US Annual Trade Deficit Shrinks For First Time In 6 Years
The US trade deficit increased in December after shrinking to its smallest since trump was elected in November…
Source: Bloomberg
Imports rose 2.7% in Dec. to $258.52b from $251.75b in Nov.
Exports rose 0.8% in Dec. to $209.64b from $208.06b in Nov.
This left the annual trade deficit at $616.755 billion – the first shrinkage of the trade deficit since 2013…
Source: Bloomberg
The annual merchandise-trade deficit with China — the principal target of Trump’s trade war — narrowed 17.6% to $345.6 billion after hitting a record in 2018. Imports from the country slumped 16.2%, exceeding the drop in 2009 during the global financial crisis, while shipments to China declined 11.3%, the biggest drop since at least 2003.
That pushed China down to third place among America’s top trading partners for goods in 2019, as Mexico vaulted to the top spot, slightly ahead of Canada.
However, it is crude exports that have enabled this ‘miracle’ as the non-petroleum goods deficit was $839.2 billion, a record high.
For the full year, exports fell 0.1% to $2.5 trillion as shipments of civilian aircraft declined amid the grounding of Boeing Co.’s 737 Max plane, while sales of autos, consumer goods and petroleum gained. Imports fell 0.4% to $3.12 trillion on lower purchases of crude oil, computer accessories and telecommunications equipment.
ADP Employment Data Shows Biggest Job Gain Since 2015 (Thanks To Mild Weather?)
After resurging last month back above a 200k gain (thanks to a rebound in goods-producing jobs), ADP was expected to show a more modest 157k gain in January but instead it exploded higher by 291k – the most since May 2015…
Source: Bloomberg
No wonder President Trump tweeted yesterday that: “Market up big today on very good economic news. JOBS, JOBS, JOBS!”
Goods-Producing jobs soared (as did services)…
Source: Bloomberg
Mark Zandi, chief economist of Moody’s Analytics, said:
“Mild winter weather provided a significant boost to the January employment gain. The leisure and hospitality and construction industries in particular experienced an outsized increase in jobs. Abstracting from the vagaries of the data underlying job growth is close to 125,000 per month, which is consistent with low and stable unemployment.”
Under the hood, everything was solid aside from natural resources/mining…
Finally we note that December’s ADP print was the first ‘beat’ of BLS official data in 8 months…
Twitter has locked the account of conservative journalist James O’Keefe for publishing publicly available evidence that a pair of radical leftists with violent fantasies work for the Bernie Sanders campaign. While O’Keefe’s tweets are still visible, he can’t publish anything new on the platform until he deletes a post which violates Twitter’s rules against “posting private information.”
O’Keefe was responding to a tweet by Washington Post reporter Dave Weigel claiming that the men, Kyle Jurek and Martin Weissgerber, are Sanders volunteers. When O’Keefe demanded a retraction, posting publicly available Federal Election Commission (FEC) records revealing their employment, Weigel deleted his tweet.
And now, O’Keefe must delete his evidence or he won’t be able to tweet again.
BREAKING: @JamesOKeefeIII Twitter account has been locked for reporting on Sanders campaign staff
Jurek and Weissgerber were filmed going on disturbing rants about armed revolution and re-educating conservatives in modern gulagsby undercover journalists for O’Keefe’s Project Veritas. They also said there are many people involved in the Sanders campaign who feel the same way.
It’s in the public interest to know that paidpresidential campaign staffers are arming themselves for the “fucking revolution” – and ready to “tear bricks up and start fighting” before sending ‘all ‘Republicans to re-education camps.’
Moreover, it’s in the public interest to identify and distinguish these individuals as paid staffers who have gone through a hiring process, as opposed to volunteers – who would by definition have a far weaker association with a campaign. And while publishing private information would be a clear violation of Twitter’s rules, O’Keefe was using publicly available information to correct Weigel on a pertinent fact. Now, O’Keefe is currently unable to reach his 710,000 followers unless he retracts his evidence from their platform.
What rules are Twitter actually following when they police accounts?
Was it ok for CNN to confront, harass, and disclose the name of an elderly woman who promoted a pro-Trump social media account allegedly set up by Russians? That tweet is still up, along with CNN’s account.
Did @CNN get this woman’s permission to record and harass her on her front lawn and post the video to Twitter?
Meanwhile, if one directs people to ask a Chinese scientist researching bat coronaviruses about an outbreak of bat coronavirus in the same city as his laboratory, using publicly available contact information – and if you think it’s strange that he would be looking to hire post-doc fellows to use “bats to research the molecular mechanism that allows Ebola and SARS-associated coronaviruses to lie dormant for a long time without causing diseases,” you might lose lose your Twitter account forever.
And while one would hope that Twitter carefully weighs already-public information and the public interest when they make these decisions, it would be easy for one to conclude that the notoriously left-leaning social media giant is scrambling to mute people who think differently on their de-facto public square leading up to the 2020 election.
S&P Futures Soar Back To All Time High On Viral Cure Optimism
As Bloomberg’s Richard Breslow writes this morning in a note lamenting that there is “little obvious” about this market, “some days it’s best just to let things play out for a little while. Economic numbers that came out overnight haven’t hurt. Very dovish comments by a senior Bank of Japan official. Upbeat comments by the governor of the Reserve Bank of Australia. And then the big one, hopeful comments concerning potential progress in dealing with the virus outbreak. And the market has taken off.“
Indeed, at roughly 3:40am ET, futures surged as much as 30 points, rising to 3,335 and surging just shy of the Jan 22 all time high of 3,337.50, after the following Reuters headline hit:
CHINESE TV: RESEARCH TEAM AT ZHEJIANG UNIVERSITY HAS FOUND AN EFFECTIVE DRUG TO TREAT PEOPLE WITH THE NEW CORONA VIRUS
Even though Reuters itself said it has not confirmed the veracity of the report, it was enough to unleash a case of viral (or is that virus) optimism, with futures filling the gap back to all time highs, as algos bought first and asked questions, well never. And in typical broken market fashion, two hours later, when a WHO spokesperson, asked about a coronavirus treatment breakthrough, said there are no known effective therapeutics against the virus, futures barely dipped, or to summarize Dow futs up 300 point on unconfirmed optimism, and down 50 on reality.
What is notable is that Chinese state media first covered this yesterday but was largely ignored by mainstream media; the report got a second wind this morning today however after traders focused on the fact that over 900 people have recovered from the coronavirus, which some took for evidence the treatment is becoming more effective, while ignoring that the 500 or so deaths reported so far is likely are greatly underrepresented number by China which has been burning the vast majority of casualties to literally eliminate the evidence.
Optimism was also boosted by a separate Sky News report which said U.K. scientists made significant progress for a vaccine by reducing a part of the normal development time from “two to three years to just 14 days”; the scientist added that it will be in animal models by the beginning of next week, and the next phase will be to move from early animal testing into the first human studies, which could happen in “months”, with the report adding that the vaccine will be too late for this current outbreak but it will be crucial if there is another one.though human trials wouldn’t begin for a few months; at roughly the same time news hit that Chinese researchers have applied for a local patent on an experimental Gilead drug that they believe might fight the coronavirus.
“Traders have taken the view that the situation is now more likely to be under control and hopefully the spread of the health crisis will be stemmed,” said David Madden, market analysts at CMC Markets.
But what is the reality on any vaccine? Stated simply, it would take months of trials before anything legitimate got off the ground. In short, nothing that hit overnight provides any indication the world is remotely closer to having an effective means to slowing the current pandemic, but all algos cared about was the optimism that was unleashed by the reports, and lo and behold, we are back to all time highs.
Meanwhile, stocks also rallied on bad news, as expectations of more central bank stimulus lifted world stocks to their highest in more than a week on Wednesday with the MSCI global benchmark rising 0.3%, helping investors look past a mounting coronavirus death toll and policymakers’ concerns for the disease’s economic impact.
The unconfirmed report and the stimulus expectations offset at least partly the news that the virus’s death toll had killed 500 and sickened 25,000.
So as a result of both good and bad news, futures on all US indexes turned sharply higher and Europe’s Stoxx 600 Index rebounded after a string of reports on possible vaccines or treatments for the deadly pathogen. Contracts on the S&P 500 Index climbed as Tuesday’s the surge in tech stocks continued in premarket trading for Apple and Nvidia. Gilead Sciences edged lower after jumping this week on speculation over its antiviral drug.
Data also showed euro zone and UK business activity accelerated last month, though the figures are now meaningless as the surveys were collected before the coronavirus spread much beyond China. The concerns for economic growth were reflected in signals from the Bank of Japan and the Monetary Authority of Singapore that they were ready to ease policy. BOJ Deputy Governor Masazumi Wakatabe pledged not to rule out any option, including lowering already-negative interest rates; meanwhile in Thailand, the central bank unexpectedly cut rates to a record low 1.0% as the economy has been hard hit by the Coronavirus.
“Clearly… all the central banks are ready to act if necessary,” said Justin Onuekwusi, a portfolio manager at Legal & General Investment Management.
Earlier in Asia, stocks notched their first back-to-back daily gain in two weeks and headed for their best two-day gain in almost two months as investors assessed earnings releases in the region and the latest status of the coronavirus outbreak, even as quarantines were set up in the Chinese base of iPhone maker Foxconn, at land borders with Hong Kong, on a cruise ship off Japan and U.S. military bases. The region’s benchmark MSCI Asia Pacific Index jumped as much as 0.8%, with most markets trading in the green. China’s Shanghai Composite Index had its best two-day advance since June, while the ChiNext Index rose another 3% in a continued rebound after the post-holiday slump. Japan’s Topix index advanced as Mitsubishi Corp. and Itochu Corp. climbed after reporting quarterly earnings that beat estimates. China (PBOC) is also likely to lower its key rate on Feb. 20, sources told Reuters. while Thailand unexpectedly cut interest rates.
In rates, 10-year Treasury yields rose three basis points to 1.637% while German yields rose 4 bps to a one-week high. Sovereign bond curves across Europe bear steepened, though Treasuries were harder hit by the sell-off.
In FX, the dollar was roughly unchanged even as 10Y yields rose, while the Australian dollar led gains in G-10; the franc led declines against the greenback with the yen holding little changed after erasing an earlier gain. The pound extended gains after better- than-forecast services U.K. PMI, which also led money markets to price out expectations for BOE rate cuts to less than 25bps
In commodities, crude oil headed for its first gain in six sessions in New York trading: Brent crude also bounced 2.5%, after losing 16% since Jan. 21. It was supported too by expectations OPEC and its allies would cut output to offset lower demand.
Economic data include mortgage applications, trade balance and Markit services PMI. Qualcomm, Boston Scientific and General Motors are due to report earnings.
Market Snapshot
S&P 500 futures up 0.8% to 3,324.50
MXAP up 0.8% to 168.04
MXAPJ up 0.8% to 544.32
Nikkei up 1% to 23,319.56
Topix up 1% to 1,701.83
Hang Seng Index up 0.4% to 26,786.74
Shanghai Composite up 1.3% to 2,818.09
Sensex up 0.9% to 41,169.64
Australia S&P/ASX 200 up 0.4% to 6,976.05
Kospi up 0.4% to 2,165.63
STOXX Europe 600 up 1% to 422.48
German 10Y yield rose 2.6 bps to -0.373%
Euro down 0.05% to $1.1038
Brent Futures up 3% to $55.57/bbl
Italian 10Y yield unchanged at 0.785%
Spanish 10Y yield rose 2.6 bps to 0.295%
Brent Futures up 3% to $55.57/bbl
Gold spot down 0.01% to $1,552.78
U.S. Dollar Index unchanged at 97.96
Top Overnight News from Bloomberg:
The death toll from the coronavirus outbreak climbed toward 500 as confirmed cases worldwide almost 25,000. Hong Kong announced plans to quarantine travelers coming from the mainland, while thousands remained stuck on cruise ships
Chinese researchers have applied for a local patent on an experimental Gilead Sciences Inc. drug that they believe might fight the novel coronavirus outbreak
The euro area’s private sector expanded at a faster- than-anticipated pace in January, providing a foundation for economic growth to accelerate in the course of the year, with a composite Purchasing Managers’ Index rising to the highest since August
The Bank of Thailand cut its benchmark interest rate to a record low as the coronavirus outbreak, a stalled government budget and bad drought imperil economic growth, while most other monetary policy makers have stuck to expressing concern and signaling a willingness to act on risks from the virus. Australian central bank Governor Philip Lowe reinforced expectations that policy makers will refrain from more interest- rate cuts
Poland became the first emerging-market sovereign to get paid for borrowing in euros via a syndicated bond deal
OPEC+ officials gathered in Vienna for a second day of debate on the impact of the coronavirus, a process that could result in an emergency ministerial meeting where Saudi Arabia would push for an oil-production cut
Asian equity markets were positive across the board as the global rebound filtered through to the region after having underpinned the major indices on Wall St and pushed the Nasdaq to a fresh record high. ASX 200 (+0.4%) and Nikkei 225 (+1.0%) were both higher after taking impetus from stateside peers with tech and commodity-related sectors the outperformers in Australia but with gains limited by resistance at the 7000 level and with gold miners suffering as investors shunned safe-havens, while gains in Tokyo were exacerbated by a weaker currency. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (+1.3%) notched respectable gains as the bargain hunting resumed in the mainland, unfazed by softer Caixin Services and Composite PMIs, continued increases in the number of coronavirus cases and the PBoC skipping open market operations in which it noted that current liquidity is ample and can fully meet market demand. Finally, 10yr JGBs extended on this week’s pullback from the 153.00 level and following the bear-steepening in USTs in which T-notes retreated below 131.00 as the gains across stocks sapped safe-haven demand.
Top Asian News
Singapore Dollar Tumbles After MAS Flags Scope for Decline
Hong Kong Will Quarantine Travelers Coming From Mainland China
China Virus Shuts Airbus Plant, Hitting Narrow-Body Jet Output
Thailand Cuts Interest Rate as Virus Outbreak Hurts Economy
European equities are firmer across the board [Eurostoxx 50 +1.0%] following a tame open, as risk sentiment was bolstered by unconfirmed reports that a research team at a Chinese university has found an “effective” drug to treat people with Coronavirus. Moreover, reports via Sky News suggested that a team of UK scientists reduced the normal development timeframe for a vaccine to 14 days from 2-3 years, but crucially, the report noted that the “vaccine will be too late for this current outbreak, but it will be crucial if there is another one.” Nonetheless, bourses have held onto gains with sectors staging a complete turnaround from the open. European sectors now largely reflect risk appetite with defensives lagging cyclicals (ex-healthcare). Movers this morning are mostly orientated around earnings – with DAX heavyweight Siemens (+0.5%) initially opening with earnings-induced losses in excess of 1.5% before conforming to the overall gains in the German bourse. On the flip side, Imperial Brands (-7.8%) rests at the foot of the pan-European index following a profit warning in which it now forecasts a circa 10% drop in H1 profits. Other earnings-led movers include Smurfit Kappa (+7.8%), Barratt Developments (+3.3%), Danske Bank (-0.7%), Novo Nordisk (+1.5%) and Infineon (+9.0%). Elsewhere, Adidas (+1.0%) and Puma (+0.2%) shares opened lower to the tune of around 2% after US peer Nike noted that the coronavirus outbreak is expected to have a “material impact” on its Chinese operations. Adidas’ CEO also echoes some comments from Nike in which it sees a negative impact on its Chinese business, but stopped short of giving details or extent of impacts.
Top European News
Vodafone Warns of 5G Delays if Huawei’s Share Capped Beyond U.K.
U.K. Services Rebound More Than Expected in Post-Election Bounce
Romania’s Orban Faces Confidence Vote He Doesn’t Mind Losing
In FX, the Dollar is holding up firm in the face of a marked pick-up in sentiment surrounding China’s coronavirus based on media headlines suggesting that scientists and researchers may be closer to finding a vaccine than previously anticipated. The reports have boosted the YUAN for obvious reasons, with Usd/Cnh retreating from around 7.0100 to sub-6.9750 and below the 200 DMA (6.9905) not to mention the PBoC’s 6.9823 overnight Usd/Cny mid-point fix. However, the Greenback is forging gains at the expense of safer havens, like the YEN, EURO, SWISS FRANC and GOLD, with the DXY clinging to 98.000 and on course to keep its head above a key Fib retracement level (98.011), barring any bad miss via ADP, final Markit PMIs and/or the non-manufacturing ISM.
JPY/CHF/EUR/XAU – As noted above, all weaker vs the Buck and overall on a broad unwind of FTQ premium/positioning, as Usd/Jpy climbs further above 109.50, Usd/Chf reclaims 0.9700+ status, Eur/Usd retreats from near 1.1050 to just under 1.1025 and Usd/Xau retests support circa Usd 1550/oz after briefly tripping stops on a break of Tuesday’s low (Usd 1549) to trade a whisker below Usd 1548.
AUD/GBP/NOK/SEK/NZD/CAD – The Aussie has extended post-RBA gains with the aid of commentary from Governor Lowe reinforcing a wait-and-see stance on top of the more encouraging Chinese outbreak news. Aud/Usd has now climbed firmly back above 0.6750 to revisit late January peaks (0.6777), while Aud/Nzd has rebounded over 1.0400 to the detriment of Nzd/Usd that has not been able to regain a sure grip on the 0.6500 handle in wake of somewhat mixed NZ jobs data. Conversely, another handsome UK PMI beat vs consensus has boosted Sterling across board, as Cable hovers close to best levels of the wtd (1.3070) and Eur/Gbp sub-0.8450 following rather contrasting Eurozone services PMIs. Elsewhere, the Scandi Crowns have rebounded alongside risk appetite and the Norwegian Krona especially fuelled by a strong recovery in crude prices whereas its Swedish counterpart is being partially hampered by poor hard data offsetting an upbeat services PMI. Similarly, the Loonie is not deriving that much from the aforementioned bounce in oil ahead of Canadian trade data and a speech from BoC’s Wilkins, albeit with Usd/Cad nearer the base of a 1.3299-62 band.
EM – Most regional currencies have tracked Yuan and high-beta peer appreciation, but the SGD and THB have both been subject to dovish MAS and Thai CB vibes in the form of guidance and an unexpected 25 bp ease respectively, while the Try is still on the defensive due to geopolitical factors. Conversely, SA Government backing for COSATU proposals to cut Eskom debt have given the Zar and extra fillip.
In commodities, WTI and Brent futures have extended on overnight gains amid the aforementioned reports of seemingly constructive coronavirus headlines. WTI and Brent front-month futures hit fresh 2020 lows (of ~49.30/bbl and 53.70/bbl respectively) in light of a larger than expected headline API inventory build (+4.18mln vs. Exp. +2.8mln). Thereafter, prices clambered off worst levels before piggybacking on the virus headlines which, if true, could significantly improve the demand outlook for the complex. Elsewhere, OPEC’s JTC will convene for the second day of discussions later today after the technical committee reportedly did not discuss production cuts yesterday but will revisit the topic, according to delegates who noted it studied between 200-400k BPD impact on oil demand from the coronavirus. Reports also note that OPEC numbers suggest a circa 400k BPD demand impact for around six months from the coronavirus, although these forecasts are highly contingent on how long the epidemic lasts alongside any prolonged effects. Analysts at ING note that a 500k BPD of additional OPEC cuts in Q1 and a rollover of current cuts in Q2 (through to end-June) should be almost enough to balance the oil market, assuming the OPEC figures are correct and factoring in supply disruptions in Libya. Next up, traders will be eyeing the weekly DoEs with headline crude forecast to print a build of 2.831mln barrels, according to Reuters Estimates. Elsewhere, spot gold conformed to the overall risk appetite as prices briefly dipped below 1550/oz before encountering stops just below the figure. Copper continues yesterday’s sentiment-led rebound as the red metal almost wipes out a bulk of last week’s losses.
US Event Calendar
7am: MBA Mortgage Applications, prior 7.2%
8:15am: ADP Employment Change, est. 158,000, prior 202,000
8:30am: Trade Balance, est. $48.2b deficit, prior $43.1b deficit
9:45am: Markit US Services PMI, est. 53.2, prior 53.2; Markit US Composite PMI, prior 53.1
10am: ISM Non-Manufacturing Index, est. 55.1, prior 55
DB’s Jim Reid concludes the overnight wrap
With coronavirus fears continuing to ease, the last 24 hours have been kind to risk assets once again. The latest numbers show 24,324 cases and 490 deaths as of this morning versus 20,438 and 425 this time yesterday but the fact that there appears to be a slowing in independent incidents in countries outside of China and a slowing in the rate of transmission in cases outside of Wuhan province appear to be making investors more comfortable for now. While this could change, our conclusion was that these were the conditions that needed to be satisfied for markets to feel more at ease following DB’s client call with a virus expert on Monday. For those that missed it the replay details can be found here (link here).
As for markets, coming off the back of 8 sessions where by the S&P 500 flipped between gains and losses, yesterday’s +1.50% return means the index is up +2.23% in the last two sessions. The NASDAQ also rallied +2.10% yesterday – a new record high and the biggest gain since August – and the DOW +1.44% which means all three indices are back in positive territory YTD again. Also worth noting was the +4.11% surge for the NYSE FANG index meaning the index is up an impressive +9.10% in the last two sessions. Even copper – which had been on a 13-session losing run – finally joined the party, rising +1.40%.
At a micro level it was the incredible +13.73% surge for Tesla which really grabbed the spotlight yesterday though. That means the stock is up +36.35% over the last two sessions and 112% this year already. More impressive still is the 435% rally from the 2019 lows. With a market cap of nearly $160bn that also puts the company in between the nominal GDPs of Ukraine and Kazakhstan. For what it’s worth Tesla isn’t in the S&P 500 but a quick look at the index would mean it would be around the 50th largest and would have added roughly 13pts to the index this year. Incidentally, the electric car maker may soon be eligible to join the index now that it is close to posting four straight quarters of profits – the only requirement the company was short.
The more macro focus yesterday was the results of the Iowa caucus and following “inconsistencies in the reporting” we’ve finally had an update overnight. At the time of writing, 71% of the vote has been made official. Currently South Bend Mayor Peter Buttigieg is leading among delegates with 26.8%, followed closely by Senator Sanders with 25.2%, then Senator Warren with 18.4%, and Vice President Biden at 15.4%. This would be a very disappointing result for Biden, who came into the night polling in second place. Mayor Pete became the winning Moderate and while the results are not final, they stand to show the current break in the Democratic primary between the Left (Sanders + Warren = 43%) and the Moderate (Biden + Buttigieg + Klobuchar = 56) wings. Markets are not likely to react strongly to the democratic primary until you see the more Left candidates’ numbers climb higher.
Prior to this President Trump addressed the nation in his 2020 State of the Union, however there wasn’t a huge amount to report. Trump previewed his 2020 general election pitches; touting a strong economy on the back of deregulation, renewed trade deals, and lower corporate taxes, promising continued focus on immigration reforms, and pushing plans on health care changes. Staying with Trump, yesterday Gallup’s latest approval rating put the President at 49%, which is the most since he took office.
Back to markets and a quick glance at our screens this morning shows the positive momentum has continued into Asian markets with Chinese bourses leading the advance – the CSI (+1.13%), Shanghai Comp (+1.25%) and Shenzhen Comp (+2.63%). The Nikkei (+1.42%), Hang Seng (+0.47%) and Kospi (+0.58%) are also making gains. In FX, the Singaporean dollar is down -0.75% this morning as the country’s central bank said that it sees room for more easing. Elsewhere, futures on the S&P 500 are down -0.12% and Brent crude oil prices are up +1.30% overnight even as Saudi Arabia’s push for deeper output reductions to combat the drop in consumption received resistance by Russia. As for overnight data releases, China’s January Caixin services PMI came in at 51.8 (vs. 52.0 expected) bringing the composite to 51.9 (vs. 52.6 expected).
Looking ahead to today, whether the positive risk momentum continues may depend on the data. Of particular note are the ISM non-manufacturing and ADP employment change prints. The consensus expectation is for the headline in the former to tick up slightly to 55.1 however it’s the employment component which will also be watched closely given payrolls is due at the end of the week. Our economists have highlighted that this series was up a little over three points in December from its September low of 51.7. Thus, further improvement would be a positive sign given that the services sector accounts for nearly 84% of private payrolls. With respect to the ADP employment survey, it has missed the initial BLS prints over the past couple of months by fairly wide margins. Market participants may therefore want to discount somewhat its signal.
Back to yesterday where, in other markets, there was also a decent bounce back for European equities where the STOXX 600 rallied +1.64%. More interesting were some of the comments at a corporate level regarding the impact of the coronavirus. Oil giant BP suggested that one-third of global oil demand is under threat while Carlsberg mentioned that it’s breweries in China remain closed. Pandora also flagged the risk to its lucrative Asia business. Adding to these comments, one of the key Apple suppliers in China, Hon Hai, slashed its sales growth forecast range overnight to 1% – 3% (from 3% – 5% earlier). Walt Disney also said overnight that it expects the Shanghai park closure alone to reduce profits in the current quarter by $135m, assuming it is shuttered for two months, while the loss from closing of the Hong Kong park would likely add another $40m. In bond markets yesterday the risk-on sentiment saw yields move sharply higher. Indeed 10y Treasury yields backed up +7.2bps while 10y Bunds were +4.3bps higher. Brent and WTI oil retraced over 2% intraday gains to finish down -0.90% and -1.10% respectively as demand concerns mount while Gold edged down -1.31%. In credit, US HY spreads finished 11bps tighter.
In other news, yesterday’s data was mostly an afterthought in the US. The final core capex orders reading was revised up one-tenth to -0.8% mom while durable goods ex transport were unrevised at -0.1%. Meanwhile, factory orders were reported as rising +1.8% mom.
Finally, to the day ahead, where this morning the focus will be on the remaining PMIs in Europe with final January services and composite prints due. Away from that we’re due to get December retail sales for the Euro Area while in the US the PMIs are due along with the January ISM non-manufacturing, January ADP report and December trade balance. Elsewhere, the ECB’s Guindos, Perrazzelli, Lane and Lagarde are all due to speak – the latter in Paris at 12.15pm GMT, while the Fed’s Brainard speaks this evening albeit on payment innovation. As for earnings, Merck, Glaxo, Siemens and General Motors are among the highlights.
After the parabolic melt-up in Tesla’s share price on Tuesday to 968, shares have since plummeted 12% to 848 on Wednesday morning following a report that Tesla Giga Shanghai will delay Model 3 deliveries.
However, we must note, investors have been well aware of possible production woes in Shanghai for the last week.
As momentum accelerated in Tesla shares, it seems options traders refused to be left behind and call volumes have exploded higher relative to put volumes.
But the last few days have seen put volumes begin to accelerate as hedgers step in.
A senior Tesla executive said a temporary delay will be seen at the production facility in Shanghai and will affect made-in-China Model 3 car deliveries.
The executive blamed coronavirus for the delay and said restart production wouldn’t begin until Feb. 10.
However, it could take several weeks for the factory to ramp up Model 3 production to full capacity. This would undoubtedly hurt the March-quarter profit and delay deliveries of the vehicles. There are also concerns that supply chain disruptions could be seen for cars built at its California plant.
With supply chain disruptions imminent for Tesla in China, Canaccord Genuity lowered the company’s rating to a Hold after it was set at Buy.
“While we continue to favor TSLA as the leading EV juggernaut and believe the April battery day will be a critical positive milestone for investors to understand how formidable the lead is that TSLA holds, we believe patient investors will likely get a more attractive entry point,” reasons Canaccord analyst Jed Dorsheimer.
“Just as we observed a clear buy signal coming into 2020, we see the risk of China’s coronavirus as a clear headwind to the Shanghai facility, suggesting a more pragmatic position,” he adds.
Dorsheimer notes the expectations for Model 3 production of 3K units per week out of Shanghai is at risk in Q1.
“Folks are asking a lot of questions,” exclaimed Morgan Stanley’s Adam Jonas adding that “many investors are struggling to identify a strong fundamental underpinning for the move.”
“The Big Short’s” Steve Eisman has cut his short on TSLA, telling Bloomberg TV’s Tom Keene, “look, everybody has a pain threshold.”
“When a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it, and has cult-like aspects to it, you have to just walk away.”
As we’ve noted in the last days to several weeks, global automakers, already suffering from an auto bust, have had to close production lines in China due to government orders. These include Tesla, Hyundai, PSA, Ford, Peugeot Citroen, Nissan, and Honda Motor.
Guess who’s puking Tesla stock this morning? Millennials who have been day-trading the stock to pay for student loans…
There Are “No Effective Remedies” For Coronavirus, WHO Says
Yesterday’s ‘rona rally proved that even a pandemic that’s basically SARS on steroids and a suspected bioweapon unleashed on an unsuspecting global population can’t keep this market down. Markets rallied sharply on Monday after the market’s worst week of the year so far, but they rebounded Tuesday, then futures moved even higher on Wednesday thanks to reports in Chinese State Media that researchers had found a vaccine.
But just a few minutes ago, an interesting headline hit the tape that poured some cold water on the market’s boundless optimism. A spokesperson for the WHO reportedly replied that there are ‘no known effective therapeutics’ for the virus after being asked about possible cures.
Researchers across the world are scrambling to develop a vaccine, but some experts and public health officials have cautioned that this could take up to a year to successfully develop and test.
Instead of erasing its gains, the market briefly turned lower, before the intraday dip was promptly bought.
This morning’s risk-on sentiment was inspired by two reports earlier suggesting that a coronavirus treatment is near: Chinese media reported that Zhejiang University had found an effective remedy, though analysts noted that there have been similar unsubstantiated reports of late, with each being followed up by clarifications that the drugs had not yet been clinically tested, and it would take months before regulatory approval could be achieved.
Meanwhile in the UK, Sky News reported that the scientists leading the UK’s research into a vaccine claimed a significant breakthrough by reducing a part of the normal development time from “two to three years to just 14 days.” However, the scientist added that their test vaccine will be in animal models by the beginning of next week, and the next phase will be to move from early animal testing into the first human studies, which will still take “months” and likely be too late to help with the current outbreak. We wonder what time Zhejiang University will deny these reports?
So Dow gains 300 on an experimental vaccine starting tests in London…and loses 50 when WHO says ‘there is no remedy’.
Of course, this claim by the WHO spokesperson contradicts media reports that two drugs, a flu treatment and a HIV remedy, are believed to effectively treat the Wuhan coronavirus-inspired pneumonia, but CNBC’s Eunice Yoon reports that the WHO is more interested in a vaccine and other remedy made by Gilead.
Once again, trade optimism -> virus optimism. It really doesn’t take much.
“This Is Disgusting” – Furious Liberals Triggered By Rush Limbaugh’s Presidential Medal Of Freedom
Clearly, President Trump didn’t give conservative talk radio host Rush Limbaugh advance warning that he would be receiving the Presidential Medal of Freedom during the middle of last night’s State of the Union. Because the stunned look on Limbaugh’s face when the cameras panned back to him was something that simply can’t be faked.
“Rush, in recognition of all that you have done for our Nation, the millions of people a day that you speak to and inspire…I am proud to announce tonight that you will be receiving…the Presidential Medal of Freedom.” –@realDonaldTrump
Of course, the minute Melania Trump pinned the medal on the conservative talk radio host, who recently revealed his Stage 4 Lung Cancer diagnosis, we assumed liberals across the country would be incensed into an apoplectic rage, infuriated that a “racist”, “partisan” “divider” like Limbaugh had been awarded one of the highest honors in the US, which has been reserved for such luminaries as Bruce Springsteen and Tom Hanks.
Maureen Dowd was one of the first liberals to be openly triggered, reminding the world of that time Limbaugh called a Georgetown student a “slut”, as if anybody had forgotten about that.
Remember that time Rush Limabugh called a Georgetown student a slut? Yeah, that guy was just festooned with a medal of freedom by the nation’s chief anti-bullying advocate. https://t.co/A37C4dRPD7
During an appearance in MSNBC (which we imagine will devote a liberal amount of airtime to lambasting Trump’s decision to honor Limbaugh), Newsweek editor Jon Meacham slammed the president for awarding the medal (remember, Bruce Springsteen has one) to a partisan culture warrior: “You have the Medal of Freedom, an emblem of the new frontier, being given to the central architect of a reflexively partisan culture in the midst of a State of the Union that had nothing to do with union.”
.@jmeacham on Rush Limbaugh receiving the Medal of Freedom: “You have the Medal of Freedom, an emblem of the new frontier, being given to the central architect of a reflexively partisan culture in the midst of a State of the Union that had nothing to do with union.” #SOTUpic.twitter.com/kb4yTRh9aM
Even Joe Biden slammed Trump’s decision to honor Limbaugh, claiming Trump abused his duty to inform lawmakers about the state of the nation and instead turned the SOTU into a “reality show”. Biden also slammed Limbaugh for “dividing America” (whatever that means) and claimed Trump should have given the Medal to the Tuskegee Airman in the audience last night (who was also honored).
In a statement issued after Pres. Trump delivered his State of the Union address, Joe Biden criticized the president’s decision to award Rush Limbaugh with the Presidential Medal of Freedom. https://t.co/i9NqFsACLE#SOTUpic.twitter.com/xTVbkxmuW5
Of course, somebody had to play the race card, and last night, it was CNN, which claimed that Limbaugh has a long history of racially insulting African Americans, stoking some controversy on the right.
It’s time for CNN to either provide the list or apologize on air for another piece of FAKE NEWS. I believe @BoSnerdley knows Rush better than anyone at CNN. Will CNN have the integrity to put up or shut up? Waiting and watching. https://t.co/4ldB6sgTg6
I formally challenge @CNN and @Acosta to provide a list of statements Rush Limbaugh has made to “disparage African Americans” as @Acosta stated. I have listened to Rush for 30 years. NOT TRUE. It is RACIST for @Acosta to use black people as political fodder.
AOC also mocked Limbaugh and his cancer in a post and claimed his reaction – which we thought was extremely genuine – was “disingenuous”. Clearly, we process reality in a very different way than the Congresswoman.
Socialist Alexandria Ocasio-Cortez viciously *mocks* Rush Limbaugh, who has stage 4 lung cancer, calls his reaction to being awarded the Presidential Medal of Freedom “disingenuous”
Says that he, while having cancer, was a “joke,” needed an “Opera moment,” and was “nauseating” pic.twitter.com/VrsIj1Cmlj
Remember, they’re not as smart as they think they are.
Rush Limbaugh gets a medal of freedom? Give me a break. Does all the Trumpian morons get medals? What an American disgrace. I won’t miss this idiot. pic.twitter.com/GADQk0p1rQ
Across twitter, dozens and dozens are scathing comments from enraged liberals called Limbaugh every name and insult uner the sun, with many mocking his cancer and praying for his death. We’re sure they’ll be promptly suspended for violating Twitter’s community policies, right Jack?
Foxconn Extends Delay, Won’t Restart iPhone Production Until Late February
Everything is wonderful Wednesday morning, because an unverified report from Chinese state television sparked a massive surge in equity futures as the Communist Party-controlled media intimated that the coronavirus might soon be cured.
Cure or no cure, it’s clear the Chinese are going all-in on propaganda for the sake of preserving ‘social cohesion’. It might sound crazy, but it’s beyond the grasp of algos to process the likelihood that Beijing is simply trying to regain control of the narrative as they struggle to get in front of the inevitable reckoning with the true.
Economists have been trying to gauge the blowback from the outbreak as the virus begins to disrupt global supply chains, but as more factories on the mainland announce extended shutdowns and delays, that’s getting increasingly difficult to do.
Yesterday, we noted how Hyundai Motor Co. and its sister Kia Motors Corp. suspended production lines in South Korea after it was hit with a parts shortage from China as the virus outbreak broadened.
Now there is a new report that could create huge problems for America’s most valuable company: Apple supplier Foxconn said Wednesday that its facilities in China could take several weeks to resume full production, or at least that’s what one source with insider knowledge told Reuters.
Foxconn is responsible for assembling Apple iPhones in China.
We noted Monday that Foxconn halted “almost all” of its production lines until Feb. 10.
Any production delays after that could dramatically impact Apple’s iPhone shipments abroad.
Reuters’ source said full resumption for production at the company’s factories might not arrive until late February or early March.
Reports of Foxconn halting factory output in China have yet to be adequately addressed by the company, nor has Apple given details on the potential financial impact.
Morningstar analyst Don Yew said there should be a limited impact on Foxconn’s supply chain if factories are closed down in Wuhan for an extended period.
The big concern Yew said, is that if the smartphone manufacturing hub in Guangdong is shut down for an extended period, it would then start disrupting Apple iPhone shipments, possibly creating shortages of iPhones.
Might this supply chain shock in China highlight the gulf between Apple shares’ pricing and fundamentals? Looks like we’ll soon find out.
