Saturday, February 8, 2020
Weekly Commentary:
Dr. Li Wenliang
by Doug Noland
Full column here:
Portions that
interested me
are below.
Ye Editor
"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.
from the New York Times:
“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.’”
For the
Week Ending
February 7, 2020:
S&P500 rallied 3.2% (up 3.0% y-t-d)
Dow industrials rose 3.0% (up 2.0%)
Dow Utilities slipped 0.6% (up 6.3%)
Dow Transports rose 2.8% (down 0.4%)
S&P 400 Midcaps rose 2.1% (down 0.7%)
Small cap Russell 2000 up 2.6% (down 0.7%).
Nasdaq100 surged 4.6% (up 7.6%)
Biotechs advanced 5.7% (up 0.8%).
With GOLD bullion down $19,
the HUI gold stock index dropped 3.4%
(down 6.4%)
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).
France's CAC40 surged 3.8% (up 0.9%)
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%).
Brazil's Bovespa index was little changed (down 1.6%)
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%).
BONDS & MORTGAGES
Ten-year Treasury yields
gained eight bps to 1.58% (down 33bps).
Long bond yields increased five bps to 2.05% (down 34bps).
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).
Jumbo mortgage 30-year fixed rates
down five bps to 3.69% (down 70bps).
Federal Reserve Credit
last week increased
$4.7bn to $4.120 TN,
Over the past year,
Fed Credit expanded
$133.6bn, or +3.4%.
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.
Commodities Watch:
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%)
Natural Gas increased 0.9% (down 15%).
Copper recovered 1.4% (down 9%).
Wheat gained 0.9% (unchanged).
Corn increased 0.6% (down 1%).
FINANCIAL & ECONOMIC
NEWS FROM LAST WEEK
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 6 – Bloomberg (Lu Wang):
“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…”
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:
“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 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 – 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 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 – 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 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 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 – 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 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.”
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…”
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 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.”
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