani): “New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and was a drag on economic growth.”
January 30 – Reuters (P.J. Huffstutter): “U.S. farm bankruptcy rates jumped 20% in 2019 - to an eight-year high - as financial woes in the U.S. agricultural economy continued in spite of massive federal bail-out funding, according to federal court data.”
January 28 – Bloomberg (Vince Golle): “The Federal Reserve Bank of Richmond’s regional manufacturing index surged at the start of 2020 as rebounds in sales and orders offered signs of stabilization in an otherwise beleaguered factory sector. The gauge jumped to 20 in January, the highest since September 2018, from minus 5 a month earlier… It marked the largest monthly advance since March 2016.”
January 30 – Bloomberg (Matthew Boesler): “The U.S. government could be pumping half a trillion dollars of extra deficit spending into the economy each year without risking a jump in inflation, according to the economist who’s become the public face of Modern Monetary Theory. ‘We could safely increase the deficit, let’s say by another $500 billion or so, before we begin to see inflation accelerating to something that we would consider problematic,’ Stephanie Kelton, a professor at Stony Brook University in New York…, told Bloomberg…”
Fixed-Income Bubble Watch:
January 29 – Financial Times (Joe Rennison and Jennifer Ablan): “Junk-rated energy bonds have plummeted after the spread of coronavirus hit oil prices, highlighting the strains on a sector that already led US defaults last year. …Laredo Petroleum’s $600m bond, which was priced at 100 cents on the dollar in mid-January, dropped to as low as 90 cents after just a week of trading. Meanwhile, the yield on a widely watched junk-rated energy bond index run by Ice Data Services jumped 0.77 percentage points to a high of 9.02% this week, reflecting a broad sell-off in lower quality debt from the sector.”
January 28 – Bloomberg (Brian Smith): “The U.S. high-grade primary market was back to business as usual on Tuesday after a two-day deal hiatus. After electing to stand down Monday as coronavirus containment concerns roiled risk assets, four companies printed $6.225 billion Tuesday… Today’s haul brings monthly volume to $129.3b, surpassing 2018 for the second largest January on record. As has largely been the case all year, robust investor appetite translated into upsized deals and minimal to negative relative borrowing costs.”
January 30 – Bloomberg (Davide Scigliuzzo): “Tilman Fertitta is looking to take advantage of red-hot investor demand for leveraged loans to finance a $200 million payday. Fertitta’s Golden Nugget Inc., the company on top of his hotel and casino empire, is seeking to finance the dividend as part of a broader refinancing deal. The payout is double what the billionaire had initially targeted and it’s going to cost less than originally expected…”
January 30 – Bloomberg (James Hirai and Hannah Benjamin): “It sounds like a tough sales pitch: buy this debt to lose money for the next decade. Yet for bankers helping Austria raise money this week, it proved smart business -- investors threw more than 30 billion euros ($33bn) at the country as they vied for a chunk of the world’s first syndicated 10-year government bond to carry a negative yield. The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds.”
January 27 – Reuters (Kristen Haunss): “Concerns over an outbreak of the coronavirus weighed on the US$1.2trn US leveraged loan market Monday, with secondary prices dipping slightly amid volatility across markets. Prices on leveraged loans to companies that could be affected by an outbreak, which was first identified in Wuhan, China, were down about a half-point to a point, according to traders, with travel-related industries hit the hardest.”
Brexit Watch:
January 31 – Reuters (John Chalmers): “Britain’s Union Jack was removed from lines of EU member state flags at the European Council and European Parliament buildings in Brussels on Friday evening ahead of the United Kingdom’s exit from the bloc at midnight. Britain will become the first country to quit the European Union after 47 years in the club, leaving 27 member states that will now regard it as a third country. Two solemn-looking officials, a man and a woman, took less than a minute to take down the flag in the cavernous entrance to the European Council, which represents national leaders and sets EU policy. They took away the flagstand, folded the Union Jack twice into a rectangle and walked without comment out of a door.”
Central Bank Watch:
January 30 – Financial Times (Gillian Tett): “Earlier this week, the Japanese government nominated Seiji Adachi to the board of the Bank of Japan. The news made few waves outside Japan, since Mr Adachi is little known. However, global investors should pay attention. Mr Adachi is a renowned ‘reflationist’ who favours massive monetary expansion. So his selection suggests that after two decades of eye-poppingly loose monetary policy, the BoJ is set to double down in 2020. That is remarkable. Moreover, Japan is not alone. This week the Federal Reserve left US rates unchanged, after three cuts last year. However, Jay Powell, Fed chair, gave such dovish signals in his press conference amid a pattern of reasonable US growth that markets expect another rate cut later this year.”
January 28 – Bloomberg (Toru Fujioka): “Concern at the Bank of Japan over the effectiveness of prolonged low interest rates appears to be growing, with one board member indicating that a policy review may be needed, a summary of views from the central bank’s January meeting signaled.”
EM Watch:
January 27 – Bloomberg (Dana Khraiche): “Lebanese lawmakers approved a 2020 budget plan with a crucial Eurobond payment weeks away, leaving it to the new government to decide on whether to pay creditors or save what’s left of the country’s reserves… The market is on edge before a $1.2 billion Eurobond that comes due on March 9 as Lebanon’s political struggles and the absence of external funding have sent its default risk soaring.”
January 28 – Bloomberg (Nguyen Dieu Tu Uyen): “Vietnam’s inflation accelerated to its highest in more than six years in January, while exports plunged, putting the economy on an uncertain footing at the beginning of the year. Consumer prices rose 6.4% in January from a year ago, the fastest pace since August 2013…”
India Watch:
January 31 – Bloomberg (Abhijit Roy Chowdhury and Vrishti Beniwal): “The top economic adviser to India’s government favors relaxing the budget deficit target to boost economic growth from an 11-year low. India’s fiscal deficit is seen slipping to 3.8% of gross domestic product in the year to March, against a budgeted 3.3%, as the slowdown lowered revenue collections and the government provided a tax stimulus to spur investments.”
Europe Watch:
January 31 – Reuters (Gavin Jones and Leigh Thomas): “The economies of France and Italy, respectively the euro zone’s second and third largest, shrank unexpectedly in the last quarter of 2019 causing GDP growth for the 19 countries sharing the single currency to miss forecasts… Gross domestic product in the 19 countries sharing the euro rose 0.1% quarter-on-quarter for a 1.0% year-on-year gain…”
January 30 – Bloomberg (Piotr Skolimowski): “German inflation accelerated to a nine-month high at the start of 2020 amid mounting signs that the economy started to stabilize. The rate climbed to 1.6% in January, slightly below economists’ expectations. The pickup follows reports showing German unemployment unexpectedly fell this month and European manufacturers turned more optimistic.”
January 27 – Reuters (Michael Nienaber, Holger Hansen und Christian Kraemer): “The German government expects Europe’s largest economy to grow by 1.1% this year, up from a previous estimate of 1.0%...”
Japan Watch:
January 28 – Reuters (Yoshifumi Takemoto, Kaori Kaneko and Ritsuko Ando): “Japanese Economy Minister Yasutoshi Nishimura warned… that corporate profits and factory production might take a hit from the coronavirus outbreak in China that has rattled global markets and chilled confidence.”
January 30 – Reuters (Kaori Kaneko): “Japan’s factory output fell at the fastest pace on record in October-December amid sluggish demand at home and abroad, reinforcing views the economy likely contracted in the fourth quarter… Factory output fell 4.0% in October-December, the fastest pace of decline since comparable data began in 2013…”
Global Bubble Watch:
January 28 – Bloomberg (Cecile Gutscher): “Add carry trades to the growing list of investing strategies hit by the coronavirus panic. Deutsche Bank AG’s G10 FX Carry Basket Index is on course for a near 3% loss in January, the worst start to a year since 2015. The gauge posted its steepest decline in almost 12 months on Monday as the global advance of the deadly Chinese virus spurred a fierce dash for havens. Meanwhile, a Bloomberg currency index that measures returns from eight emerging markets, funded by short positions in the greenback, has fallen 1.6% in January…”
January 28 – Bloomberg (Chris Anstey): “Japan and a clutch of industrialized east Asian economies are increasingly snapping up overseas bonds, in such magnitude that it may be storing up financial risk, according to Oxford Economics. ‘The increase in cross-border portfolio allocation might create a further buildup of vulnerabilities, especially among some Asian pension funds and life insurers,’ Guillermo Tolosa and Giuliano Simoncelli wrote… Japan, Taiwan, Singapore and Hong Kong snapped up $330 billion of foreign bonds in the first nine months of 2019, a similar pace to China’s peak years of 2006-08…”
Leveraged Speculation Watch:
January 27 – Financial Times (Laurence Fletcher): “Pension funds and endowments have been the backbone of the hedge fund industry for much of the past decade. But many of these institutional investors are now turning away from the $3tn-in-assets sector, dismayed by high fees and relatively lacklustre returns… The reshuffle comes after years of largely uninspiring performance from the hedge fund sector. Managers have underperformed the S&P 500 stock index every year since 2009, both in rising and falling markets. Last year provided hedge funds with their best returns in a decade, but they were still well behind the market.”
Geopolitical Watch:
January 28 – Bloomberg (Philip Heijmans and Lucille Liu): “China’s armed forces accused the U.S. of ‘ill intentions’ in the South China Sea after an American warship entered waters near the contested Spratly Islands last week. ‘The U.S. ship’s deliberate provocation during the traditional lunar Chinese New Year festival, which harbored ill intentions, is a naked act of navigational hegemony,’ Senior Colonel Li Huamin, spokesman for the People’s Liberation Army’s… said… ‘China has indisputable sovereignty over the South China Sea and its islands, and no matter how the U.S. deliberately schemes, comes up with new tricks, provokes and stirs up trouble, its efforts will be fruitless.’”
January 29 – Associated Press (Kelvin Chan and Danica Kirka): “Britain decided… to let Chinese tech giant Huawei have a limited role supplying new high-speed network equipment to wireless carriers, ignoring the U.S. government’s warnings that it would sever intelligence sharing if the company was not banned. Britain’s decision is the first by a major U.S. ally in Europe, and follows intense lobbying from the Trump administration… It sets up a diplomatic clash with the Americans…”
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