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Thousands of athletes around the world breathed a sigh of relief on Thursday when Japanese Prime Minister Shinzo Abe confirmed that the Summer Olympics in Tokyo won’t be delayed. Then again, if the outbreak continues to worsen in Japan and the broader region, who is going to want to come if they don’t feel safe?

As the second week of global pandemic panic comes to a close, China, increasingly frustrated that their ruse with the WHO didn’t manage to calm the international community, again registered its “strong objections” to the growing number of travel bans directed at its citizens.

The warning followed a decision by Taiwan’s health authority to ban all international cruise ships from docking at the island from Thursday as the number of suspected outbreaks aboard cruise ships grows.

The global death toll has ticked higher, reaching 566 overnight, while the total number of confirmed cases has broken above 28,000 to 28,384.

More than a dozen countries have imposed some kind of restriction on foreigners who have recently visited China. Within China, images of police clad in hazmat suites and touting infrared thermometers have become frighteningly common. Many airlines cancelled passenger routes to China, and some are extending those cancellations out to March or April.

“China is strongly concerned and dissatisfied,” said a spokeswoman for China’s Foreign Ministry. “We hope relevant countries will bear in mind overall relations and people’s interests and resume normal operation of flights to guarantee normal people-to-people exchange and cooperation.”

“I must stress that certain countries’ ill-advised decisions to suspend flights to and from China are neither cool-headed nor rational,” she added.

But while Beijing tries to spin the narrative to accuse other countries of racism, some brave journalists have shared the stories of families brave – or foolish – enough to speak out against the regime.

One resident of Wuhan who has been stuck in the city since the quarantine told the BBC that his uncle died in a quarantine because of supply shortages.

The image of life in Wuhan is every bit as bad as the most chilling conspiracies would have you believe.

“My uncle actually died in one of the quarantine points because there are no medical facilities for people with severe symptoms. I really hope my father can get some proper treatment but no-one is in contact with us or helping us at the moment.”

“I got in touch with community workers several times, but the response I got was, ‘there’s no chance of us getting a bed in the hospital.'”

Beijing, which just announced a spate of new treatment-related projects in Wuhan and the surrounding area, seemingly can’t get beds online fast enough. Because the government is literally condemns some elderly patients to die in their homes.

But for people like us, we can’t even get a bed now, let alone get one in the new hospitals.

If we follow the government’s guidelines, the only place we can go now is to those quarantine points. But if we went, what happened to my uncle would then happen to dad.

So we’d rather die at home.

Many are saying that if they knew authorities would lock down Wuhan last week, they would have left for the holiday earlier.

What I want to say is, if I knew they were going to lock down the city on 23 January, I would have definitely taken my whole family out, because there’s no help here.

If we were somewhere else, there might be hope. I don’t know whether people like us, who listened to the government and stayed in Wuhan, made the right decision or not.

In news from outside China, Indonesia is reportedly planning to build a quarantine center on an uninhabited island to isolate coronavirus victims, even though Indonesia has yet to record a single case of the virus, though 243 have been quarantined on the island of Natuna.

Across the globe, health officials are racing to develop treatments and testing methods for the virus. Wuhan, ground zero of the outbreak, opened an emergency test laboratory on Wednesday to begin human trials.

Over in Hong Kong, a top public health official has declared a community outbreak, according to the SCMP.

A day after the city government revealed that it would impose a mandatory 14-day quarantine on anybody crossing into Hong Kong from China, the city government has provided some more details on how it will combat the crisis. Most of the new cases in the city are being caused by human-to-human transmission. Six people have been diagnosed with the coronavirus over the past few days, five of whom had not left the city recently. Of the 21 cases in total, eight are believed to have no travel history relevant to the coronavirus.

Circling back to the mainland, local authorities in the city of Tianjin announced on Thursday that it would ban the exit and entry of its villages and compounds, becoming the latest city to essentially quarantine its entire population. Over in Wuhan, authorities are now demanding that all residents report their temperatures at least once per day.

So, that’s 60+ million people under quarantine in China. And though the pace of new cases in the country has slowed slightly, the virus is accelerating, especially in Asia.

Authored by Sven Henrich via NorthmanTrader.com,

Once again investors are made to believe that nothing matters. Only 2 trading days after Friday’s sell off $NDX made new all time history highs. Only 3 days after Friday’s sell-off $SPX made a new all time closing high. Only 4 days after Friday’s sell off $DJIA, $SPX and $NDX make new all time human history highs in premarket. Fours day, four up gaps, all unfilled at the time of this writing. The market of the overnight gap ups.

Why? Because the economic impact of the coronavirus is over or contained? Of course not, it’s far from any of that. Shutdowns persist, warnings of individual companies are mounting i.e. $TSLA, tumbling a day after the technical warning issued,  global economic growth estimates are coming down and with them invariably take downs in earnings estimates.

What do markets do? Make new all time highs, back on the multiple expansion game from 2019 when no slowdown in earnings mattered as the liquidity injections from our central bank overlords overrode everything.

This week the PBOC injected liquidity, the Fed kept flushing repo liquidity into the system, and of course a continued buying of treasure bills.

And so markets continue on their path of never pricing in any bad news and continue to disconnect farther and farther from the underlying size of the global economy no matter the ongoing data:

German factory orders:

Baltic Dry Index:

But there are no bubbles central bankers tell us. Don’t insult our intelligence I say. Especially since they perfectly well know that policies and words are closely followed by markets and are market impacting:

Lagarde: Traditionally, as central bankers we have been more comfortable speaking to experts and markets than to the general public. Markets closely follow what we do and what we say, and surveys and studies find that we are well understood by them.

— European Central Bank (@ecb) February 6, 2020

Yet in the same breadth they tell us their polices are not to blame for the distortions created in markets.

Here’s ECB president Lagarde today in full denial mode:

They’re in denial:

Lagarde: “I wouldn’t draw the conclusion that our current monetary policy has actually been the main factor in the rise of housing prices, has actually been the main factor in the declining profitability of some banks”https://t.co/xiDgJzlH5b

— Sven Henrich (@NorthmanTrader) February 6, 2020

Don’t blame our negative interest rate policies for housing price increases or bank profitability issues.

And besides there is no housing bubble when ordinary people struggle keeping up with ever rising house prices:

ECB’s Lagarde: Don’t Sees Strong Signs Of Housing Bubbles In The Euro Area As A Whole

— LiveSquawk (@LiveSquawk) February 6, 2020

But there is no inflation they same in the same breath.

Any wonder there are trust issues:

We don’t trust you until you are honest about the distortions central bank policies have unleashed on financial markets and come clean about what would happen if you ever normalize rates or your balance sheet. https://t.co/1PTLWECXfv

— Sven Henrich (@NorthmanTrader) February 6, 2020

We don’t believe you.

And central banks in denial about the distortions they have created and continue to create is not a recipe for long term success.

Fact is they remain trapped and beholden to a market whose entire valuation scheme and price discovery mechanism remains entirely dependent on ongoing central bank intervention.

It’s a historic absurdity we are witness to and an ultimate tragedy unfolding before our eyes.

Central banks are in denial about the existence of the financial bubbles and distortions they themselves have created.
For to admit them would be to take responsibility and acknowledge that asset prices are sky high overvalued which in itself could lead to a risk off event as the admission of bubbles would lead to a loss in confidence, confidence which must always be maintained.

Central banks are residing in glass tower la la land. There is no trust, no transparency, no accountability. Only denial.

And so we see a market running on nothing but optimism despite continued disappointment about the reality on the ground:

Lions and tigers and bears. Oh my!

Virus optimism
Trade optimism
and rate cut optimism

oh my! https://t.co/tB3soMqQoV

— Sven Henrich (@NorthmanTrader) February 6, 2020

Overnight futures ramped on the news that China proactively cut tariffs. You think that’s a sign of China thinking the economic impact of the virus is contained and happy days a here again?

I wonder:

How long before people realize that China proactively capitulating on tariffs is a sign of how serious the economic impact of this virus situation actually is?

— Sven Henrich (@NorthmanTrader) February 6, 2020

Look, this tariff reduction was already agreed to. This in itself is not a rationale for further multiple expansion in markets, especially as one of the reasons for last year’s multiple expansion was based on supposed phase one terms which are now being walked back due to the coronavirus.

So you see there’s a circular drain that’s flushing down justifications for support of ever widening multiple expansion in lieu of growth projections again coming down.

Central banks are wanting you believe their policies cause no asset price distortions, don’t cause bubbles and will surely tell you they are not to blame when this bubble, that they deny to exist, eventually pops.

Central banks may have entered the state of denial, doesn’t mean investors have to. The economic impact of the coronavirus is real, but sentiment is managed with new highs in equity prices. For now. While the virus will at some point be properly contained as of now there is no verified cure and no clear visibility as of yet when the economic impacts will be alleviated, the longer it drags on the more profound the effects. The death toll has not anywhere near reached the annual deaths tolls from the common flue, but the impact is already lager then SARS and nobody knows as of this moment how far this will ultimately go, not the WHO, not China and certainly not central banks.

Reality is markets are getting ever more stretched and investors keep piling into tech even as $NDX is screaming a major warning signal.

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Following yesterday’s record 17% drop, Tesla shares are down again in pre-market trading on Thursday after the company announced it is temporarily closing stores in mainland China as of February 2. Tesla shares dropped another 5% in early trading Thursday morning ostensibly on a combination of the China news, and what probably is just a badly needed reality check after a 72-hour parabolic binge due to a short squeeze, gamma-hedging frenzy and increasing numbers of hysteric retail traders.

The company announced in an online post to its employees that it temporarily closed its stores beginning last Sunday. The move follows suit with the rest of China, which has ground to a standstill to try and control the coronavirus, which has (according to the Chinese government) killed more than 500 people. That number is in dispute. 

CNBC  translated a note that was sent to Tesla China employees on WeChat regarding the closures. It stated:

“From today on, Tesla stores are all closed throughout China. But I will answer questions online, around the clock. Online orders are still welcome. We suggest all of you stay home, and take good care of your health.”

Tao Lin, a Tesla VP in China, also helped along the company’s 17% decline on Wednesday when he announced on Weibo that cars scheduled for delivery in early February would be delayed due to the spread of the virus. Shanghai has ordered local businesses not to resume work before February 10, which means that Tesla’s production factory is also shut down. 

This, of course, led us to ask why Tesla doesn’t just set up another quarantine tent for production like they did in Fremont?

Tesla has 24 stores in mainland China and its Chinese operations have been a large catalyst for hype around the stock over the last several months, since the company’s Shanghai plant was completed. 

As for the stock, we wouldn’t be surprised to see the reality check continue. Even one of Tesla’s most ardent supporters, Adam Jonas at Morgan Stanley, issued a note Thursday morning with an underweight rating and a $360 price target – now about 50% downside – saying it is “too soon” to declare a winner in the global EV market. 

He noted the astounding volume with which Tesla has traded. Jonas says that “Tesla traded over 48 million shares on Wednesday (over 25% of shares outstanding) for a value traded of approximately $36bn. For comparison, Apple, a company with roughly 10x the market cap of Tesla traded approximately $9.5bn of value yesterday. Tesla traded nearly 4x the value of the world’s most valuable public company.”

And he also was cautious about calling Tesla the winner in the EV space, given its new entrants: “Moreover, with US and global EV penetration at approximately 2% we believe it may be too early to declare the ultimate winner in the global EV market. At a minimum, there may be substantial risk to modeling the growth and market share of a market at such a low level of maturity today.”

He concluded by noting that even the bulls he was speaking sound like they are starting to change their tone:

“We continue to engage with investors in high volume on Tesla, but noted a slight change in feedback where even some bulls on the name we have spoken with have expressed a degree of uncertainty, and in some cases, concern around the recent price action..”

Two days after dealers unexpectedly flooded the first reduced term-repo (from $35BN previously to $30BN) offered by the Fed, the liquidity shortage in the repo market – which was supposed to be temporary and few if any strategists said would continue beyond year-end – persists, and today the Fed announced that in its latest 2-week term repo (maturing Feb 20), it was $57.25BN in submissions ($35.75BN in TSYs, $21.5BN in MBS) for a maximum $30BN in available reserves.

This means that for the second time in three days, the term repo operation saw a massive oversubscription, which at 1.9x was the 4th highest ever since the Fed restarted term-repos in late September, and just shy of the 2.0x submitted-to-accepted ratio recorded on Monday.

As we concluded on Monday, “the massive demand for term repo today means that the liquidity crisis that continues to percolate just below the surface of the market and has clogged up the critical plumbing within the US financial system, is getting worse, not better, and today’s massive oversubscription indicates that one or more entities continues to face a dire shortage of reserves, i.e., cash.”

We hope that eventually someone at the Fed will address this ongoing issue which was supposed to be resolved over a month ago.

After disappointingly contracting by 0.2% in Q3 2019, US Productivity was expected to expand by 1.6% QoQ in Q4, but while it did bounce back, the preliminary US productivity rose only 1.4% QoQ. This enabled a 1.8% YoY gain in productivity for 2019…

 

Source: Bloomberg

This is the biggest annual gain in productivity since 2009…

Source: Bloomberg

Unit labor costs were also up at a 1.4% rate following a 2.5% pace in the previous three months. The report showed inflation-adjusted hourly compensation averaged a 1.9% pace in 2019, the biggest gain since 2015.

Subdued productivity has been a long-running topic of debate among economists. In an October 2019 speech, Federal Reserve Chairman Jerome Powell pointed out several possible reasons, including that the productivity slowdown may be overstated due to mismeasurement.

Earlier this week, former Fed Chair Janet Yellen said slow productivity growth is a “huge concern.”

Authored by Charles Hugh Smith via OfTwoMinds blog,

Will we wonder, what were we thinking? and marvel anew at the madness of crowds?

When we look back on this moment from the vantage of history, what will we think? Will we think how obvious it was that the coronavirus deaths in China were in the tens of thousands rather than the hundreds claimed by authorities?

Will we think how obvious it was that the virus would spread around the globe, wreaking havoc on the global economy and social order, even as the authorities claimed only a handful of cases had arisen outside China?

Will we be amazed at the delusional confidence that the U.S. economy would be untouched by the virus as stock markets quickly soared to new all-time highs while the world’s largest economy ground to a halt in a desperate attempt to close the barn door after the horses had already escaped?

Will we look back at the patently false data being promoted by authorities and wonder why the majority accepted it all as credible?

Will we re-examine all the smartphone videos posted on the web by average people and wonder why all the lies were given more credibility than actual videos?

Will we recall how content that didn’t parrot the approved narrative that everything was under control and the global impact would be near-zero was suppressed, banned, de-platformed or marginalized? Will we wonder at the complacency of all those who accepted this orchestrated suppression with such obedient passivity?

Will we look back at the claim that only twelve people in the entire U.S. had the virus, despite all the direct flights from Wuhan and the tens of thousands of people who’d traveled from China to the U.S. in January, and marvel at our credulity?

Will we look back at the wreckage left in the wake of the coordinated campaign to suppress the facts and lay the responsibility for all the carnage on the authorities who devoted more energy to hiding the realities of the pandemic than to preparing us for the impact?

Will we ponder the incredible grip of mass delusion on the human mind when we recall the confidence that the U.S. economy was invulnerable to the virus and the implosion of China, and the blithe quasi-religious faith that central banks would never let global stock markets decline even 2%?

Will we wonder how the mainstream could watch the Chinese economy shutting down and still remain absolutely confident that the global economy would be untouched as the spot of bother was sure to evaporate in a week or two and all would be restored to pre-virus euphoria?

Will we wonder what were we thinking? and marvel anew at the madness of crowds? Will we wonder why we embraced the delusion so readily, and relive the moment when the gate to reality creaked open? Will we relive our realization that we’d embraced an absurd fantasy floating on a tissue of lies, or will we bury that painful moment of truth?

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Oil futures remain in a bear market following the collapse in oil demand from China amid two-thirds of its economy shutdown following the coronavirus outbreak.

Crude rallied Wednesday on inventory builds, mostly on the hope that the OPEC+ meeting would lead to cuts. However, any gains that were seen are being quickly erased as of Thursday morning.

This forced the OPEC+ technical committee to meet in Vienna, Austria, for a third day this week, to discuss the importance of slashing oil output by at least 500,000 barrels per day (bpd), reported Reuters.

The Joint Technical Committee (JTC) is an advising body of OPEC and Russia, known as OPEC+.

As of Thursday, there’s no firm decision by the technical committee to cut oil production. This is because Russia has opposed to cuts and said it would be willing to agree on an extension of current cuts.

Ransquawk reports that the meeting has officially ended without a planned resolution of production cuts.

The technical committee meeting comes ahead of a planned OPEC+ conference on March 5-6.

OPEC+ has already agreed in December to remove 1.7 million bpd from markets in response to a slowing global economy. Now the deadly virus outbreak has created a “shock” in the global economy as China’s economy grinds to a halt. The country is the largest importer of crude in the world, suggesting that demand has collapsed, and oil prices will plunge deeper if supply isn’t curbed.

Russian Energy Minister Alexander Novak said on Tuesday that he wasn’t sure if it was time to tighten output further.

BP CFO Brian Gilvary warned Tuesday that the virus outbreak has reduced 2020 global demand growth by 300,000-500,000 bpd, or about 0.5%.

OPEC will have to cut at least 500,000 barrels a day in order to offset the coronavirus’ impact on energy demand, this analyst says. https://t.co/BoD4IiqHjJ pic.twitter.com/MK1odRhclg

— CNBC International (@CNBCi) February 6, 2020

Gilvary said the global economy is expected to weaken because of the developments in China.

Energy to industrial metal futures contracts have plunged in the last several weeks, as commodity traders sell first and ask questions later.

“The magnitude of the demand shock that we’re seeing is on par with 2008 to 2009” financial crisis, Jeffrey Currie, global head of commodities at Goldman Sachs Group Inc., said in a Bloomberg television interview. During that slump, prices fell from above $140 a barrel down into the $30s.

Commodity supply chains in China and across the world have already been disrupted. China told Chile on Wednesday to defer cargoes of copper. Crude oil and liquefied natural gas to China slumped this week to near zero.

The virus outbreak in China has led to the creeping economic paralysis that risks a hard landing. Industrial activity has collapsed, and the proposed opening of factories early next week is being pushed out even further. This would certainly create supply chain shocks that will be felt around the world.